Q1 2024 Rekor Systems Inc Earnings Call

Operator: Good afternoon, ladies and gentlemen, and welcome to today's Rekor Systems, Inc. conference call. My name is Paul, and I will be your coordinator for today.

Good afternoon, ladies and gentlemen, and welcome to today's recourse Systems, Inc. Conference call. My name is Paul and I'll be your coordinator for today, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference call is being recorded for replay purposes.

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded for replay purposes. Before we start, I want to read you the company's abbreviated Safe Harbor Statement. I want to remind you that statements made in this conference call concerning future revenues, results of operations, financial position, markets, economic conditions, products and product releases, partnerships, and any other statements that may be construed as a prediction of future performance or events are forward-looking statements.

Operator: Such statements can involve known and unknown risks and uncertainties, and other factors which may cause actual results to differ materially from those expressed or implied by such statements. We ask that you refer to the full disclaimers in our earnings release. You should also review a description of the risk factors contained in our annual and quarterly filings with the SEC. Non-GAAP results will also be discussed on the call. The company believes the presentation of non-GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes only. I would now like to turn the presentation over to Mr. Eyal Hen, CFO of Rekor Systems.

Speaker Change: Before we start I want to read you the company's abbreviated Safe Harbor statement I want to remind you that statements made in this conference call concerning future revenues results of operations financial position markets economic conditions products and product releases partnerships and any other statements that may be construed as a prediction of future performance.

Speaker Change: Or events are forward looking statements such statements involve known and unknown risks and uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. We ask that you refer to the full disclaimers in our earnings release, you should also review a description of the risk factors contained in our annual and quarterly filings with the SEC.

Speaker Change: C.

Speaker Change: non-GAAP results will also be discussed on the call. The company believes the presentation of non-GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes, only I would now like to turn the presentation over to Mr. Al N C F O of recourse systems.

Eyal Hen: Everyone, Thank you for joining us today.

Speaker Change: Hello, everyone. Thank you for joining us today.

Eyal Hen: In the first quarter of 2024, our revenue reached $9.8 million, marking a 58.1% increase from $6.2 million in the same period last year. Our adjusted gross margin for the first quarter of 2024 was 45.9%, a decline from 53.6% in the first quarter of 2023. This decrease was primarily due to lower-margin projects and adverse weather conditions in January.

Speaker Change: In the first quarter of 'twenty 'twenty four our revenue reached $9 $8 million, marking a 58, 1% increase from $6 $2 million in the same period last year.

Speaker Change: Our adjusted gross margin for the first quarter 'twenty 'twenty four was 45, 9%.

Kleinfeld: Kleinfeld 53, 6% in the first quarter of 'twenty to 'twenty three.

Kleinfeld: This decrease was primarily due to lower margin projects and adverse weather conditions in January.

Eyal Hen: Adjusted EBITDA for the first quarter of 2024 remains steady with a $9.4 million loss consistent with the previous year's first quarter. Significant developments in January 2024 included the completion of the acquisition of road traffic data, or ATD, for $19 million in the mix of cash and stocks. In February 2024, we successfully completed a follow-on offering with William Blair, raising a net amount of $26.5 million. We utilized part of this fund to redeem the senior secure notes issued in January 2023.

Speaker Change: Adjusted EBITDA for the first quarter of 'twenty 'twenty four remain steady we did $9 $4 million loss consistent with the previous years first quarter.

Eyal Hen: Part of the redemption price paid in common stock at a conversion rate of $2.50 per share. In connection with our view of the ATD acquisition, we did not have adequate internal controls in place with respect to the tax accounting treatment of intangible assets related to this acquisition, as a result of failing to correctly identify the tax impact of the transaction. We determined that, and material weaknesses exist as of March 31st, 2024.

Speaker Change: Significant developments in January 2024.

Speaker Change: The completion of the acquisition of all traffic data or a T D.

Speaker Change: More than $19 million in the mix of cash and stock.

Speaker Change: February 'twenty 'twenty four.

Speaker Change: We successfully completed a follow on offering with William Blair, raising a net amount of $26 $5 million.

Speaker Change: We utilized part of these funds to redeem.

Speaker Change: And your secured notes issued in January 2023.

Speaker Change: Part of the redemption price paid in common stock at a conversion rate of 2.5 dollars per share.

Speaker Change: In connection with our view of the ADT acquisition, we did not have adequate internal controls in place with respect to the tax accounting treatment of intangible assets related to this acquisition.

Speaker Change: As a result, well failing correctly identified the tax impact of the transaction we determined that.

The real weakness exist.

Speaker Change: As of March 31, 'twenty 'twenty four.

Eyal Hen: We are committed to improving our control processes to ensure stakeholders can continue to remain confident in the information provided by many. We have enacted a remediation plan that involves using external tax experts to review all future significant and unusual transactions. Assuming that these initiatives will be implemented within fiscal year 2024, recurring revenue increased by 18% from $4.2 million in the first quarter of 2023 to approximately $5 million in the same quarter of 2024, mainly driven by additional contracts in our urban mobility and public safety segment. However, the total contract value signed during the quarter decreased by 35.1%.

Speaker Change: We are committed to improving our control processes to ensure stake holders can continue to remain confident in the information provided by management.

Speaker Change: And acted or was there a remediation plan that involves using external tax experts to review all future significant unused usual transaction.

Speaker Change: We anticipate that this initiate these will be implemented within fiscal year 'twenty 'twenty four.

Speaker Change: Recurring revenue increased by 18%.

Speaker Change: For $2 million.

Speaker Change: In the first quarter of 2023 to approximately $5 million in the same quarter of 2024.

Speaker Change: Mainly driven by additional contracts in our urban mobility and public safety segments.

Speaker Change: However, the total contract value signed during the quarter decreased by 35, 1% to seven $8 million.

Eyal Hen: $7.8 million, and the remaining performance obligation as of March 31st, 2024, decreased by 13.2% to $22.9 million. Despite some challenges, our financial and operational strategies are positioned to capitalize on future growth opportunities. The acquisition of all traffic data and the successful capital rates are pivotal developments that enhance our operational capabilities and financial flexibility. These steps are instrumental in securing a leadership position in our industry sector. Now, I'll pass over the mic to David.

Speaker Change: And the remaining performance obligations as of March 31st 2024.

Speaker Change: By 13, 2%.

Speaker Change: 222 points to $90 million.

Speaker Change: Yeah.

Speaker Change: Despite some challenges our financing and operational strategies are positioned to capitalize on future growth opportunities.

Speaker Change: The acquisition of all the traffic data and the successful capital raise our pivotal development.

Speaker Change: Hence our operations operational capabilities and financial flexibility.

Speaker Change: These steps are instrumental in securing the leadership position in our industry sector.

David: Now ill pass over the mic to David.

David: David.

David: Thank you al good.

David Philip Desharnais: Good afternoon, ladies and gentlemen, and thank you for joining us today. First of all, I'd like to start off by saying that I am deeply humbled and honored to step into the role of CEO at Rekor Systems. It's a privilege to lead this exceptional team as we advance our mission of pioneering state-of-the-art roadway intelligence technology. I also want to extend my gratitude to our former CEO and founder, Robert Berman. Robert's vision and leadership have been instrumental in shaping Rekor's growth. I also want to take this opportunity to welcome Viraj Mehta to the board as an Executive Director.

David: Good afternoon, ladies and gentlemen, and thank you for joining us today.

David: First of all I'd like to start off by saying that I am deeply humbled and honored to step into the role of CEO at recourse systems. It's a privilege to lead this exceptional team as we advance our mission of pioneering state of the art roadway intelligence technology.

David: I also want to extend my gratitude to our former CEO and founder Robert permit.

David: Robert's vision and leadership have been instrumental in shaping recourse growth.

David: I also wanted to take the opportunity to welcome Raj Mehta to the board as an executive director.

David Philip Desharnais: I look forward to collaborating with both Robert and Baraj and our board on our financial and strategic goals as we move forward. Let's discuss our current position first. As highlighted in our last investor call, there are millions of obsolete sensors and devices scattered across U.S. roadways today. Astonishingly, transportation agencies tell us that most of these legacy devices are non-functioning or completely inaccurate, depriving them of necessary and accurate data they need to do their jobs effectively and to gain access to federal funding.

David: I look forward to collaborating with both Robert and barrage and our board on our financial and strategic goals as we move forward.

David: Let's discuss our current position.

David: As highlighted in our last Investor call. There are millions of obsolete sensors and devices scattered across U S roadways today.

David: Astonishingly transportation agencies tell us that most of these legacy devices are nonfunctioning or completely inaccurate.

Speaker Change: Depriving them of necessary and accurate data they need to do their jobs effectively and to gain access to federal funding.

David Philip Desharnais: There is clearly an opportunity to use new tools and approaches to gather data and insight, which is where Rekor is well positioned to win. As I assume the role of CEO, I want to first begin with a frank and transparent discussion about what you are buying into as shareholders. We introduced two new products, Discover and Command, which entered the market less than a year ago.

Speaker Change: Theres clearly an opportunity to use new tools and approaches to gather data and insights, which is where our recourse is well positioned to win.

Speaker Change: As I assumed the role of C E L I.

Speaker Change: I want to first begin with a Frank and transparent discussion about what you are buying into U S shareholders.

Speaker Change: We introduced two new products.

Speaker Change: Discover and command, which entered the market less than a year ago.

David Philip Desharnais: The B2G sales cycle is notoriously long, with three distinct phases. First, there is an introductory meeting to explain the technology with a data demonstration. Second, this is followed by a proof of capability where we install devices at a few sites for DOTs to monitor and validate over a period of time and against a graded criterion.

Speaker Change: The beat to G sales cycle is notoriously long with three distinct phases first there is an introductory meeting to explain the technology with a data demonstration.

David Philip Desharnais: And third, assuming a positive outcome of this proof of capability, which we have been 100% successful in achieving, there is then a procurement and deployment, typically starting with some installations on roadways that cannot be done any other way, followed by replacements of existing old tech that is failing or coming up for maintenance. Each phase in a cycle can take between three to six months, depending on the response times for each stage.

Speaker Change: Second this was followed by a proof of capability.

Speaker Change: Where we installed devices at a few sites for D O Ts to monitor and validate over a period of time and against a great.

Speaker Change: Criteria.

Speaker Change: And third.

Speaker Change: A positive outcome of this proof of capability of which we have been 100% successful in achieving.

Speaker Change: There was then a procurement and deployment phase typically starting with some installations on roadways that cannot be done any other way.

Speaker Change: I'll, let by replacements of existing old tech that is failing or coming up for maintenance.

Speaker Change: Each phase in the cycle can take between three to six months, depending on the response times for each state.

David Philip Desharnais: Despite our technology being proven to be significantly cheaper, faster, more accurate, and reliable, and massively safer for roadway workers to deploy, this process is challenging and complex for DOTs, as it disrupts long-standing, sometimes 30 to 40-year practice of the way it's always been. We have anticipated that the initial slow drip of adoption will ultimately lead to a deluge of widespread acceptance as the superior economics, operational efficiency, and data quality of our solutions become undeniable.

Speaker Change: Despite our technology being proven to be significantly cheaper faster more accurate and reliable and massively safer for roadway workers to deploy this process is challenging and complex for D O Ts.

Speaker Change: Is it disrupts long standing sometimes 30 to 40 year practices of the way it's always been done.

Speaker Change: We have anticipated that the initial slow drip of adoption will ultimately lead to a daily use of widespread acceptance as the superior economics operational efficiency and data quality of our solution becomes undeniable.

David Philip Desharnais: And as our early adopters begin to publicly endorse our technology, we anticipate the hesitation that often accompanies the company's new innovations will diminish significantly. Since our visibility into the decision-making process at DOTs is limited, we will refrain from making prognostications about the likelihood and timing of contract announcements going forward.

Speaker Change: And as our early adopters begin to publicly endorsed our technology, we anticipate hesitation that often accompanies new innovations will diminish significantly.

Speaker Change: Since our visibility into the decision making process at D. O Ts is limited.

Speaker Change: We will refrain from making prognostications about the likelihood and timing of contract announcements going forward.

David Philip Desharnais: However, what I can tell you is that we are already operating under contracts in six states where we can deploy thousands of devices simply based on task orders. Just in our current footprint alone, there is the opportunity to deploy 6,000 to 8,000 Discover and Edge units, which would equate to an estimated $200 to $300 million in cash flows to the company. As the old legacy tech continues to fill these roadways, and about 20% of it comes up for repair or replacement every year, we will be able to put in place our own devices without any new contract.

Speaker Change: However, what I can tell you is that we were already operating under contracts in six states, where we can deploy thousands of devices simply based on task quarters.

Speaker Change: Just in our current footprint alone there was the opportunity to deploy 6000 to 8000 discover and edge units, which would equate to an estimated $200 million to $300 million of cash flows to the company.

Speaker Change: As the old legacy Tech continues to fill in these roadways and about 20% of it comes up for repair or replacement every year.

We will be able to put in place our own devices without any new contracts.

Speaker Change: Okay.

David Philip Desharnais: Beyond our existing customers, we have engaged in extensive outreach to large state DOTs across the US and have executed on numerous proof-of-capability studies with constant success. Through this, we have had multiple states commit to adopting our technology, at which point they find themselves navigating through many months of internal bureaucracy and red tape, complex procurement processes, and extended funding cycles before being able to put pen to paper. This reflects the inherent challenges of the business-to-government model, particularly when it intersects with a once in a generation technology refresh cycle that has not happened for multiple decades. Along this line, I want to highlight some new developments that have occurred in recent months that have further elongated the sales process.

Speaker Change: Beyond our existing customers, we have engaged in extensive outreach to large state dot's across the U S.

Speaker Change: And they've executed on numerous proof of capability studies with constant success.

Speaker Change: And through this we have had multiple states commit to adopting our technology at which point they find themselves navigating through many months of internal bureaucracy and red tape.

Speaker Change: Complex procurement processes and extended funding cycles before being able to put pen to paper.

Speaker Change: This reflects the inherent challenges of the business to government model.

Speaker Change: Particularly when it intersects with a once in a generation technology refresh cycle that has not happened for multiple decades.

Speaker Change: Along this line I want to highlight some new developments that have occurred in recent months that is further elongated the sales process.

David Philip Desharnais: This relates to a growing federal focus on cybersecurity, specifically for AI-based infrastructure products and roadside devices that are connected to the cloud. Both the federal government as well as state DOTs are now rushing to craft data and AI policies for the first time, and these will govern the cyber and AI protocols for all such technologies. Let me cite just one real world example that underscores the reason for government concerns regarding cyber and AI on April 25th, 2024, just a few weeks ago.

Speaker Change: This relates to a growing federal focus on cyber security, specifically for AI based infrastructure products and roadside devices that are connected to the cloud.

Speaker Change: But the federal government as well as state Dot's are now rushing to craft data and AI policies for the first time in.

Speaker Change: And these will govern the cyber and AI protocols for all such technology.

Speaker Change: Let me cite just one real World example, that underscores the reason for government concerns regarding cyber and AI.

Speaker Change: On April 25, 2024, just a few weeks ago.

David Philip Desharnais: There was a cyber attack impacting a Midwestern Department of Transportation that targeted key elements of their existing legacy traffic management system. This incident is still ongoing as of today and is affecting nearly all critical operational functions and dramatically impairing the ability for them to monitor and respond to public safety. It is also impacting their critical traffic management and emergency communication systems used to provide essential alerts and updates to the public. A joint statement for relevant transportation entities acknowledged the sweeping impact experienced by stakeholders and the public. While efforts are still underway to restore essential services, exact timelines are uncertain, and experts anticipate that a full service restoration may take several months.

Speaker Change: There was a cyber attack impacting a Midwestern department of transportation that targeted key elements.

Speaker Change: Their existing legacy traffic management system.

Speaker Change: This incident is still ongoing as of today and it's affecting nearly all critical operational functions and dramatically impairing the ability for them to monitor and respond to public safety incidents.

Speaker Change: It also is impacting their critical traffic management and emergency communication system used to provide a central alerts and updates to the public.

Speaker Change: A joint statement for relevant transportation entities acknowledged sweeping impact experienced by stakeholders and the public.

Speaker Change: Well efforts are still underway to restore essential services.

Timelines are uncertain and the experts anticipate that a full service restoration may take several months.

David Philip Desharnais: This is a wake-up call for DOTs and state agencies. Incidents like these are growing in number and severity and underscore why states are rushing to implement policies to safeguard their transportation. Legacy systems will simply not cut it. Rekor has invested heavily here and ahead of the curve to support this need. Rekor's commitment to cutting-edge cybersecurity and AI aligns with emerging government policies and sets a new standard for protecting public infrastructure in an increasingly connected world.

Speaker Change: This was a wakeup call for D O Ts and state agencies.

Speaker Change: And just like these are growing in number and severity and underscores why states are rushing to implement policies to safeguard their transportation infrastructure.

Speaker Change: Legacy systems will simply not cut it here.

Speaker Change: <unk> has invested heavily here and ahead of the curve to support this need.

Speaker Change: Recourse commitment to cutting edge cyber security and AI aligns with emerging government policies and sets a new standard for protecting public infrastructure in an increasingly connected world.

David Philip Desharnais: We employ a unique and comprehensive suite of end-to-end security measures to help our customers proactively protect their transportation infrastructure, including continuous monitoring, real-time detection, and incident response plans to counter existing threats and predict new threats. Our commitment to compliance, particularly with NIST, ISO, and SOC 2 standards, as well as aligning to presidential directives, the National Defense Authorization Act, and the 2023 Build America and Buy America Act, ensures that Rekor's products meet the stringent requirements that explicitly prohibit federal entities, states, or municipal recipients of federal grants or loans from using equipment or products banned in the United States.

Speaker Change: We employ a unique and comprehensive suite of end to end security measures to help our customers proactively protect their transportation infrastructure, including continuous monitoring real time detection and incident response plans to counter existing threats and to predict new threats.

Speaker Change: Our commitment to compliance, particularly with NIST.

Speaker Change: So in stock to standards as well as aligning the presidential directives.

Speaker Change: National Defense Authorization Act and the 20th twenty-three build America and buy American Act.

Speaker Change: Or is that recourse products meet the stringent requirements that explicitly prohibits federal entities state or municipal recipients of federal grants or loans from using equipment or products banned in the United States.

David Philip Desharnais: It also ensures our technology meets the utmost technological and security standards, providing peace of mind to our public sector customers to competently choose Rekor. Given our strengths in this area, Rekor is in a leading position when it comes to being able to work to implement these policies. In a lot of ways, we're helping our customers shape and inform the dialogue for such policies. They're becoming a precursor to wide system deployments across state roadways.

Speaker Change: It also ensures our technology meets the utmost technology and security standards, providing peace of mind to our public sector customers to confidently choose record.

Speaker Change: Given our strength in this area. We court is any leading position when it comes to being able to work to implement these policies with states.

Speaker Change: And a lot of ways, we're helping our customers shape and inform the dialogue for such policies, they're becoming a precursor to wide system deployments across state roadways.

David Philip Desharnais: The need for DOTs to draft and finalize policies like this has caused a delay in the rollout of our devices across. For example, one of the largest states in the U.S. where we are engaged has delayed the procurement process by six months to finalize its AI policy. This is impacting our revenue outlook for 2024. Based on their commitment, we have modeled over 1,000 Rekor Discover and Edge systems to be purchased by the state, resulting in cash flows of approximately $35 million for the full year.

Speaker Change: The need for D O T to draft and finalized policies like this has caused a delay in the rollout of our devices across states.

Speaker Change: For example, one of the largest states in the U S where we are engaged.

Speaker Change: Delayed the procurement process by six months to finalize its AI policy.

Speaker Change: This is impacting our revenue outlook for 2024.

Speaker Change: Based on their commitment we had modeled over 1000 record discover and edge systems to be purchased by the state.

Speaker Change: <unk> and cash flows of approximately $35 million for the full year.

David Philip Desharnais: In preparation to meet this significant rampant demand, we scaled up our operation, especially making sure we were staffed adequately to fulfill a large monthly cadence of deployment. We anticipate that our teams will still be able to meet an aggressive yet condensed second half rollout to get to the 1,000 units. However, the exact cadence has not yet been communicated to us.

Speaker Change: In preparation to meet this significant ramp in demand, we scaled up our operations.

Speaker Change: Especially making sure we were staffed adequately to fulfill.

Speaker Change: Large monthly cadence of deployments.

Speaker Change: We anticipate that our teams will still be able to meet an aggressive yet condensed second half rollout to get to the 1000 units.

Speaker Change: However, the exact cadence has not yet been communicated to us we expect to be able to provide an update on this deployment on our second quarter call.

David Philip Desharnais: We expect to be able to provide an update on this deployment during our second quarter call. While this delay materially affected our Q1 results, we think that having such policies in place not only shows how serious the state DOTs are committing to getting this right but can also be an advantage as it clears the deck for mass adoption of our technology moving forward. This is a significant change in how states think about roadway operations and how they must safeguard their transportation infrastructure, and they're rising to the task with strong action.

Speaker Change: While this delay materially affected our Q1 results, we think that having such policies in place not only shows how serious the state dot's are committing to getting this right.

Speaker Change: But can also be an advantage is it clears the deck for mass adoption of our technology moving forward.

Speaker Change: This is a significant change in how states think about roadway operations and how they must safeguard their transportation infrastructure and they are rising to the task with strong actions.

Speaker Change: Okay.

David Philip Desharnais: Now let me address the company's cash burn rate. The company right-sized its organization last year but has had to subsequently scale up its data, product, sales, and engineering operations in preparation for near-term demand. We think the timing differential will resolve itself as the deployments proceed in the second half of the year. One last point I want to highlight is why I'm personally excited about Rekor and our opportunity. My background is in technology and data.

Speaker Change: Now, let me address the company's cash burn rate.

Speaker Change: The company right sized the organization last year, but it has happened subsequently scale up its data product sales and engineering operations in preparation for near term demand.

Speaker Change: We think the timing differential will resolve itself as the deployments proceed in the second half of the year.

Speaker Change: One last point I want to highlight is why I'm personally excited about record and our opportunity.

Speaker Change: My background is in technology and data if suffer was the new oil over the past two decades that I believe that data is the new software.

David Philip Desharnais: If SOFR was the new oil over the past two decades, then I believe that data is the new oil. The Volume, Variety, Velocity, and Veracity of Data, and the ability to extract high quality and unique insights from this data will ultimately determine its value. Let's take a broader view for a moment. Why is Rekor so committed to deploying its edge AI and IoT devices nationwide and offering a diverse array of solutions to departments of transportation?

Speaker Change: Volume.

Speaker Change: Variety.

Speaker Change: Lots of D and Voracity of data.

Speaker Change: And the ability to extract high quality and unique insights from this data will ultimately determine its value.

Speaker Change: Let's take a broader view for a moment.

Speaker Change: Why is record so committed to deploying its edge AI and Iot devices nationwide and offering a diverse array of solutions to the department of transportation.

David Philip Desharnais: These solutions are intrinsically valuable in their own right, generating strong recurring revenue and offering very high internal rates of return. And that's what we will be focused on for the next 10 years, at least. Looking back to the traffic technology boom from the 1960s to the 1990s, well over 1 million units, like piezo sensors, induction loops, and side-firing radars, were installed across the United States over that period. States spent an estimated cumulative of $35 billion on these deployments, with billions more in ongoing maintenance and replacement costs to date.

Speaker Change: These solutions are intrinsically valuable in their own rights.

Speaker Change: Generally strong recurring revenue and offering very high internal rates of return.

Speaker Change: And that's what we will be focused on for the next 10 years at least.

Looking back to the traffic technology boom from the 19 sixties to the 19 nineties well over 1 million units like P. S. O sensors induction loops and sides firing radars were installed across the United States over that period.

Speaker Change: State spent an estimated cumulative a $35 billion on these deployments with billions more in ongoing maintenance and replacement costs to date.

David Philip Desharnais: Today, we are just in the early stages of replacing all of that legacy infrastructure and obsolete devices, and this massive technology refresh cycle will be a two-decade growth opportunity for disruptors like Rekor. That's exciting, but that's just the beginning.

Speaker Change: Today.

Speaker Change: We are just in the early stages of replacing all of that legacy infrastructure and obsolete devices and this massive technology refresh cycle will be a two decade growth opportunity for disruptors like recourse.

Speaker Change: That's exciting.

Speaker Change: But that's just the rainbow there.

David Philip Desharnais: There's a pot of gold at the end of that rainbow, which is the data that we collect along the way across the vast majority of roadways in the country. But exciting as this is, it's merely the beginning of the story. Rekor is at the early stages of one of the largest edge IoT deployments in the Western Hemisphere. Our devices are like supercomputers that are plugged into a roadway and purpose built to be secure, connected, and modular, making them adaptable and scalable for new technologies without having to replace them in the future.

Speaker Change: A pot of gold at the end of that Rainbow, which is the data that we collect along the way across the vast majority of roadways in the country.

Exciting as this is its merely the beginning of the story.

Speaker Change: Record is at the early stages of one of the largest edge Iot deployments in the western hemisphere.

Speaker Change: Our devices are like supercomputers that are plugged into a roadway and purpose built to be secured connected and modular making them adaptable and scalable for new technologies, but they're having to replace them in the future.

David Philip Desharnais: This makes them not only useful for today but also future-proofed for tomorrow. As a critical byproduct of our device deployments, we gain the ability to also aggregate, connect, and index data from other existing roadway infrastructure that is out there. This creates a unique and comprehensive picture of everything in motion on or around roadways in real time, historically, and predictably for our customers. This is truly unique.

Speaker Change: This makes them not only useful for today, but.

Speaker Change: But also future proofed for tomorrow.

Speaker Change: As a critical byproduct of our device deployments, we gained the ability to also aggregate connect and index data from other existing roadway infrastructure that is out there.

Speaker Change: This creates a unique and comprehensive picture of everything in motion on or around roadways in real time, historically and predictably for our customers.

Speaker Change: This is truly unique.

David Philip Desharnais: Today, we're already aggregating more than 20 trillion data points in our system, and we are just getting started. We believe this approach puts Rekor on a path to create the world's largest and most comprehensive transportation data exchange and hub that will serve as the foundation of a transcontinental standardized operating system for roadways. We call this roadway intelligence, and the insights we derive from this massive volume and variety of data have enormous and durable value.

Speaker Change: Today, we're already aggregating more than 20 trillion data points in our system and we are just getting started we believe this approach puts record on a path to create the world's largest and most comprehensive transportation data exchange and hub that will serve as the foundation of the trans Continental standardized operating.

Speaker Change: Hmm for roadways.

Speaker Change: We call this roadway intelligence.

Speaker Change: And the insights we derive from this massive volume and variety of data has enormous and durable value. This is core to our strategy.

David Philip Desharnais: This is core to our strategy. In the long term, we will refine this vision and make it more accessible to investors. But on my first conference call as CEL, I want to highlight that the mobility data and roadway intelligence that we are already collecting and connecting across roadways has multi-billion dollar potential across multiple market segments and industries over time. The innovation and uniqueness of our approach is underscored by the 18 technology patents we have filed, and there are many more in the world.

Speaker Change: Longer term, we will refine this vision and make it more accessible to investors, but is my first conference call as C E L.

Speaker Change: I want to highlight that the mobility data and roadway intelligence that we're already collecting in connecting across roadways as multi billion dollar potential across multiple market segments and industries over time.

Speaker Change: The innovation and uniqueness of our approach is underscored by the 18 technology patents, we have filed and there are many more in the works I look forward to expanding more on a longer term vision at another time, but for now no.

David Philip Desharnais: I look forward to expanding more on our longer-term vision at another time. But for now, know that we are thoughtfully building for today and for the future. In closing, I would also like to reinforce that we are committed to having an ongoing and transparent dialogue with our shareholders and investors and believe it will be constructive and mutually beneficial. Part of this is that we are in the process of appointing a full-time investor relations person. All we ask is that investors be respectful of our inability to speak regarding specific contracts and conversations with DOTs due to competitive and business reasons.

Speaker Change: That we are thoughtfully building for today and for the future.

Speaker Change: In closing.

Speaker Change: I would also like to reinforce that we are committed to having an ongoing and transparent dialogue with our shareholders and investors and believe it will be constructive and mutually beneficial.

Speaker Change: As part of this we are in the process of appointing a fulltime investor relations person.

Speaker Change: All we ask is that investors be respectful of our inability to speak regarding specific contracts and conversations with D. O Ts due to the competitive and business reasons.

David Philip Desharnais: Thank you for joining us today, and thank you all for your continued support, interest, and Rekor. Your trust, support, and belief in our vision and opportunity have been the foundation of our achievement. We're not just navigating the future; we are shaping it together.

Speaker Change: Thank you for joining us today and thank you all for your continued support interesting recall your trust support and belief in our vision and opportunity have been the foundation of our achievements.

Speaker Change: We're not just navigating the future we are shaping it together.

Operator: At this point, I'll turn it over to the operator to answer any questions you might have. Thank you. Thank you. We'll now be conducting a survey.

Speaker Change: At this point I'll turn it over to the operator to answer any questions you might have.

Speaker Change: Thank you.

Operator: Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment, it might be necessary to pick up your handset before pressing the sarkies one moment. Please while we poll for questions.

Noah Levitz: One moment, please, while we poll for questions. Thank you. Our first question is from Noah Levitz with William Blair. Please proceed with your question.

Speaker Change: Thank you. Our first question is from Noah <unk> with William Blair. Please proceed with your question.

Noah Levitz: Thanks. Good afternoon, David Nehal. David, congratulations on the promotion. And Robert, best wishes as chairman. This is Noah Monfort-Louis de Palma this afternoon. To start, David, as CEO, should we expect any particular significant changes in your strategy going forward?

Noah: Thanks, Good afternoon, David and Anyhow, David Congrats on the promotion and Robert's best wishes as chairman.

Noah: This is now I'm on for Louie Dipalma this afternoon.

Noah: To start David just as CEO should we expect any particular significant changes in your strategy going forward.

David Philip Desharnais: Hi there Noah. Hey, thanks for the question.

Speaker Change: Hi, there. Thanks for the question no at this moment I would say that we're pretty locked and loaded.

Speaker Change: We've been very thoughtful in developing this strategy up till now I've been very much part of that.

Speaker Change: With the rest of the team in developing and executing against it. So the short answer is no. We believe in our path and we believe that we're making good progress against our objectives.

David Philip Desharnais: No, at this moment, I would say that we're pretty locked and loaded. We've been very thoughtful in developing the strategy up until now. I've been very much part of that with the rest of the team and developing and executing against it. So the short answer is no. We believe in our path, and we believe that we're making good progress against our objective.

Noah Levitz: And then just to follow up, at ITS Americas in Phoenix, we watched a demo for Rekor Command, and the technology is very impressive. Rekor Command is successfully deployed with at least one major Tier 1 West Coast city. What does the pipeline look like for both Rekor Command and Rekor Discovery?

Speaker Change: Awesome and then just a follow up I T S Americas and Phoenix, we watched the demo for record demand and the technology is very impressive record command has successfully deployed with at least one major tier one west coast City.

Speaker Change: What does the pipeline look like for both require command and record discover.

David Philip Desharnais: So we have a very robust pipeline across both of those platforms. And you're right.

Speaker Change: So we have a very robust pipeline across both of those platforms and you're right. The command platform is a fantastic solution and it's really well loved by the customers that use it today from.

David Philip Desharnais: The command platform is a fantastic solution, and it's really well loved by the customers that use it today. From a pipeline perspective, we're engaged in, my gosh, probably a third of the states today. And in addition to that, from a discovery perspective, we're currently, that's pretty new for us, but, you know, we're engaged already in over a dozen states as well as a significant pipeline beyond that too. So we feel like the path ahead and the adoption of our technology there is well positioned.

Speaker Change: From a pipeline perspective, we're engaged in my gosh, probably a third of the states today and in addition to that from a discover perspective.

Speaker Change: We're currently that's pretty new for us, but you know we're engaged already in over a dozen states as well as a significant pipeline beyond that too. So we feel like the path ahead and the adoption of our technology there is well positioned.

Noah Levitz: Awesome, and then just one last quick one, keeping it broad. Can you describe what you've been seeing as it relates to the competitive environment?

Speaker Change: Awesome and then just one last quick one keeping abroad can you describe what you've been seeing as it relates to the competitive environment.

Speaker Change: Thanks.

David Philip Desharnais: Yeah, you know, in every business and industry, there are going to be a host of competitors. But what we find is that when we engage with a customer, our solutions are quite different.

Speaker Change: Yeah.

Speaker Change: Business and industry Theres going to be a host of competitors, where what we find is that when we engage with the customer our solutions are are quite different.

David Philip Desharnais: What you might view as a competitive situation, we actually partner with the majority of other players in the ecosystem today. For example, in the context of command, which you mentioned, which is really targeting transportation and traffic management centers across states, there are probably 3,000, 4,000 different connection points of other ecosystem players that must surface through the environment. That environment is often an ATMS system or automated traffic management system, or it's through the command platform.

Speaker Change: You might view as a competitive situation, we actually partner with the majority of other players in the ecosystem today.

Speaker Change: For example in the context of a command, which you mentioned, which is really targeting a transportation and traffic management centres across states, there's probably 3004 thousand different connection points of other ecosystem players that must surfaced through and then that is an environment that.

Speaker Change: Says often in a Tms system or automated automated traffic management system.

Speaker Change: And or it's through the command platform, we partner with pretty much every one of the Atms partners today are excuse me providers today. So from a competitive landscape, we are providing something truly unique which is why the atms providers like to work with us.

David Philip Desharnais: We partner with pretty much every one of the ATMS providers today, so in the competitive landscape, we are providing something truly unique, which is why the ATMS providers like to work with us. So that's one dimension.

Speaker Change: So that's one dimension on.

David Philip Desharnais: On the Discover side, Discover has actually really got a clear path forward. There's little to no competition for that when it comes to AI-based roadside units that do the class count and speed collection that we do with the ability to extend to multiple other types of traffic studies. When you think about the existing roadside devices out there, which really would be the competition, they are really legacy technology from 30, 40, 50, and sometimes 60 years ago that look a lot like a rubber tube or a big construction project. So the competition there is really not direct. I think the competition there is the way that they've always done things, and this is the modernization of that legacy technology.

Speaker Change: On the discovery side discovered is actually really got a clear path forward. There is little to no competition and that when it comes to AI based roadside units that do that the class counting speed collection that we do with the ability to extend to multiple other types of traffic studies.

Speaker Change: When you think about the existing roadside devices out there, which is which really would be the competition. It is really legacy technology from 30, 40, 50, and sometimes 60 years ago.

Speaker Change: That look a lot like a rubber tube or a big construction projects. So the competition. There is really not direct I think the competition. There is is the way that they've always done things and and this is the modernization of that legacy technology.

Noah Levitz: Awesome. Thank you very much.

Speaker Change: Awesome. Thank you very much.

Speaker Change: You bet. Thanks for the question.

Speaker Change: Yeah.

Operator: Thank you. Our next question is from Michael Latimore with Northland Capital Markets. Please proceed with your question.

Speaker Change: Thank you. Our next question is from Mike Latimore with Northland Capital markets. Please proceed with your question.

Michael James Latimore: Yeah, great. Thanks. And yeah, congrats, David, on the new role here. Thanks, Mike.

Michael James Latimore: Yeah, great. Thanks, Yeah.

Michael James Latimore: Congrats David on the <unk>.

New role here.

David: Thanks, Mike.

David Philip Desharnais: So I think on that, you referenced one deal where procurement was delayed six months. Do you think you'll be able to, you know, kind of, did you say you think you'd be able to recognize that revenue this year? Or what's your thought on how that deal plays out?

Speaker Change: So I think on that you referenced one deal there were procurement was delayed six months.

Speaker Change: Thank you will.

Speaker Change: You're able to.

Speaker Change: Did you say you think youll be able to recognize that revenue this year or what's your thought on kind of how that plays out this year.

David Philip Desharnais: Yeah, you know, we believe so. We believe very strongly so. In fact, every day, we're learning more about that. But I think, in short, yes. Can't predict, you know, exactly the day of the week that's going to happen, given my remarks there, but I definitely will look forward to updating you in the next quarter. And I think we'll have some good, solid news there.

Speaker Change: Yeah, you know we believe so we believe very strongly so in fact every every day as we're learning more on that but I think in short, yes can't predict.

Speaker Change: Exactly the day of the week, that's going to happen given my remarks, there, but definitely we will look forward to updating you in the next quarter and I think we'll have some good solid news there.

Michael James Latimore: Got it. And then just in terms of the year, so we think about, you know, kind of annual revenue being maybe taking the first quarter as a baseline number and then, you know, adding that deal to it, and that's kind of a way to think about the full year. Or can you give us a little more perspective on it?

Speaker Change: Yeah.

Speaker Change: Got it and then just in terms of the year should we think about you know kind of year revenue being maybe taking that.

Speaker Change: First quarter as a baseline number and then.

Speaker Change: Adding that deal to it and that's kind of.

Speaker Change: Way to think about the full year or can you give us a little more perspective on it.

David Philip Desharnais: Yeah, you know, so, you know, we in our model, if you look at that one deal in particular that I mentioned, we modeled $35 million in our business plan for 2024. In addition to that, we believe that that will bring in an additional $50 million on top of that.

Speaker Change: Yeah. So you know we in our model if you look at that that one deal in particular.

Speaker Change: That I mentioned, you know, we modeled $35 million in our business plan for 2024. In addition to that we believe that that will do it an additional $50 million on top of that so I think the path that we set forth.

David Philip Desharnais: So I think the path that we set forth, you know, for 2024, we still believe that is where we're going to land. Again, with the caveats that there's some timing things that we're working through with the states on their policy development as such. But yes, we're confident in our approach and in the path forward.

Speaker Change: For 2024, we still believe that is where we're going to land.

Speaker Change: Again with the caveat that there are some timing things that we're working through with the states on their policy development as such but yes, we're confident that our approach and are in the path forward here.

Michael James Latimore: And then the sequential decline in recurring revenue in the first quarter, is that just tied to kind of mobile site variability?

Speaker Change: Got it okay.

Speaker Change: And then the.

Speaker Change: The sequential decline in recurring revenue in the first quarter or is that just tied to kind of the mobile site.

Speaker Change: Building.

David Philip Desharnais: Yeah, you know, that's actually a really good question. So yeah, when we do both portable and fixed studies, and in the portable business, this is actively, you know, happening day to day versus a fixed system that would be, you know, in the ground and there all the time. So the ability to go service a portable study, we're not allowed to do that in states with inclement weather. And that's just something that's mandated by the states.

Speaker Change: Yeah.

Speaker Change: That's actually a really good question. So yeah, when we do both portable and fixed studies and in the portable business. This is actively.

Speaker Change: Happening day to day versus a fixed system that would be in in the ground in there all the time. So the ability to go service a portable study were not allowed to do that in states with inclement weather.

Speaker Change: And that's just something that's mandated by state so weather plays a big role in our portables business.

David Philip Desharnais: So weather plays a big role in our portables business, and that's what we saw impacting us in Q1. We like the summer.

Speaker Change: And that's what we saw impacting us in Q1.

Speaker Change: So we like the summer we liked the summertime.

Michael James Latimore: And just last, the RPO number. That includes ATD now, right? Yes.

Speaker Change: Sure sure.

Speaker Change: Our PEO number that includes ACD.

Eyal Hen: Yeah, it's so ATD actually a lot of the revenues are on call. So they don't have a long-term contract, as we discussed in the previous earnings call. So they're not part of the RPO, say from accounting. Unknown Attendee, Zachary Cummins, Aditya Dagaonkar, David Desharnais, Eyal Hen, Rekor

Speaker Change: Yeah, So a T D actually a lot of their revenues are on coal. So they don't have a long term contract as we discussed in previous earnings calls so they're not part of the RP O per se from an accounting perspective.

Speaker Change: Mhm.

Speaker Change: Very good thank you.

Operator: Thanks, Mike. I appreciate it. Thank you. Our next question is from Roger Hawkins with RAH Capital. Please proceed with your question.

Mike: Thanks, Mike I appreciate it.

Mike: Yep.

Speaker Change: Thank you. Our next question is from Roger Hawkins with our a H capital. Please proceed with your question.

Roger Hawkins: Yeah, hi guys, David, I want to congratulate you on your new roles with the company and excited about your leadership going forward. We know one matrix for success, and this may apply or not, is the stock price.

Roger Hawkins: Yeah, Hi, guys, David I wanted to congratulate you as well as your new roles with the company excited about Europe.

Roger Hawkins: Your leadership going forward.

Speaker Change: We know one matrix for success in this may apply or not is the stock price.

Roger Hawkins: I've been patient with this company for several years. I come from the days when the stock price was about 25 dollars a share. And a year ago, we were about 415 somewhere. And now we've eroded today to a high of 183 after hours. 148.

Speaker Change: I've been patient with this company for several years.

Speaker Change: Come from the days when stock price was about 25 plus dollars a share.

Speaker Change: And a year ago, we were about 415 somewhere and now we've eroded.

Speaker Change: Today at a high 183 after hours is 148 so.

Roger Hawkins: So and I see continuing losses quarter after quarter. So I guess the question would be, when, let me compliment you first. I was glad to hear you, David, say you're, you're, you're working as an investor relations person. So it's not about just being on these calls quarterly; we can call in and ask some questions. So with continuing losses, at some point, as we deal with a turnaround, address the matrix I just mentioned as far as the stock price, that's not everything, but when are we going to see UPCLIMB out of this situation we're in right now?

And I see continuing.

Speaker Change: Order after quarter.

David: Losses, So I guess the question would be when let me compliment first I was glad to hear you David say.

David: We're working on our Investor relations person. So it's not about just being on these calls quarterly.

David: We can we can call in and ask some questions so with continuing losses at some point.

David: As we deal with a turnaround.

David: Address the matrix I, just mentioned as far as the stock price.

David: Everything.

David: But.

David: What are we going to see.

David: And up climb out of this.

David: Situation, we're in right now.

David Philip Desharnais: Yeah, that's it. That is the $60 million, $600 million question. You know, we see that every day as well as you can imagine, right? You know, we don't control the stock price, obviously, but I would say that we're very, very committed to the path forward here. And we do believe the opportunity ahead is undeniable. You know, when we look at where we are today in 2024 and what we're, what we're modeling in our business plan for 2024.

Speaker Change: Yeah. That's a that is the $60 million 600 million dollar question, we see that we see that every day as well as you can imagine right.

Speaker Change: Certainly we don't we.

Speaker Change: We don't control the stock price obviously.

Speaker Change: But I would say that we're very very committed to the path forward here.

Speaker Change: Do believe the opportunity ahead is undeniable when we look at where we are today in 2024 and in what were.

Speaker Change: What we're modeling in our business plan for 2024, we're confident we're on track for that we do have the.

David Philip Desharnais: We're confident we're on track for that. We do have the, you know, Q1 material impact, as I mentioned. So that kind of puts us in a difficult position there as it was committed verbally, but again, putting pen to paper is a different matter there.

Speaker Change: Q1 material impact as I mentioned, so that kind of put us in a in a difficult position there as it was committed.

Speaker Change: Verbally, but again, putting pen to paper is a different matter there but.

David Philip Desharnais: But that is moving along actually quite well, I will say. So this is really about being able to meet and exceed expectations. We have a very strong pipeline. The technology is very solid. So I guess what you'd have to believe and certainly what I believe is that the opportunity is large, that resource technology is well positioned, and we do have strong relationships and credibility with our customers today. So it's really a matter of time, and the time is not that long.

Speaker Change: But that is a that is moving along actually quite well I will say. So this is really about being able to to meet and exceed expectations.

Speaker Change: We got a very strong pipeline. The technology is very solid so I guess, what you'd have to believe in and certainly what I believe is that.

Speaker Change: The opportunity is large that recourse technology is well positioned we do have.

Speaker Change: Strong relationships and credibility with our.

Speaker Change: Customers today, so it's really a matter of time and the time, it's not that long. This is going to be I think a solid year ahead.

David Philip Desharnais: This is going to be, you know, I think a solid year ahead. I think that we'll see that rewarded in the stock price and also moving forward. But again, we don't control the stock price, but we're going to be sure to work as diligently and aggressively to make sure that we're meeting and exceeding those expectations. But I do understand your question.

Speaker Change: I think that we'll see that rewarded in the stock price and also moving forward, but again, we don't control the stock price, but we're going to be sure to work as diligently and aggressively to make sure that we're meeting and exceeding those expectations.

Speaker Change: But I do understand it.

Roger Hawkins: We look forward to the next quarter of a very positive uptick report. Yes, sir.

Speaker Change: We look we look forward to next quarter of a very positive uptick report. Thank you.

Roger Hawkins: Yes, sir. Thank you.

Speaker Change: Yes, Sir thank you.

Operator: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you. There are no further questions at this time. I would like to hand the floor back over to David Desharnais for any closing comments. All right. Thank you.

Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Yeah.

Speaker Change: Thank you there are no further questions at this time I would like to hand, the floor back over to David <unk> for any closing comments.

David Philip Desharnais: All right. Thank you very much, Paul. I appreciate that.

David Philip Desharnais: Thanks again, everybody, for joining us today. I'm thrilled about the opportunity to lead Rekor into the next chapter here. We have a lot of tremendous opportunities ahead.

David: Alright, Thank you very much Paul I appreciate that.

David: Thanks, again, everybody for joining us today, I'm I'm thrilled about the opportunity to lead a recording to the next chapter here, we have a lot of tremendous opportunity ahead and again, thanks for your time today and I.

David Philip Desharnais: And again, thanks for your time today. And I definitely look forward to updating you and everyone on our Q2 call. Until then, we'll speak to you soon. Thank you.

David: Definitely look forward to updating you and everyone on our Q2 call until then we'll speak to you soon thank you.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.