Rekor Systems, Inc.

Good afternoon, ladies and gentlemen, and welcome to today's ReCore Systems, Inc. conference call. My name is Maria, 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. 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 may be construed as predictions of future performance or events are forward-looking statements. Such statements can involve known and unknown risks, 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 filing with the SEC. Non-GAAP results will be also discussed on this 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 want to turn the presentation over to Mr. Eyal Hen, CFO of ReCore Systems.

Hi, everyone. Thank you for joining us to discuss our results for the six and three months ending June 30, 2023. We're excited to share our continuing progress with you. I'd like to begin by underscoring our continuous revenue momentum and the accelerated achievements we've seen recently. Our journey on the rapid growth trajectory began with the strategic acquisition of the company formerly known as Waycare in September of 2021. This acquisition not only marked a significant milestone for us, but was seamlessly integrated, becoming the cornerstone of our RECOR command AI transportation management platform. Building on that milestone, in June of 2022, we closed the acquisition of the company formerly known as Southern Traffic Services, STS, which has now been integrated and flourished as the RECOR Traffic Services Division of RECOR. The second integration was the linchpin to the recent introduction of our RECOR Discover urban mobility platform, delivering a breakthrough AI-based approach to calm, class, and speed studies for the state departments of transportation and municipalities. All this underscores our ability to recognize growth catalysts, swiftly execute on them, and successfully achieve synergies and drive expansion by integrating people, processes, and technologies into the heart of our business operation. As a result of this achievement, we're pleased to highlight an unprecedented top-line growth. We have witnessed consecutive quarters of remarkable quarter-over-quarter growth above 35%. It's notable that we were also able to achieve this quarterly result while simultaneously reducing our SG&A expenses. We think we have demonstrated that we can be financially prudent even as we integrated significant acquisition. It's also notable to mention that we achieved this while continuing to make key investment in our future through research and development. While we are seeing expansion in both our non-current and recurring revenue channels, our recurring revenue as a proportion of our total revenue is on an upward trajectory. We are confident that this trend will persist as we tap into the abundant opportunities that lie ahead. As such, we are maintaining our earnings guidance for 2023 as announced before. Now let's talk about some other significant additional details for Q2, highlighting the tangible growth and forward momentum we have experienced We're pleased to share that the proportion of recurring revenue in our overall revenue portfolio for the three months ending June 30, 2023, stood an impressive 67.4%, up from 56.2% in the same period the prior year. This upward trajectory was sustained over the first half of 2023, registering at 67.6%, compared to 56.5% during the same timeframe in 2022. These figures underscore the successful execution of our strategy to concentrate in generating recurring revenue, putting us on the path toward enduring strength and stability. Our fiscal discipline is further highlighted in the first half of 2023 where we achieved a commendable reduction in cash use for operations, down to $19.2 million from $23.1 million in the same period last year. It's worth noting that our 2023 figures include one-time payments for accrued accounts payable from 2022, professional fees, and deployment of new systems. Adjusting for this, our actual cash expenditure was approximately $12.5 million for the first six months and just a bit over $5.5 million for Q2 of 2023. This showcases our commitment to efficient financial management as we position RECOR for growth and scale. Turning your attention to the financial metrics for the period ending June 30, 2023, and other recent developments, I'll cover several promising trends in all of our key metrics. Due to 2023 revenue, we achieved a robust $8.6 million in revenue, suppressing consensus expectations and showcasing a remarkable 132.4% surge from the $3.7 million recorded during the same period in 2022. Our first six months of 2023 revenues totaled $14.7 million, up 121% from the $6.7 million of the same period in 2022. As mentioned earlier, our revenues have continued to grow organically in all of the quarters since the operations of our recent acquisition have been fully included. As demonstrated by revenue increases of more than 35% quarter over quarter. Turning to adjusted gross margin, we've also seen remarkable improvement in this category, up to 51.8% for the second quarter of 2023, from 39.4% in the second quarter of 2022. This performance has been fueled by new valuable technologies advancement and the use of automation and process controls enabling us to optimize costs and bolsters margins. Operating losses. As a result of our improved margins and reduction in SG&A expenses, we have successfully decreased our operating loss from $15.7 million in the second quarter of 2022 to $10.3 million in the second quarter of 2023. Furthermore, The first half of 2023 saw a reduction from $28.4 million in the corresponding period in 2022 down to $23.0 million, even as we worked intently to complete the integration of the STS acquisition. Adjusted debita for the second quarter of 2023, the loss stands at $7.2 million. a significant improvement of over 40% from the $12 million in the same period last year. For the first six months of 2023, we reduced the EBITDA loss by 23.5% to $16.5 million, down from $21.6 million in the same period last year. The quarter-to-quarter improvement from Q1 2023 was roughly a $2.3 million reduction or approximately 24%. We anticipate this trend to continue as we continue to grow our top line and manage our operating expenses prudently. As we have moved forward, we've borne one-time expenses linked to payable management, asset and inventory system deployment, and associated professional services. We continue to maintain a disciplined approach on operating expenses, and diligently review each of our financial metrics with the objective of strategically allocating resources to areas that provide the best opportunities to drive revenue acceleration. To provide a more granular insight into our upward trajectory, we've been providing enriched key performance indicators. Our goal is to empower you to assess not only our prowess in obtaining new contracts, but to appreciate the enduring value these contracts bring to our performance commitments. In the second quarter of 2023, we secured contracts worth of $17.6 million, a 411% increase over the $3.5 million total contract value in the same quarter of 2022. Additionally, for the six months ended June 30, 2023, we secured contracts worth of $29.7 million, a 497% increase over the $5 million total contract value in the same period of 2022. Finally, as of June 30, 2023, our remaining contract performance obligations stood at $31.8 million. a notable jump of $10.4 million, or 48%, when compared with $21.4 million as of December 31, 2022. We project that approximately 69% of the residual performance obligation as of June 30, 2023, will be realized in the coming 12 months. Moving to our financial conditions and liquidity, in January, we completed closing of senior secured notes in the aggregate amount of up to $15 million, led by our CEO Robert Berman, with participation from other new and existing investors. At closing, $12.5 million was funded. In March 2023, we also completed a registered direct offering of $10 million. This transaction gave us the liquidity we needed to continue and execute our strategy. Our cash balance on June 30, 2023 was $2.4 million, an increase from $1.9 million as of December 31, 2022. In July, a warrant holder exercised his warrant, which resulted cash proceeds of approximately $11 million. Our working capital position has also improved significantly. As of June 30, 2023, we had a working capital deficit of $1.7 million as compared to a deficit of $6.2 million as of December 31, 2022. The improvement in working capital was primarily due to an increase in cash and cash equivalents and accounts receivable. In summary, we are pleased to see continuing strong results and synergistic impacts from our strategic move. This continues to give us confidence in our forward-looking guidance and the company's upward trajectory, operational efficiencies, and commitment to long-term growth and shareholder value generation. With that, I will now turn the call over to David. David?

Thanks, Eyal. Good afternoon to everyone joining us on the call today. As Eyal covered earlier, with the financial metrics, Q2 represented another quarter of solid execution and revenue growth across all business lines. This was accompanied by new breakthrough product and technology deployments, operational efficiency gains contributing to significant margin improvements, new key public-private partnerships for the RECOR partner network, and significant national news and media coverage on the unique value that we are delivering to customers. All of this contributes to our record 17.6 million in total contract value and margin improvements achieved in Q2, a new high watermark for RECOR. In the quarter, we've gained new customers and expanded contracts with existing customers across all of our product lines, including public safety and licensing, urban mobility, and transportation management. For public safety and licensing, Some Q2 highlights include a significant increase in the adoption and contract expansion for our AI-based vehicle recognition and insights across OEM licensing partners, reseller channels, and through our direct sales efforts for leading law enforcement agencies in New Jersey, Illinois, California, Florida, Oklahoma, and more. Given that 70% of all crime involves a vehicle, our leading Scout platform, which provides AI-based real-time vehicle recognition, continues to be a proven mission-critical solution that local, state, and federal law enforcement agencies increasingly depend on to support officers as they work to reduce crime in the cities and communities they serve. One example for Q2 was the national news coverage ReCore received in Fox Business for the indispensable role that our AI technology played in aiding Westchester County in New York to crack a major and very public drug trafficking and weapons investigation. In addition to our direct sales efforts in the quarter, we also added and expanded multiple value-added reseller relationships that will further accelerate our go-to-market activities moving forward. Switching gears to our urban mobility product line, in Q2, we continue to see significant interest, engagement, and expanded deployments of our Discover platform count, class, and speed applications for permanent and short-term studies across departments of transportation in South Carolina, Georgia, and Florida, as well as 11 additional states across the U.S. that are in initial stages of deployment and assessment. In addition to gaining footprint in Q2, ReCore was also featured across multiple local and state television news stations in South Carolina, Georgia, and Florida, highlighting the important work that we are doing to help states use our leading-edge vehicle classification, count, and speed to prove and to recover federal dollars back to their states to fund infrastructure investments. For the Urban Mobility product line, We are head down and in full execution mode here and believe our technology continues to significantly outperform all other approaches currently on the market. In addition to being able to uniquely capture all 13 specialized Department of Transportation vehicle classes across multiple lanes, at highway speeds, at high volumes, day and night, in all kinds of weather, our Discover platform does all of this in real time at a fraction of the cost and without having to block traffic for long periods or having to dig up the roadway. Our solution is non-intrusive and is implemented using AI from the side of the road without shutting down lanes for construction and or putting roadway workers in harm's way. In addition, over the past quarter, we've been building and proving out a commercial-based solution using the same Discover AI technology that has proven to unlock unprecedented customer insights and growth for brick and mortar businesses, enabling them to better attract, engage, and serve their customers. We call this newly launched Discover application Vehicle Insight. By fusing our cutting edge AI and unmatched expertise in roadway intelligence, our new Vehicle Insight application goes beyond mere data to provide businesses with unparalleled immersion into the end-to-end customer journey right from the moment a customer drives onto a property. As a part of the vehicle insight application, companies can access and facilitate a rich set of features and capabilities on demand, including loyalty programs, premier customer services, and access visitation metrics that assist in the analysis of traffic flow patterns, helping organizations to better understand prepare and plan for customer volume fluctuations, vehicle characteristics that provide vehicle analytics, such as state of origin of the vehicle, to help with geo-based marketing efforts, plus electric vehicle statistics, delivering EV volumes and patterns to support data-driven EV services and initiatives. From restaurants, shopping malls, and major retail outlets, to hotels, theme parks, casinos, resorts, and more, our vehicle insight application gives bricks and mortar businesses real insight into customers' desires and needs in real time so they can better shape the customer experience and drive growth. Turning our attention to our third product line, transportation management, in Q2, we also continued to expand our footprint and presence with our command platform. while at the same time delivering new innovations into the market. Building on our recent win in Q1 with Texas Department of Transportation, where we are being deployed at the backbone of their entire new traffic management system across the state, which, by the way, is the largest roadway network in the United States. Well, in Q2, we extended our relationship into multiple other districts across Texas, including our new contract and expansion into the Central Texas Regional Mobility Authority, otherwise known as CTRMA, for incident management. This new multi-year contract with CTRMA further solidifies and enables our ability to service multiple agencies across Texas with a single source of truth and a single pane of glass as they work to build smarter, safer, greener, and more equitable roads based on our RECOR partner network, and our RECOR technologies. One final area to highlight for Q2 is the public-private partnership that we have forged with some of the most prominent academic institutions in the U.S. and on an international scale in the areas of data and analytics, transportation, traffic, and infrastructure engineering. Along this line, we're pleased to announce our collaboration with Tel Aviv university specifically with their distinguished laboratory for ai machine learning business and data analytics or lambda for short much more to come in this domain and i look forward to providing continued updates on this front in conclusion i want to thank our talented team for their ceaseless dedication our partners for their trust and our shareholders for their unwavering confidence in our journey the future is bright and we're driving at full speed at this point I'll turn the call over to Robert Berman, our CEO and chairman of record for final remarks. Robert.