Rekor Systems, Inc.

Good afternoon, ladies and gentlemen, and welcome to today's Recourse Systems, Inc. conference call. My name is Matt, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. 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 prediction of future performance or events or 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 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 it's provided for informational purposes only. I would now like to turn the conference over to Mr. Robert Berman, Interim President and CEO of Recourse Systems. Thank you. You may begin.

Thank you, Nat, and good afternoon, everyone. We appreciate you joining us today to discuss Recore Systems' first quarter 2025 results. Normally, we begin our presentation by having our CFO, Eyal Hen, review the numbers. But as described in our last earnings call, we've been going through an extensive review and realignment of our operations since the end of last year. We anticipated that the market and the economy might face a period of uncertainty. For the long-term benefit of our shareholders, we felt it would be less important to concentrate on future projects at this point than it would be to emphasize the revenue potential of what we've already achieved. As you've been told repeatedly, ReCore has seen adoption of its tech and is now in the early stages of launching it into larger markets that are overdue for it. Competitors are racing to catch up, but everyone is meeting the current challenges in the markets and the economy. So for now, we want to remain focused on exploiting the commercial potential of what we've already produced. So it's important to put the numbers Eyal discusses into perspective. As we began our review process, we prioritized steps that would immediately reduce our expenses. In some cases, this led to a temporary increase in expenses, but you'll see solid evidence of the success of these efforts. These expense reductions haven't been done blindly, and they're not finished. But our overall objective was to position ReCore for stronger, more predictable, and scalable growth moving forward. We've learned that our prior approach, while visionary, was not sufficiently grounded in the revenue-driven execution our shareholders deserve. We spent too much time building a company in anticipation of growth rather than ensuring that our approach and leadership were structured toward delivering revenue, sustaining revenue against defined milestones. That was a mistake. and it needed to be addressed. Beginning in Q2, ReCore is implementing a new general manager structure to sharpen our focus on customers and accelerate the adoption of our products in a way that produces a business with sustainable revenues. We've been in the process of evolving the structure over the last few months and expect you to see the benefits very shortly. Under the structure, each core business unit is led by a dedicated general manager with clear profit and loss responsibility. By reorganizing into focused units, we aim to improve operational accountability, foster greater innovation, and enhance our customer focus. This structure also positions ReCore to scale revenue more effectively as we expand our reach into domestic and international markets. Our new GM structure is anchored by experienced leaders who bring deep industry expertise and a global perspective to ReCore. One of these is Mark Phillips. a seasoned roadway technology executive with significant international experience. Mark's global background at Qfree and elsewhere in scaling businesses will help position ReCore's solutions on a worldwide stage. He will leverage his international expertise to drive global market penetration and ensure that ReCore's offerings meet the needs of customers across different regions. Mark's leadership is also expected to strengthen ReCore's domestic presence. aligning our products with international opportunities and partnerships. Mark is both a talented business leader and a skilled electrical engineer. In the early 2000s, Mark founded a company that developed an innovative data logger used by DOTs around the world, which was later acquired by Q-Free, a Norwegian technology company specializing in intelligent traffic systems. The company operates globally with offices in Europe, Asia, Australia, and the Americas. And following the acquisition, he remained with Q-Free to help establish a global distribution network. We expect the full scope of our organizational changes to be completed and are formally announced in Q2. Leaders will manage their respective business units with an entrepreneurial approach, enabling each unit to respond quickly and effectively to customers' needs. The GMs will be supported by shared services, including engineering, which is now led by Shobit Jain, as Chief Product and Technology Officer. Shobin has held senior leadership roles at both VERA Mobility and HERE Technologies. He served as Vice President of Product and Innovation for Government Solutions at VERA Mobility, a leading provider of smart mobility technology solutions for government agencies and commercial fleets. He was previously Head of Innovation at HERE Technologies, a global leader in mapping and location-based platform services. Under the GM structure, ReCore's operations are now organized into dedicated business units centered around our customers' needs in each of our core solution areas. Each unit is empowered to focus on its product portfolio and customer base, enabling more agility and specialized attention. By restructuring ReCore around these solution-focused units, each led by strong management, we can better serve the needs of each new and existing customer. Customer centricity is a core objective, and each GM is tasked with staying close to the customer base and their domain, and rapidly responding to feedback and tailoring offerings to solve specific problems for those user groups. The shift to a GM structure-led organization is designed to deliver several strategic benefits. Greater accountability, where each GM will be responsible to build a team that focuses on sustainable growth within their own segments. Enhanced innovation. By giving them more control, each unit will be able to concentrate on innovations that are most valuable to their customers on a near-term basis. Top priority in product development will be given to customer value. Improved customer focus. By concentrating more intensively on the needs of new and existing customers, our teams will be more focused on learning what their current needs are rather than imagining what their needs might be in the future. Scalable revenue growth. By concentrating on distinct product lines and regions, each unit can pursue growth opportunities more effectively. Mark Phillips' international expertise, for example, will help replicate successful go-to-market strategies across global markets. This focused approach lays the groundwork for scalable revenue streams as each business unit expands its market share. The new structure also makes it easier to integrate future acquisitions or partnerships directly into the relevant unit, fueling further growth. We expect the structure to unlock new levels of performance, resulting in a more agile company that can sustainably scale revenue and maintain a leadership role in our industry. So thank you for your continued support as we embark on this new chapter, and we're confident that these changes will drive meaningful improvements in our operations and accelerate Recore's growth trajectory on a global stage. Now I'll turn the call over to our CFO, Eyal Hen, for a deeper look at our financial results for Q1 2025. Eyal?

Thank you, Robert, and thanks to all of you joining us today to discuss our first quarter of 2025 results. We reported revenue of $9.2 million for Q1 2025, representing representing a 6% decrease compared to the same quarter last year. Despite this reduction, we achieved a $2 million improvement in our adjusted EBITDA loss, thanks to meaningful reductions in our operating expenses. Revenue was impacted across all three of our business segments. Factors such as adverse weather conditions in the Southeast, delays in contract signings, and budget constraints from DOTs and public safety agencies, largely due to the uncertainty surrounding the new administration, created significant headwind to sales execution. That said, we did see stability in our recurring revenue, which totaled $5.1 million for the quarter, making a modest 3% increase from Q1 2024. Adjusted gross margin for the first quarter of 2025 was 48.2% up from 46% in the same period last year, primarily driven by a higher mix of margin-accretive offerings. Looking forward, we anticipate continued gross margin expansion, supported by growing share of SaaS-based revenue and increased contributions from our pay-for-data contracts. Adjusted EBITDA loss was $7.4 million, significantly improved from $9.4 million in Q1 2024. This was the result of the efforts Robert mentioned to optimize our cost structure, which we started in November of 2024. Moving forward, we will continue to work toward steady declines in adjusted EBITDA losses as revenue grows, supported by an improving gross margin. It's worth noting that our cost optimization initiatives, which included targeted workforce realignment and voluntary compensation reductions in exchange for equity, were initiated to improve our cash flow and operational efficiency. By sharpening our focus and reducing expenses, we have been able to deliver tangible financial benefits. As a result, Operating expenses in Q1 2025 were significantly lower than they would have been without these initiatives, contributing directly to our nowhere EBITDA loss. Remain diligent in managing our cost structure as we balance growth investments with path to profitability. Our first quarter in 2025 was affected by seasonal and other factors that we do not expect to continue throughout the year. Looking ahead, we anticipate continued improvement in adjusted EBITDA as we progress through 2025. The combination of revenue growth and expanding gross margins gives us confidence that our adjusted EBITDA losses will keep narrowing down in upcoming quarters. We expect gross margins to improve steadily, driven by an increasing mix of higher margin SaaS revenue and data services, as well as efficiency in our delivery of solutions. At the same time, our cost optimization efforts are ongoing. We will maintain the discipline that we established last year, ensuring that any expense growth stays well below our revenue growth rate. In practical terms, this means we plan to deliver sequentially better EBITDA results as the year unfolds, supported by both top-line momentum and margin expansion. Our sales pipeline remains strong and remains encouraged by the traction we're seeing with State Department of Transportation and public safety agencies. As these opportunities convert into revenue, the incremental sales should flow through at higher contribution margin, further bolstering our profitability. We are also targeting additional operation efficiencies in 2025, which we expect will help offset inflationary pressures and sustain the trajectory of EBITDA improvements. Overall, our goal is to exit 2025 on significantly stronger financial footing than we entered. We are working toward achieving break-even adjusted EBITDA in the foreseeable future. And each quarter, we intend to move closer to that milestone. The first quarter's results, while not where we ultimately want them to be, show that we are making progress in the right direction. Before I conclude, I want to acknowledge our shareholders. We recognize that our Q1 performance came in below our expectations. and likely below the expectation of some of you listening today. We do not take this lightly. Rest assured, the entire management team is focused on improving execution and delivering the results you expect from us. We have a clear plan in place to drive growth and margin improvement, and we are confident in our path forward. Importantly, we are grateful for the continued support and patience of our investors as we navigate these changes and strive to unlock record's full potential. Your support has been crucial as we implement necessary changes and invest for future success. We remain committed to building shareholder value and rewarding that trust through our actions and results in the coming quarters. Thank you for your attention and for your support. We are confident that the steps we've taken to optimize cost-directing our capital structure and drive growth will position Ricoh for improved performance throughout 2025. Now I'll turn the call back to Robert. Robert?