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spk00: Good day, ladies and gentlemen, and welcome to the Route 1 First Quarter 2022 Investor Update Conference Call and Webcast. At this time, all participants are in a listen-only mode. Shortly, we will begin with the formal presentation. As a reminder, ladies and gentlemen, this call is being recorded today, Wednesday, May 25, 2022. I would now like to turn the call over to Tony Buseri, Route 1's President and Chief Executive Officer.
spk01: Good afternoon, everyone, and thank you for attending the call today. Let me move through the performant part of this. I need to relative the legal notices. As described on the accompanying slide, I'd like to inform listeners that this presentation contains statements that are not current or historical factual statements that may constitute forward-looking statements. These statements are based on certain factors and assumptions, including expected financial performance, business prospects, technological developments, and development activities and like matters. While Route 1 considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. These statements involve risks and uncertainties, including but not limited to the risk factors described in reporting documents filed by the company. Actual results could differ materially from those projected as a result of these risks and should not be relied upon as a prediction of future events. The company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events, except as required by law. Estimates used in this presentation are from company sources. Lastly, I also need to point out that on today's call, we will use names that are either registered trademarks or trademarks of Route 1, Inc. in the United States and or Canada. Moving ahead now. We've recently, over the course of the last few months, been talking a lot more about the pivot we're making around our sales focus. And specifically, we call it the paradigm shift for growth. We are moving quite aggressively towards being a turnkey engineering services company. that's leveraging video and sensor capture technology still to deliver real-time secure actual intelligence for our clients. We think and we believe we've seen in the marketplace that the investments we've made in the video capture area are attractive to the market and are producing good return to growth opportunities for the company. One of our differentiators will always be our engineering team. whether it's software engineering or network engineering, we come from a space where we first showed up as a company through our software engineering and cybersecurity bona fides with the MobiKey technology. MobiKey continues to be an important flagship technology for the company, and it's now more part of our culture and the way we deliver on our turnkey engineering services. Again, our technological focus is leveraging around video and sensor capture technologies. If you've been with us as a shareholder over the last couple of years, you know that license plate recognition technology with our partner Genetech is a core part of those technologies that we resell and add significant value around, as well as body-worn cameras, drones, and surveillance video. As we move forward through 2022, we will be more productive in the video surveillance arena, as well as access control, leveraging the Genetech technologies. So that highlights how important Genetech is to us. Yes, we are a dealer for them on their technologies, but we also are a technological partner, as evidenced by the Mobi LPR software application that we brought to market a couple of months ago. When we talk about turnkey engineering services, quite often you think of transactional type of business. Someone has an issue. The professional services company comes to the table, scopes out the opportunity, provides a design or an engineering solution. They then manage the project, acquire the resources to deliver on that installation configuration on-site services, and then they walk away. We are not planning and we will never be a transactional firm around the deliverance of video capture or sensor capture technologies. We think the optimization of those capital and software investments by our clients is a critical part to who we are. That can go as far as integrating in multiple data sets. It can go to how we represent on a real-time basis through dashboards, the output that comes from the capture and the AI that's being deployed. And then obviously what follows through is the continued support and configuration adjustments, servicing, updating, et cetera. So we see our relationship with the customer as cradle to grave. And what does that fully mean? I mean, it's through the primary transaction to supporting them through growth or adjustments and secondary transactions and continue with them for a number of years. When we bought PCS Mobile, we acquired a stable of clients that had been using PCS and the Genetech AutoView technology for a few years, and we're proud now that we have clients that have been with us six, seven, eight years. Our goal is to continue to build on our competencies in this area, and more specifically, it goes to how one uses the data. So operations optimization really is focused around the data that's being captured. and whether that's the transport and the underlying security, again, whether it's the presentation analytics, that's an area that we have some expertise in in certain elements of this, and we will invest directly by developing our own technologies or partner with players that have developed them, and we can augment and improve their technologies and bring them to the marketplaces. What it goes to for me in recent discussions with our board and certain key customers has been what differentiates ourselves. And I think in many ways it goes to the punchline, again, we're not transactional, that we're going to work with our clients through not just the investment, but then getting the return or no pun intended, the ROI on an investment our client makes. And the client will range from a campus, to a public safety organization like a police force to a K-12 school through so many scenarios we are facing in society today where we want to create safer environments for our children and for our, you know, for other participants at the higher learning arenas. So we see ourselves, public safety being a very important part of that as well. And then enterprises. We have certain technology companies based in California that have large parking areas and they use LPR as part of what they deliver as a value to certain employees or all their employees. So again, LPR is not just about creating more revenue for licensing and permitting. It goes to public safety. It goes to convenience for employees. It's a technology that's being adopted more and more widely as we move forward. Look, our expertise in this area isn't necessarily writing the code that captures the video capture and then artificial intelligence to give the reads. It's about using the data and looking, again, at multiple data sets and getting the value out of that collected information. From a shareholder perspective, this doesn't surprise you because I know I've written about it. We want to deliver the value proposition to our clients through a recurring revenue model. And we were a leader in our software application business or through the mobile key technology of delivering a software as a service, an annual recurring revenue stream. And the support we deliver to our LPR clients is driven around the same structure, annual pay in advance, support relationships that's equitable. It defines what the client expects under a service level agreement and it defines compensation for us that reflects the type of service or support that we're providing our particular client. At the end of the day, people want to capture data because they want a better outcome. It's as simple as that. Again, it could be safety or economics And when we deliver that, we want it to be in a format that's actionable and it's sustainable. It creates that outcome going forward, not just for a day in the most simplest way of describing it. That is our business model going forward. It's a lot clearer. It's crisper. We're a turnkey engineering services firm that's focused on using video and sensor capture technology, and we bring to the table the data security and the engineering capabilities that very few other service providers, if any, can deliver. But let's talk about the results now as we shift from the business model specifically to the quarter. I've been fairly open dating back to last fall that the headwinds we faced on the global supply chain issues particularly in the hardware or the technological verticals that we're in, has impacted our revenue and would impact our earnings. Look, there still are headwinds there. I don't think they will change in the next quarter, but what we have done is tried to adjust through it and focus, as we talked about earlier and through prior releases, in areas that we can control our own destiny, control the revenue streams, control the profitability. So Q1 is slightly better than Q4. You're going to say, well, the revenue is down. It is, but one of the things I said to you in my communications is that transactional revenue, particularly in today's type of market, is lumpy. Do I expect Q2 to bump back up to a level that's more analogous to what we saw last year on a quarterly basis? Yes. But what we're really, really, really focused on is the gross margin that drives the EBITDA and the free cash flow. And so my greater goal is to get us back from the mid-400s level of EBITDA to $700,000 plus a quarter. We had improvement from Q4 to Q1. I hope to see that also in Q2. No guarantees around it. We had a very small amount, but it was net income versus a net loss. And we think it's a small step towards that paradigm shift we have around our growth engine. So nothing to write home about, but definitely a quarter that gives you a feeling of the effort we're making to adjust the revenue model and create value that's sustainable. Again, there's that key word for our shareholders. One of the things you do during tougher economic times is really take a hard look at your fixed costs and you tighten up in that area. And I think as you can see here, we've made some significant adjustments from Q3 of last year to Q1 of this year, and particularly against Q4 of last year, where we've reduced general administrative fixed costs and we've reduced some of our selling and marketing fixed costs. Why are we doing that? And why are we asking more of our employees right now in our number one asset, our talent, And that is because while the revenue and gross profits adjusted down a little bit, we need to also adjust our fixed costs. So as we move forward, we're not going to all of a sudden open the floodgates and ramp back up to $2.4 million a quarter in fixed costs. But there will be minor adjustments to reflect the fact that you might add another help desk person, those type of things. So in some ways, semi-variable costs. But we have this under control. I made this commitment going back to last fall again. I reiterated it a couple times. From our board down, people are making a commitment to tighten our cost structure and be responsible to our shareholders. If I move forward and talk about MobiKey for a second, I quite often still get asked about it. And that's particularly because we have some investors that came on when we were simply a MobiKey or a security software or cybersecurity technology provider. We've, good, bad, or otherwise, the Mobikey user base has come back as COVID has subsided, particularly in the southern states of America. And as government budgets have been dramatically cut in the IT area, particularly within the US Department of Defense, we are now working at a base that still is above the number of users pre-COVID, but it's not as big as it was during the height of COVID. So MobiKey is an interesting spot. It's a niche technology that does have applications, does have use cases, but it is not going to be the single driver of our growth and our profitability going forward. It's important to our talent and team members that support it. They know how thankful we are for the work they continue to do. But we as a company are no longer simply about MobiKey. We do a lot more in the engineering space. So moving on, let's talk about the things that have started to reflect the strategy or the tactics that we've invested in around sales. This is a very simplistic slide, but we ended last year with slightly less than $600,000 in revenue that's directly related to support contracts. As we finish Q1, or as we stand fairly close to today, were about 700,000. And I would expect, as you can see from the note here, that over the course of the summer and by the end of the year, that will continue to get tweaked up. Why is that? Well, we have roughly 140 or so LPR clients. They renew fairly well evenly over the course of a year, so call it 12 a month. So each month we go through a renewal, what we're doing is sitting down with our clients talking with them about their needs, and properly putting in place a service level agreement that reflects what support they need to affect the outcomes from the investment in their LPR technology. That's allowed us to generate more revenue and what I call create more equitable pricing around the things that we deliver. Look, transactional companies often will give away the support for just getting the primary deal done. I'm not a believer in that, and nor is this management team or board. We're a believer in equitability. It doesn't mean it's fair. It means it's equitable, and there's a difference between those two words. So I'll track us on this, and we'll continue to talk about the improvements we have in recurring revenue related to our LPR support contracts. Chatting briefly, I guess, about our balance sheet, I get some questions around, are you guys going to run out of money? There is 62 grand at the end of the year. I think most people are aware of we have various lines of credits that are available to us that we tap from time to time. Certain weeks or months are a little more drawn than others. So where we stand right now is a constant focus on working capital management, better aligning AR collection to AP payments, paying down third-party debt. and really working to improve the quality of the balance sheet. Where I'd like to get to is less total assets deployed to generate the $2 to $3 million a year of EBITDA that we currently have in our mix. I think the other thing to point out people often say is, well, your working capital is heavily negative. I, again, strongly caution those that read balance sheets today That deferred revenue, which for us has no direct cost against so long as our lights stay on, are called current contract liabilities. And then there's the IFRS or accounting treatment for operating leases or leases that we use for office space. And they sit in current liabilities as a substantive liability. Look, what used to be just straight an operating expense for rent now is a liability on the balance sheet. I'm not questioning that's the right thing to do. The professionals in the accounting industry have decided that. I am saying, though, it's very easy to have a negative net working capital number by doing the right things. The right things would be getting your clients to pay in advance, so you create a big liability, and the right thing to do is to buy or to rent property versus invest in real estate especially when the interest rates are still fairly low and you can get good rental agreements are the ones we entered into over the last few years. Would I like a stronger balance sheet? Heck yeah. Do I panic over this one? No. I hope that answers the question for most of our shareholders. I would finish today and I'll point out that we're not going to do a Q&A because I found over the last few webcasts there's not a lot of questions in this forum. I do get a lot of one-on-one questions by email or by phone. People should not be discouraged in wanting to reach out and chat. I welcome the opportunity. My phone number and email address is on every news release. But going back to the next 100 days, I like using the term, I think most are aware I'm a pretty big baseball nut involved with Travel Ball down here in Arizona. But We're in a space where I'd like to say it's before the season. It's grindy. We're putting an investment into our skills, getting better before we're expected really to win the big ballgame. Grindy means that we stay on top of daily our working capital. It means that we drive process improvements for sales as well as license plate recognition technology operations. We overall are improving our client experience, talking more with them, better understanding them, and aligning our service and support to what their needs are. We will obviously continue to work for the Moby Key renewals and improve the Moby Key experience for all of our clients, the U.S. Department of Defense being an important group of clients that we work with every day. And I guess ultimately I'd be remiss if I didn't talk about the Spires acquisition that continues to be quite productive for us. their encrypted device that allows you to store data on it and there are certain scenarios where you don't have internet access and you need to be able to access enterprise data. We have done a good job of monetizing the inventory we acquired and one of the things we're doing is continuing to put in place the building blocks so we can bring to the market next generation or more of the PocketVault P3X products. So that's a key part of the next 100 days. Recently, I talked about continuing to do acquisition. Hey, one of the things we clearly realize is with continued execution should be better value in our share price. We need to get to a point where we're very happy with the way we're going to market and the markets responding to our sales model. And then we can think about non-organic or acquisition-based growth. The other thing we will do lastly is likely bring on a party who has a great reputation in the parking industry that can be our voice within trade associations and lead us operationally. And we hope to announce that shortly. We have a target and an individual that we think would fit very well with us. So to those that think that maybe we're going the wrong way or that people don't want to work with us or that we're not the most attractive company. Here's what I'll say. We're a very creative, unique engineering services company. We do some really cool stuff. We're in an area where video and data capture is extremely important. And the leadership team was on top of it enough to see the winds and where the market was evolving and move as quickly as possible to protect the company. And I think by the end of 22, we're going to have a much stronger company that's well on its way to being much bigger again from a top line and bottom line basis. So I'm not going to say, oh, we see this bright light at the end of the tunnel. I will say that the grindy behavior has led to us to be in a position where we're moving forward, not trying to find the bottom. We're moving forward. And we do see some light at the end of the tunnel. There's some things to get done over the next 100 days. And I would hope that by the time we have a call in August, the Q2 results will start reflecting more of what we're moving towards from a paradigm shift or the growth paradigm shift basis. So I'll leave it there. And again, I'd like to thank you for those that have stuck with us or have recently invested. for being involved in the Route 1 story. Today's market is like nothing else anyone's ever seen. So if folks tell you there's a playbook and we're not following it, please send the playbook to us because we're doing our very best to use our great talent and intellectual property to build a company and to be proud in how we're building it. If you want to hear a replay of this, you can call toll-free 1-877- 481-4010, passcode 45656, and that replay will be available until 4.30 on June 8th of this year. A copy of this slide deck or presentation is or will shortly be on our website. Our Q1 financial statements, MD&A, and this news release should be on our website, and they're filed on CDER. So I look forward to speaking with you soon. Again, if there's any specific questions you'd like to talk with me about or offer your opinion. I look forward to speaking with you. So, operator, that concludes today's call. Thank you.
spk00: Thank you. That will conclude today's conference call.
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