Good afternoon, ladies and gentlemen, and welcome to today's Rekor Systems Inc. Conference Call. My name is Ciarmoli and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. Before we get started, I would like 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. 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 disclaimer 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 want to turn the presentation over to Mr. Eyal Hen, CFO of Rekor Systems.

Hi, everyone. Thank you for taking the time to join us for Rekor's year end results. We are excited to share our team's progress over the year that ended December 31, 2022, and update you on key business topics. On the call with me today are our CEO, Robert Berman, and our President and COO, David Desharnais. David will provide additional color on our business and others will have remarks on recent offerings and provide standards. But first, I'll review our relevant metrics. With the revenue from 1,000 traffic services in the last six months of 2022, we have accelerated growth and returned revenue under our sales model. As you may recall in the third quarter of 2021, we made a strategic shift in our business model to emphasize recurring revenue more than point in time revenue. Our goal is to provide more value and flexibility for our customers through subscription-based data services and software offers. As consequences, we saw strong growth in recurring revenues in 2022. The percentage of recurring revenue selected in total revenue was 66% of the 12 months ended December 31, 2022 compared to 40% for the 12 months ended December 31, 2021. This has provided us with a solid foundation for strength and stability in our revenues for the long-term. In the third quarter of 2022, we also undertook significant streamlining measures to achieve a notable reduction in operating expenses. During the fourth quarter we saw the full impact of these activities. Operating expenses across our general and administrative, sales and marketing and research and development expenses decreased by $4 million during the fourth quarter of 2022 compared to the third quarter of 2022. This reduction were designed to scale back longer-range projects as we concentrate on near-term infrastructure spending opportunities in North-America. Now let…

Thank you, Eyal. Good afternoon, everyone, and thank you for joining us today. I'm David Desharnais, the President and COO of Rekor. I've just recently passed the one-year mark as part of the leadership team here. And I must say, it's been an incredible privilege and honor to shape the future of our company and have the opportunity to change the course of an entire industry. Though it has been quite a challenging year given the geopolitical, macroeconomic and overall market volatility and uncertainty, it has also been a remarkable year of transformation, growth and opportunity for Rekor. I'm looking forward to sharing some highlights of what we've accomplished in the past year and our plans for future growth. Rekor stands at the forefront of innovation, leading the charge as the premier provider of Roadway Intelligence and data-driven mobility insights on a global scale. As a technology company, we are changing the course of the public safety, urban mobility, and transportation market segments with our cutting-edge, AI-driven solutions, enabling smarter, safer and more sustainable streets for all communities. Over the past year, as you just heard from Eyal, we had prioritized driving key performance indicators such as revenue, annual recurring revenue, performance obligations and operational efficiencies across people, processes and technology. And as Eyal also highlighted in his remarks, we have achieved significant progress on all of these metrics in 2022 both quarter-over-quarter and year-over-year. Starting with operational efficiencies, like many tech companies, we continued to make tough but important choices to help rightsize our business and instill financial and operational disciplines across people, processes and technologies. As part of our operational efficiencies, in late 2022, we divested our Automated Traffic Safety Enforcement business, commonly known as the red light and speed camera ticket business. This move was a strategic…

Thank you, David. As Eyal mentioned earlier in the call, on Friday we announced a registered direct offering for $10 million. Given the turmoil in the world and banking sector creating severe market headwinds, the decision was made to access the shelf overnight before this earnings call. For those of you that are not aware the Company shelf is remeasured with the filing of its 10-K but our present market cap, our shelf would have fallen to Baby Shelf Rules, allowing for the company to access less than a couple of million dollars at best if needed. Our conversations with strategic investors continue and we've had offers. However, to date, those have come with way too many strengths and conditions were Rekor's independents will be impaired. The overnight offering strengthened Rekor's hand and put cash on the balance sheet to continue funding our growth. Mind you, we do business with almost all of the companies we're talking to about a broader relationship and capital. So we need to be careful about tossing the baby out with the bathwater. As David stated, as we look ahead in 2023, we expect continued and accelerated growth across all of our business segments. Consequently, and for the first time, we are pleased to be providing revenue guidance for the fiscal year 2023 in the range of $45 million to $55 million in revenue with EBITDA of negative $26 million to $28 million this year, and profitable by the end of 2023. Furthermore, we are forecasting 2024's revenue in the range of $120 million to $130 million with $8.5 million to $15 million in positive EBITDA. This growth is achievable because our technology is replacing legacy technology, which is at the end-of-life, which has not changed in more than 60 years. For those of you…

Thank you. [Operator Instructions] And our first question comes from the line of Zach Cummins with B. Riley Securities. Please proceed with your question.

Yes, hi, good afternoon, thanks for taking my questions. Robert. I appreciate you given some more insight into this potential for this business going forward here. I mean just to that point, I mean, can you speak to some of the underlying assumptions that are driving confidence and not only providing guidance for the next couple of years, but pretty robust growth versus kind of where we ended at in 2022. So any sort of additional insight on that front would be very helpful?

Yes, I mean, sure Zach. Thank you. Look, we've spent several years, positioning ourselves for just this right. There's not that many people on this call, right? And. I mean, it's just not that many people paying attention to it. And I think that's the same with infrastructure and the infrastructure bill and the whole concept of infrastructure, moving to a new world which is putting a digital layer over it. And I believe that we positioned ourselves exactly there. When we introduced the technology back at ITS World Congress, the fall '22 to do what's mandate which is count class and speed by every state, every state does the same thing for 60 or 70 years. How does the federal government distribute gasoline excise taxes, right? So inductive loops, mechanical counters, buggy whips and carriages and so on and so forth. This is not that interesting to a lot of people, right? So, therefore, they don't pay attention to it. Right. And the confidence and the growth comes from the fact that we've introduced technology that traffic engineers that work at DLTs want. They want a way to do this without intruding in roadways and digging the roadways up and having people get harmed and create a congestion so on and so forth. And that's where it comes from. And we see it by the reverse inquiries as David mentioned almost 40% of the state saying, okay, can you really do this come show us. So it's being out there working with the states and seeing the demand for the technology and it's there, and that's what we've been working towards, for all this year. So that's what gives us the confidence and we know it's fair and we're out there deploying this technology now. So it's not about aspirational or developing and making it happen. It's something we're doing today. All right. And that's what gives us the confidence that we can do this and beyond.

Got it, that's helpful. And I think David might have mentioned it in some of his commentaries, but are some of your end-customers, starting to get access to infrastructure funding at this point where it's able to accelerate some of these deployments. Just curious on what you're seeing on that front?

Zack that's a really interesting question, but I want to separate the transportation bill from what funding is already there. So what we're talking about is funding that there and has been there for the past decades. Okay, David, can go into the new stuff coming and that has to do with the things that we're doing with the Waycare acquisition, right? But we're talking about stuff that they're doing, year in and year out for the last 50 years or 60 years. So they have that funding, and they're doing it anyway. It's just a better way of doing it, right? So David, maybe you can talk to some of the stuff that's going on that's outside of that, but the stuff we're talking about Zach is already funded.

Yes, Robert. I can complement on that. In regards to the Department of Transportation gaining access to the infrastructure bill or bilateral infrastructure law as it's now called. Those are accessible through grants and states are already submitting applications for these grants and we are working with states, to help them in the submission process to help to be able to put the technology layer, the digital layer that's required in some of these grants that required technology and digitization. And so we are starting to see that now, open up and states are aggressively moving to be able to capture their fair share or unfair shares that may be in some cases to capture those funds. So yes, we are starting to see that now happen, it is what is driving a significant uptick in our pipeline in our transportation management business in particular. But going back to Robert's point when we look at urban mobility and the classification count and speed opportunity ahead of us, these are funds that are available now. It's not tied to the infrastructure bill funds at all. This is money that's there to access today. So we have the ability to monetize today, as well as into the future using both of those sources.

Got it, that's helpful. And final question from me, Robert. I appreciate the guidance into the adjusted EBITDA side as well. I mean, obviously, the recent direct capital-raising here overnight, but I mean, can you talk about potential cash needs as you continue to ramp-up pretty significantly into the second half of this year?

Yes. I mean I think, look Zach between the note offering and registered direct, I think we feel very confident that we can drive the Company to profitability, right in 2023. So, I think we feel good about where we are. And again, a lot of it comes from something that when we acquired STS they had already pioneered the concept of pay for data, right? So the difference is installing inductive loop for $40,000 and dig up the road and spent 30, 40 days to do it or put up a system that can do it as usually for a fraction of the cost right, in real time without all the damage that goes along with digging up the road and so on and so forth, right? So that's where we see the growth coming from primarily urban mobility and it's truly - I think it's important to break this out, because I think - there's self looks, there is so few several hundred people on this call, right? And frankly you're all the fortunate ones, right, because someday, there'll be several thousand more, right? The concept of what we're doing is disrupting something that's been done for 60, 70 years if not more of the same way using technology that has not changed, okay, and that's the point and they are mandated to do this and we can now do this with the technology that Rekor has that we've been developing for several years, right, which is the proficiency of edge processing, roadside machine vision and so forth and it starts with vehicle ID and vehicle recognition. And then you transfer that to the vehicle classifications and [indiscernible] right? And this is something that the states have been looking for and hearing about, but nobody has delivered. So here we are, right. So that's why we have the confidence level, right, to be able to say that we believe we can do, what we're going to do going into '23 and '24.

Understood. Well, thanks for taking my questions and best of luck here in the coming quarters.

Yes, thanks, Zach.

[Operator Instructions] And our next question comes from the line of [indiscernible], a Private Investor. Please proceed with your question.

Yes, thanks for taking my call. Definitely impressed with the management team and it shows reflection of ALPRs. One of my questions is, within the United States it seems to be a lot of activity with the contracts and technology, but outside the U.S., overseas besides Israel it's been little quiet, can we expect that to change?

Well, that's a really good question. So let me start by saying this, almost every government, okay in the world, right? Even in very slowly developing countries right, how do they budget the roadways? They look at the tonnage going across the road over a period of time, 5, 10, 15, 20 years and they extrapolate an idea of what they think it might require to repair, replace, and maintain that road well. So they do this with very rudimentary ways. They do mechanical counting of vehicles and in some places they actually put people on roads and count vehicles, right? So everybody uses the same concept to figure out how to maintain and repair, replace the roadways. So it starts with that. It all starts with analytics and as David said earlier, planning and planning starts with data. So if there is a different way to collect data on roadways, well, then that's where it begins, right, so everybody across the globe does the same thing, right. So it starts with the ability to collect data and the beauty about what Rekor has done, it's just created a single system that has multiple capabilities. So not only can we go and collect the data, right, and then tell you what's crossing your roadways, how much tonnage the emissions from the tonnage is crossing the road, so on and so forth, but also can be used for public safety and if that, in other cases without touching the device, it's a one device that goes after once its there, right, you can toggle things on, toggle things off. So I think what you're going to see is that this is going to expand beyond the U.S. It's going to extend well beyond the U.S. borders, right? And we can tell you today that we know that there are companies installing inductive loops all around the world. They're doing in South Korea, they are doing in Europe, they're installing these things whole over the place because technology is pretty much the same. If you drive to any traffic intersection, if you look when you get to the intersection, you'll see cuts on the road and what that is? That's an inductive loop, so it feels the weight of your vehicle crossing it and then there's some magnetic field there that measures the number of axles and it triggers a timer. Well, this is the 21st century, you don't need to do that, right, so the answer to your question is the same technologies used outside the U.S. Certainly, almost and the majority of the developed world. So hopefully, we'll see it expand.

And also I believe, since I mentioned, Israel. I think I read somewhere plan on implementing the bus transit technology also in the future?

Well, that's the same thing what we're doing with COTA and Ohio is we're helping them route their buses because they're able to schedule more real-time where the buses are so that somebody can look at their phone, which we're all used to looking at and figure, okay, my bus is 3 minutes early, it's 10 minutes late. I can plan my schedule. So again, this comes from the same technology and that's the point, right? It's one-piece of technology that does all of this, it does all of it, right? And for those of you that have been following Rekor for a few years, you know that we started with vehicle ID, right? So that's where we got our start, license plate recognition, looking at the vehicle and from their machine learning takes over and you just train and train and train and train and you can look at different things. So that's exactly the point. So, whether you're looking at bus schedules, train schedules, tractor-trailers pulling in and out of ports, it doesn't matter what it is, okay, the system that we built can do all of that, right. So we're here at the very early stages of it for whatever reason, roads, bridges, tunnels are not all exciting to the investment community. They brough us TikTok so that you can post a video, but this is probably the largest segment of the economy that there is when you look around the world, infrastructure, right. So you have to put a layer of digital infrastructure over part infrastructure and that's what we're doing. And someday, like I said there'll be thousands and thousands of you on these calls, not just the several hundred that there are, so thank you for the question.

Yes, with also with the Oklahoma PR today and the uninsured motor vehicles, is that drawing interest from any other states also?

You know, it hasn't at this point, we started it. We had a number of states that we're interested, why the stage owners -- and reduce the number of uninsured motor vehicles on the road. I have no idea. But since we've been, which is only a couple of years running the program in Oklahoma, it's exactly what we told Oklahoma would happen, we've reduced the number of uninsured motor vehicles on that state's roadway by a little over 40%, right, in a self-funded program. I do think over time that given this is 21st century contactless compliance, whether it's registration or motor vehicle inspections or uninsured, whatever it might be there is better things for a law enforcement officers to be knowing that calling people over for minor traffic infractions. So this is a system that Rekor built that works well. But again, it's the same system, that's after count, count class, and speed. Right. So we need to everybody on this call to understand when we deploy a system, it does all of this, it's just a matter of toggling on, we're turning it off, right? If you want, we will turn it on. And you'll pay for it, we will turn it on, right? So that's the point. We don't need to go back out to the highway and install something else, that's the difference.

And also towards the affiliate contract maybe or that's the one to pilot, or can we expect that to be any contract PR in the future?

Well, it started as a pilot with AWS and we expect it to evolve into more right? And I think that the information that we've given the city is such that they understand its value of it and I think we'll see it expand and it will go from there. And I will tell you that I - as David said, having AWS as a partner and then bulging for the proficiency of our technology is something that's important. And we're getting there and it's just early for maybe because we're public it's late, but we've only been around for a few years. So it's still early in this game. Thank you.

And one other question, I believe with South Carolina, New York and 14 other states are requesting like proof of capability. Two quarters ago, I had mentioned a pilot and how many [indiscernible], you mentioned steering away from the pilots. What's the difference between like a pilot and improve the capabilities --

These are major differences -- I'll let David address this. David, maybe you can address the capability and start with South Carolina. Thank you.

Yes, no problem. So the distinction that I guess you could make of a proof-of-concept versus a proof-of-capability. The proof-of-concept, we're not trying to prove the concept, the concept has been proven, it's more of the in that particular environment for that state on those particular roadways, it's more of the capability that we're demonstrating to them, that's something that works, but it's more of a refinement for their specific needs. They may have a specific type of environment dust - like heavy dust on a road or they may have particular or unique vehicles that are there that from a machine-learning training perspective, we may not have seen enough to train in a way that we want. So the perfect capability is really to put the devices on a roadside on the roadside for them in particular and train for their particular environmental conditions, which is very fast actually. So that's what we mean when we say, proof of capability versus a proof-of-concept.

I'm sorry.

Oh, yes, indeed, yes. I mean it's literally like four to six-weeks, maybe initially or six to eight. But I expect that to come down, because there is something called transfer learning on that way. Whereas when you learn it in one environment it closes the gap and multiple other environments at the same time, as you might imagine. So what a proof of capability might take one or two, what is called the sprint and the R&D terms to close on that particular environment that really captures more and more of all the environments we will expect to see in the envelope. So yes, does that answer your question?

Yes, it definitely does. I appreciate it. And also my last question, I did have one more with Mexico and the technology across 1,800 locations. I don't remember anything be mentioned in the length of the contract of potential revenue. Can we expect something from that in the near-future?

Well, it's a good question. We have now several thousand devices and operating in multi cities and parts of Mexico and different states. It started back with Monterey, a few years ago if you look at our announcements. And when it comes to public safety a lot of these entities -- governmental entities that are primarily public safety, law enforcement, they don't like us to talk about it because the people that they're using it to keep an eye on find out about it, right? So we do the best we can to accommodate that, right. Well, the good news is that it's grown, it's grown in Mexico from 2019 to today to several thousand from a few hundred devices out there and we see that happening in other places as well. Same thing with our business with the U.S. DoD. It's grown significantly. If you go back through the years and you look at the contracts we've had with DoD, they don't - we can't really talk about where the technology is being used. I don't think they want folks to know where it's being used, but it's being used. And I think that what's important - the importance is that it's being used, and these are significant contracts.

And we have reached the end of the question-and-answer session, I'll now turn the call back over to Robert Berman for closing remarks.

Yes, thank you. Look, thanks, everybody, and I can tell you looking at the attendance list here. Rekor is very fortunate I feel very fortunate and I'm sure I speak for the rest of the team and we've got a really great group of shareholders that have been with us and supported the Company and so far and so. It's not an easy thing to do, right. And all I can tell you is that if - and I've always said this, we're not we're public but if we were private, right, you might consider yourself flies on the wall inside of some big DCs office listening to all this stuff and you might not see the Company for a few more years, but that's what creates the opportunity. Okay, Rekor has been around for just several years, right? I think we've made tremendous progress, it's been like balancing on ahead of a pen to try to just work because we went public. But as I said in my remarks earlier, we're no longer startup, okay. This company is after the races and I think in '23 and beyond, you're going to see significant growth and consider yourselves very fortunate to be part of a very small club. This is probably going to grow significantly. So with that, I thank everybody for coming to the call. Thank you for all your support.

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.