Good afternoon, ladies and gentlemen, and welcome to today’s Rekor Systems Inc. Conference Call. My name is John and I will be your coordinator for today. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] 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. 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. And now I want to turn the presentation over to Mr. Eyal Hen, CFO of Rekor Systems. Please proceed.

Hi everyone. Thank you for joining us to discuss our results for the first three months ending March 31, 2023. We are excited to share our continuing progress with you. Our President and COO, David Desharnais, is on the call with me today together with our CEO, Robert Berman. David will brief you on recent developments in our business and Robert will provide a summary and closing remarks. But first, I will go over some relevant metrics. As indicated in our comments last quarter, given current market conditions, we continue to prioritize our efforts and investments in near term execution versus longer range development and continue our efforts to accelerate growth in recurring revenue. This has resulted in continued growth in both non-recurring and recurring revenue, while at the same time our recurring revenue as a percentage of total revenue is increasing. This is a trend we believe will continue as we concentrate on a significant near-term opportunity we are focused on now. The percentage of recurring revenue reflected in total revenue was 68% for the three months ended March 31, 2023 compared to 57% for the three months ended March 31, 2022. This provides us with a solid foundation for strength and stability over the long-term and is being achieved despite the streamlining measures we made during the last few months of 2022 and into this year. In the first quarter of 2023, we saw significant reduction in our cash used for operations from $12.3 million in the first three months of 2022 to $9.5 million in the first three months of 2023. Furthermore, in the first quarter of 2023, the company made one-time payments for accrued accounts payable from 2022 and professional fees, which resulted a true cash burn of approximately $7 million. In addition, the full effect…

Thank you, Eyal. Good afternoon everybody. Rekor continues to make progress and build momentum across all three of our primary business segments. Specifically, number one is our urban mobility segment. This segment of our business includes our leading AI-based vehicle classification count and speed technology for Departments of Transportation, as well as our ability to uniquely monitor and measure transportation, greenhouse gas emissions, roadway volume, electric vehicle recognition, and multiple other real-time mobility analytics. Number two is our transportation management segment. This segment includes our AI-powered incident detection and traffic management capabilities, targeting Departments of Transportation traffic management centers and metropolitan planning organizations. And third, our public safety and licensing segment. This is where we first began our foundational and advanced work in AI, machine learning and computer vision, where we licensed our vehicle recognition technology to public safety, tolling transit and commercial customers. During the first quarter, we achieved many significant milestones, including advancing the state-of-the-art of our AI-based technologies, launching new breakthrough products, deepening our relationships and partnerships across the ecosystem, and adding significant new customers across each of these business segments. First, starting with the Urban Mobility segment. In Q1, we rolled out our new Rekor Discover platform using our artificial intelligence, Rekor Discover, fully automates the safe capture of Federal Highway Administration, 13 vehicle classifications, vehicle counts and speed, utilizing high resolution video streams to deliver ground truth traffic studies. Our edge-based IoT network devices are deployed at the roadside where they utilize AI and machine learning to automatically analyze live video streams of active traffic to provide powerful roadway intelligence. This is a big deal. Why? Because it’s Rekor’s immediate path to driving massive scale revenue growth and profitability. Already in Q1, we were awarded multiple and multi-year DOT statewide traffic count and classification contracts…

Thank you, David, and welcome everybody. Appreciate your joining our call. Before I open the call up for questions, let me underscore what David said earlier and add some context. Rekor Discover is, as David said, our path to massive scale and revenue. The demand over the next decade for new permanent data collection sites is estimated to be in the hundreds of thousands, which includes replacing tens of thousands of decade – decades old existing legacy systems providing antiquated, limited and in adequate data. And in many instances, they are no longer even operational. Once our AI is deployed in addition to providing highly accurate, always operating count, class and speed, we become the IoT nodes necessary to build the roadway operating system and network. Now, I’d like to open the floor for any questions you may have. Please don’t hesitate to ask. We’re here to provide transparency and clarity, and we’re eager to address any concerns or inquiries you may have. Operator?

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

Thanks. Hi, good afternoon. Congrats on the solid results and thanks for taking my questions. First question I have is, is really how should we be thinking about the revenue ramp in terms of getting to your guidance for this year in terms of just the overall mix of recurring versus kind of one-time in nature transactional revenue?

Zach, its Robert. I’ll take the first part of that. We are in all three segments moving towards hopefully 100% recurring revenue. That’s what the products that we’ve launched do, and that’s the way we price them. With respect to Urban Mobility, we have two pricing models. We have a pay for data model, which is where the DOTs pay for the data and we install and maintain the equipment that’s roadside. The other way is that they can some states have to buy their procurement only allows them to buy hardware, but then they pay a maintenance software fee. We don’t yet know what the mix of pay for data versus purchasing the hardware and paying maintenance software fee. We have a feeling that it’s going to skew more towards pay for data. So on the hardware sale side, the revenue would be higher upfront because they’re paying approximately $18,900 for the system. And then they’re paying a few $100 a month in maintenance and software. On pay for data, they’re paying north of $800 a month over a long-term contract. So that can have an ebb and flow of what the time looked like, but both have recurring revenue components to it. With respect to Rekor Command, as David has repackaged, what many of you on this call formerly we know is Waycare that is a SaaS product. Now, we’ve backed the data out of it. We include the data, we charge a management fee, but the software is a SaaS product. And with respect to our licensing and product, which is primarily public safety and other is all SaaS. So, I think the trend that you see this quarter will continue and each quarter going forward, the percentage of recurring revenue and every quarter we have moving forward will increase from where it is today and along with the margins. Eyal is there anything you’d like to add to that?

No, you hit all the points over. So our recurring revenues moving forward anticipate this to increase, again depends on the mix of pay for data. We always have a part of monitoring by nature from other segments in the business like licensing and other, where we do it a little bit differently. But the Urban Mobility the pay for data regardless of what the DOT decides will have a significant recurring revenue component into it. So we anticipate this to continue the growth in the recurring revenue to continue.

And I think Zach, to be frank, that the – of the three segments and they will not change. So everybody that’s been following Rekor for time now over the last few years, this is what we are, this is who we are. There’s no more evolution. These are the three segments. We expect that Urban Mobility will scale probably an outpace the other two segments, although traffic management likely in a year, year and a half’s time will start to keep pace and licensing and product has been scaling well, which you can see from some of the contracts we signed in Q1 of this year.

Understood that’s helpful. And in terms of your path to profitability, I mean, it seems you continue to reduce cash expenses and streamline operations. How should we think about, I mean, potential cash needs? I know at one point you were considering strategic investment. Is that something that’s still on the table? Or do you feel like you have enough cash on the balance sheet right now to make it too profitability in cash generation?

We think that that we’re on a good path here. I mean, you can see the true cash burn in Q1 was seven – little bit under $7 million. And as Eyal said, the full results of some of the other cost saving measures we had in Q1, were not going to be felt until Q2. So the delta between the cash we have and profitability is not all that great at shrinking. So we have a number of options that we’re looking at, but we’re very confident that we’re going to be able to get there. I do want to say that we spent a lot of time talking to a lot of different companies and we came to the conclusion that we need to maintain our independency and we work with over a dozen different, very large, large multinational companies right now primarily in traffic management. And we didn’t want to foreclose the ability to work with others by choosing to work with one. So, look, we’ve made it this far. We think we’ll make it the rest of the way, it’s trending the right direction and we’re going to get there.

Understood. And finally, Robert, I mean, you were mentioning a little bit more about kind of the displacement of some of these legacy traffic data collection sites. Do you feel like, that’s really the greatest opportunity here in the near-term, is just replacing some of these legacy collection sites with your new platform or just talk about that a little bit more?

Zach, I’m, I’m glad you asked, right? So this is kind of like one of these Warren Buffet type of businesses. I mean, unless you’re watching Rekor listening to this call, who the hell thinks about collecting traffic data. So the federal government for more than six decades now has been mandating the collection of what we call count, class and speed. And as David mentioned earlier, that’s the FHWA-13 there’s a bent, and they have to do it year-in and year-out and that’s the way the federal government redistributed gasoline, excise taxes, and appropriates highway funding based on where the traffic is. It must be done, it has to be done. And the way it’s been done for decades is using mechanical counters, which are dangerous and inaccurate, and then induction loops, which require digging up the roads and creating congestion and traffic in their own right, and they’re very expensive, right? So this is an industry that is out there. The funding’s there. It’s not like we have to go convince somebody to buy a better mouse trap. This is something they’re doing day-in and day-out. We’re not asking them to pay any more for it. We’re actually giving them a more efficient business model, and they must do it, right. And I think that, that’s the most important thing here. And there are literally hundreds of thousands of sites across the U.S. and every state, okay, that are not functional right now, that aren’t being used. There are other places where the states have done portable counts, but because of the traffic on the road, it’s no longer safe to do portable counts. So they’d have to put in a permanent site. And what we’re really competing with is not other technology. We’re competing with a 60-year…

Yes, absolutely. Yes, it’s something that we’re seeing in terms of it being disruptive, the demand for the technology because it’s safe to install, because it’s fast to install, because the economics associated with doing class, count and speed studies is wildly less than would be traditional methods. The demand has really been really unhindered. And so when we look at our pipeline, when we look at the technology’s ability to adapt and support what the DOTs are needing for today, so the here and now, but also to future proof for where they’re going over the next, year, two years, three years as now they’re being mandated to look at greenhouse gases. Now they’re being mandated to look at total tonnage on a roadway, and that the systems that are being deployed are already capable and can extends to meet the needs again for today and also tomorrow. So as Robert said, it’s quite disruptive and we feel like we’ve got an enormous right to win with technology that’s been crafted and honed over the last several years. So it’s good spot to be in.

Yes. And Zach, one last thing that I’d like to add, because I see names here of people that have been following the company for years. We wouldn’t be here, but for the proficiency of learning to recognize a vehicle, okay? And then make modeling color okay. And accuracy and give the vehicle a signature and figure out how to put that algorithm together with a processor and work roadside with low power so that it could be solar, so that you’re not inhibited by not having fiber or other types of power. So it’s all of that that led to this. That’s where we were driving, back then. And we were working towards this, but that’s what gave us the proficiency to do what we do. This is not something that’s easily replicatable, and there’s really nobody else out there that’s even thought about it, frankly. So hope that answered your question.

That was great. Thank you so much for all the incremental color and best of luck with the rest of the quarter.

Thank you. Appreciate it, Zach.

And the next question comes from the line of Mike Latimore with Northland Capital. Please proceed with your question.

Hi, this is Aditya on behalf of Mike Latimore. Could you give some color on what were the major driving factors behind the bookings in this quarter?

David, you want to take a shot at that?

For the bookings in the quarter? Yes. I mean, so it’s a combination of multiple things, in across our lines of business. We have going concern and growing business in our public safety and licensing. So where we’ve seen continued growth is the bookings and multi-year deals and licensing agreements with large U.S. based companies that are ranging from theme parks that are looking to put a safety component and a customer experience component on their parking lots and roadways going in and out of their sites. We’ve looked also, we were able to lock and load on additional gaming companies. So where we’ve had, I’d say, very good success from a gaming and casino market segment or retail or hospitality segment. We’ve seen continued growth in that segment as well. Our multi-year bookings there. For our traffic management or the traffic management vertical, or market segment for us continued growth there as well and expansions of contracts. And then last but not least, is in our Urban Mobility space with the addition of multiple states that have come on with multi-year contracts that again, three year and four year and five year contracts in the millions of dollars of performance obligations, bookings as you call it. And so I mean, it’s a really a combination of all of those factors. So each one of our business segments have seen significant growth in the quarter, and again, continue to see that moving forward as well.

I think your colleague Mike Latimore met David out at ITS recently and had the opportunity to speak to one of the DOT officials from Texas. So, he might be able to give you some insight to that. But one thing David didn’t mention, and I just want to congratulate David for this because one of the things we were able to do in the last, I would really say it’s more like nine months to a year since David’s been here, but our software has been embedded and hardware being made by like companies like Safe Fleet and Hayden AI. But if you look at Safe Fleet, they’re fairly large U.S. based, or maybe Canadian based, but they have over a 1,600,000 devices out on the roadway, across the U.S. and Canada. Primarily public safety. And those are older generation products. Our software is in the new cameras coming off the assembly line that they’re deploying now in places like Chicago and I think in some of the cities in San Diego and so on and so forth. And Urban Mobility, it’s the footprint that we have within the existing STS footprint that we acquired that gives us the initial scale, right? And then, we’ve got discussions going on now, I think with close to 40 DOTs that we’re trying to get to.

All right, got it. And also, could you give some update on what’s happening with the Mastercard drive-through initiative?

We always get asked about Mastercard. I always get emails and so do my colleagues here from shareholders that send this, because they see this QSR did this and that one did that. Mastercard is still working at their product that they call Julia [ph]. And Julia is a comprehensive replacement for the typical fast food operation drive-through. So it includes a lot more than just what we do, which is recognizing vehicle pay-by-plate and so forth. It includes, voice recognition, which is done by, our colleague SoundHound. But it also, believe it or not, includes mechanical devices inside the kitchen that help move things along in the kitchen. And we continue to work with Mastercard and, we’re deploying pilots for them. They put a lot of time and effort in it, and we hope they’re successful with it. And I know a lot of people are very excited about it. But I will say this, all the people a couple years ago that saw Mastercard that were doing the math of tens of thousands of drive-throughs, well, you can do the same math except it’s larger. When you talk about, what we’re doing with a very similar device, similar cost structure, similar business model, because it’s pay for data, we’re actually getting more money out of it, right? With what we’re doing now with the states. So we hope they make it right, we’re there, we’re working with them, we support them. They’re working hard at it. We have no idea, but it’s not something we think about every day because, until it turns into revenue, we can’t really speak to it.

All right, fine. Thank you.

Thank you. Operator. I don’t see any more questions. We don’t want to leave anybody out here. Are there other questions? Anybody?

[Operator Instructions]

Okay. They’re always saying there’s people that I wanted to ask questions that wouldn’t give a chance to. So ask now, please

And I would like to turn the floor back over to Robert Berman for any closing comments.

Yes, so look, first of all, thanks everybody again for, joining the call. Thanks for your support. Thanks for your continued patience. Again, I see names here that, I’ve seen for years. Thanks for, staying with us. We’re not going to let you down. Rekor is here. Rekor has developed its business segments. Our products now have been productized, thanks to the work that the team has done here. And we see a clear path to substantial scale and profitability and tremendous growth and just a really amazing future. And this is probably since my being involved with the Company; this is the most exciting time that I’ve ever seen for this company. And it’s around the corner. So thanks again for joining the call and we look forward to talking to you soon.

Thank you everyone. This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.