Good morning, ladies and gentlemen. And welcome to today’s Rekor Systems, Inc. Conference Call. My name is John, and I’ll be your coordinator for today. [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 the 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 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 is provided for informational purposes only. And now I want to turn the presentation over to Mr. Eyal Hen, CFO of Rekor Systems.

Hi, everyone. Thanks for joining us to discuss our results for the three months and nine months ending September 30, 2023. We are happy to share our continued progress with you. I would like to start off by sharing two slides with you that I think really demonstrate the progress that Rekor made. Over the past five years since we have been tracking our technology revenue, Rekor has delivered a 268% compound annual growth rate or CAGR. This has included multiple challenges and times when we have been constrained by limited resources. We have made significant investments in our roadway intelligence technology and successfully integrated two acquisitions. During this time, we quickly gained a significant foothold in the transportation market and are becoming well recognized as top leaders within the industry. The next slide compares three other AI technology companies. As you can see on the left, the revenue per share for Rekor is significantly higher than the other three companies and was accomplished in much less time. As you can also see on the right, we did all of this with the intelligent use of much less equity than these other AI tech companies. This gives you a good sense of the rapid progress that we have made, while being mindful to use equity judiciously and not overly dilute our existing shareholders. With that in mind, I would like to discuss the continued revenues momentum and other achievements we have seen during Q3 and the last nine months. As a result of our continued growth and progress, we are pleased to announce an unprecedented topline for the third quarter of 2023, with a consecutive quarter over quarter increase of 6.5%. It’s noteworthy that we accomplished this while we also continue to reduce our SG&A expenses. Over the last year,…

Thank you, Eyal, and good afternoon to all of you that have joined us today. We appreciate your interest in Rekor and in our progress. Building upon Eyal’s comments about our financial performance and momentum, I am pleased to report that the third quarter has marked yet another period of continued performance and growth for Rekor. Not only have we expanded the breadth of our market presence, but also deepened the impact with customers across each business segment we serve. As we have all seen and read in the media lately, U.S. roadways are in a critical state. The increasing number of roadway collapses and the overall deterioration of roads have created heightened public awareness and intense political pressure to address the continued decline in Public Safety stemming from sharp increases in traffic congestion, environmental concerns and roadway fatalities. Traditional tools and methods for managing and optimizing this vital infrastructure are proving inadequate and there is an immediate need and urgent call for innovative approaches and transformative solutions. The passage of the Bilateral Infrastructure Law at the end of 2021 marked a historic $1.2 trillion investment for the revitalization and digitalization of critical infrastructure and roadways. In this dynamic landscape of both chaos and opportunity, the markets and public agency customers we interact with are doing more than just reassess their existing investments. They are proactively looking to embrace AI and digital infrastructure technologies as a solution. For Rekor, this is where preparedness and opportunity meet. The guiding vision of Rekor and the passion of our teams is to improve the lives of people and the world around them by enabling roadways and communities to be safer, smarter and greener for all. To realize our vision, we leverage our 3,000-plus man-years of field and roadway experience and combine that with…

Thank you, David. Good afternoon, everyone. I’d like to underscore what Eyal presented earlier with his CAGR and AI tech companies comparison slides. Since we began tracking our roadway intelligence revenue in 2018, Rekor has experienced a 268% compounded annual growth rate. This demonstrates our ability to sustain growth through challenging times and periods of limited resources. We’ve constantly enhanced our technology and successfully completed key acquisitions. And at the same time, we’ve also solidified our market presence and emerged as industry thought leaders in roadway intelligence. Our acquisition of Waycare in August of 2021 and SDS in June of 2022 brought combined revenue of approximately $15 million. Since then and despite the sale of our last non-core asset in the fourth quarter of 2022, which resulted in a reduction of $2.5 million of gross revenue, our topline continues to climb. I am particularly proud of the fact that the revenue growth the company has experienced over the last 12 months is entirely organic. As we expect to have yet another record quarter meeting or beating the current revenue estimates for the fourth quarter of 2023, Rekor will have again more than doubled its topline. Driving this organic growth is the adoption of the company’s technology and we’re just getting going. What you are seeing is just the tip of the iceberg. Thanks to the continued execution of the entire team, this remarkable growth was achieved more swiftly than many of our peers, as reflected in the revenue per share comparisons that Eyal shared with you earlier. As David outlined, the strength of our differentiated products and technology, and our ability to scale is allowing us to grow more quickly and with less equity investment than comparable companies. As we work to prudently manage our equity, we’ve been able to…

Thank you. [Operator Instructions] And the first question comes from the line of Mike Latimore with Northland Capital Markets. Please proceed with your question.

All right. Thanks so much. Yeah. Congrats on the strong organic growth here. Yeah. You mentioned in the prepared remarks, strength in Urban Mobility. I don’t know if you can give a little more quantification, but was it over half, under half of bookings in the quarter?

Mike, I don’t know that I can speak directly to the percentage, but it was a large percentage of bookings in the quarter and will continue to be in the fourth quarter and that’s where our focus is and what I referenced with respect to rolling out these IoT sensors nationwide.

And, yeah, as you look to the fourth quarter, do you see kind of all three business segments driving the planned sequential growth there or is one more pronounced? Is this Urban Mobility more pronounced? How do I think about kind of drivers in the fourth quarter?

I think, we believe that Urban Mobility will lead the way, and if you think about our Public Safety and Licensing business where we started, that will continue to grow. The concept of building, which is what’s necessary, a digital layer of infrastructure over our existing road system requires IoT nodes, right? So as we get these across the states and then across the country, it pulls in Transportation Management. So I think Urban Mobility will lead the way and that’s a great business, because long-term state contracts, recurring revenue, very profitable and that pulls in the ability to do the other pieces. So I think Urban Mobility, they will all scale. Urban Mobility probably will lead the way in scale, in percentage of scale. And I would say that, Public Safety and Licensing will continue to scale and traffic management is not far behind. There may be a point a couple of years down the road where Traffic Management starts to kind of catch up like a horse race and that’s understandable, because that’s how everything comes together and that’s the secret sauce of what we’re doing. So I think that’s a good way of looking at it right now. David, do you have any thoughts in that regard?

No. Nothing more than you said there, Robert. I think you captured it well.

Okay.

Great. And how many on the Urban Mobility side of things, how many deployments or site deployments can you do per day? How many -- do you have enough resource to deploy at certain amounts per day now?

David, do you want to take that?

Yeah. There is a -- it’s a multi-stage process. Like in poor concrete, you have to wait for it to set, et cetera. But after that, you can do this pretty efficiently, four-day to six-day if the crews are all operating. That’s pretty typical.

That would be per crew, right? And we have multiple crews.

That…

Yeah.

Per crew, yeah, per crew, per like region or segment of roadway. Yeah.

They go in like four hours, five hours, six hours, you can put a system on.

Okay. And how many crews do you have then? Four per crew to six per crew, how many crews?

David right now.

Four and building a fifth.

So four…

Call it four and a half.

Yeah.

Yeah. Yeah. That makes sense. Okay. Great. Thanks.

But I know, Mike, I just want to add to that. Once the process is down, which it is, it’s pretty much stamp and repeat. And the labor that it takes to address this is, labor that’s out there. You can think about field technicians that have installed things like 5G towers for cell companies and others. So, that’s the nature of the labor required. So it’s pretty well expandable. And that’s why I had mentioned earlier the challenge that Rekor has, which is really an opportunity is that we’ve got a lot of business in states where we can transact but have no presence and we’re working to solve that. So, which means adding crews, right? I mean, that’s really what that’s all about.

Sure. Sure. Great, well, congrats again. Thanks very much.

Yeah. Thank you.

Thank you.

And the next question comes from the line of Zach Cummins with B. Riley Securities. Please proceed with your question.

Hi. Good afternoon. Thanks for taking my questions. I just wanted to ask around the weather delays that you mentioned in the southeastern United States. I mean, you give us an update. Was it really more of just kind of a one-time delay in terms of project implementations? And then second part of the question is, it seems like you’re in pilot with 14 additional states now. How many of those do you expect to move forward with more commercial deployment as you get towards the year end?

Hey. David, do you want to take that.

So on the -- yeah. Sure. So on the deployments with weather concerns, it’s not just the weather event itself. It’s the inability to get out there in preparation for the weather and then if there is a weather event, it’s the cleanup afterwards. So it’s really the -- it’s not the event itself. It’s all the stuff that the threat of the event that slows things down because you can’t put crews out there. Second of all, and in the nature of some of the work that we do, even rain -- heavy rain can make an impact and so you don’t send crews out in the dangerous kind of weather like that. So it’s episodic and it’s something that we dealt with, certainly, in the hurricane season in the southeast. So we’ll come back to that if you have additional questions. In terms of deployments across the 14, these are in different stages right now. And partially as we’re moving crews westward and trying to schedule them with the existing work that we’re doing in the southeast becomes a race condition, right? And so it’s really just a matter of scheduling right now. And so those are progressing well and we have two that are in process right now and will continue to schedule as quickly as we can for the rest as we look to add crew members, as well as expand our footprint westward.

Understood. And then final question for me. It seems like the real gating factor here is just the ability to have crews to implement some of these deployments and really do that at a pretty quick pace. How are you thinking about options? I know, Robert, you’ve mentioned pursuing some sort of debt financing to potentially fast track some of this. So I’m just curious of how you’re thinking about potential solutions to really fast track some of these deployments.

Yeah. Good question, Zach. So, as we approach break even here, the majority of the capital that Rekor will need will be for the implementation of these systems. And the most efficient way to do that is with debt and we’ve been working for months on creating a structure that can be stamped and repeated with regard to being able to fund those systems. The good news is if you think about the counterparty, it’s a state with good credit, long-term contracts, highly profitable. So we think we have an answer to that and we’re hoping to be able to talk more about that in this quarter. But we think we have no guarantees, but we think we have that problem solved and if we solve that problem, then that’s just an accelerant for the company’s growth and that’s the most efficient way to fund that and today we’ve been funding a lot of these deployments with equity, which is terribly inefficient. So that’s how we’re thinking about it going forward.

Understood. Well, thanks for taking my questions and best of luck with the rest of the year.

Yeah. Yeah. Thank you, Zach.

Thanks, Zach.

[Operator Instructions] The next question comes from the line of KC Ambrecht with Shay Capital. Please proceed with your question.

Hi. Thank you very much for taking the questions. Really good to see the growth accelerator. Just a couple ones on the state contracts. How should we think about the cadence of these contracts? Are they rolling up a bunch of cities and municipalities or can we think about actually landing some large actual state contracts and then across -- rolling your footprint out across that region?

Well, that’s a good question, KC. So, there’s multiple pieces of this business, but the states are required to do this data collection, as are other municipalities like counties and towns, villages, cities and so forth. These state contracts are typically done with one or two vendors the way they’ve been done with legacy technology for years. So this is changing because we’re changing the way they do it with the technology they do it. So these contracts are fairly large. And that was the reason we acquired SDS, because SDS had pioneered the concept of installing using legacy technology, these systems under a different model that you would typically see, which is just a contractor deploying equipment with some type of maintenance contract. Where this is here now pay for data. So I think you’re going to see some significant contracts with states. But there’s a whole other side of this business, which we’re attacking right now, which is at the more local level and that’s probably equal in size to that happens at the state level. So I think it’s going to be a combination of both. But I think you’ll see some really…

Okay.

… significant state contracts. We already have. I mean, we already have some pretty significant state contracts. So I think…

Right. In terms of -- Robert, in terms of like these large state contracts, like, what’s the -- is there like a K like a duration? Are they five-year contracts for X million? Like, how do we think about kind of the…

There are two -- yeah. This is a good question. So the best the best way I can answer you is by telling you, history. So, as an example, the State of Georgia has been a customer of ours through our acquisition of SDS since 1997. So, the contracts typically run five years, seven years, 10 years and it’s a very sticky business. And the DOT is very seldom change their service providers because they can’t afford to lose the service and the data. So they stick with what they have if it’s working. So these are usually very long-term contracts and it’s a very sticky business where they just continue to renew.

That kind of leads me to my next question. Like when you think about other companies you’re familiar with that are like another record out there that’s kind of rolling out this national footprint.

There is nobody that we know of…

Competitor.

No. There is nobody that we know of that’s putting IOT sensors roadside for the purposes of what we’re talking about doing here. And none specifically that have the service side of the business, which is what makes Rekor different. KC, look, if you think about new technology and dealing with government, right? So they have this technology that they’ve been using for 50 years, 60 years, 70 years. It could be an induction loop and piezos. It could be bending plates, a whole bunch of different things, right? So what has happened through the years is that, there are limited companies that actually can service the old stuff and deploy new technology if it existed. Well, up until recently, it hasn’t existed. So the service side of our business is what makes us unique, okay? And I say that, in the same way that when you think about Amazon, what are they…

Okay.

… a technology company or are they a real estate owner or are they -- do they own an airline or they own -- are they like UPS? So, this is a business where being able to service the customer roadside and then have the proprietary technology that goes along with that makes all the difference in the world, because you can service the legacy stuff while you’re rotating the legacy stuff out to new equipment, because they can’t have the legacy stuff go down while you’re replacing it, right? So I think, Rekor, in that way is very, very unique. It’s very unique. And I can’t think of another company like Rekor, right? Like, there are companies that sell equipment. There are companies that, maybe do construction or maintenance. But I can’t think of any other company that has the proprietary tech that we have that also has, as David mentioned earlier, thousands of man hours of understanding the way all this works roadside and has it all under one roof and is able to deploy it and work and gain the trust of these agencies, okay, to be able to service them. So that’s what makes this so special and I think we shouldn’t lose sight of that. It’s very important.

Okay. And then just two quick questions on the numbers. What jumped out to me was your comment that you plan on being break even in 4Q or 1Q. Is that -- I’m looking at the analyst models here. Are we talking like adjusted EBITDA, because they have losses throughout next year?

I want to answer.

Well, Eyal, answer that question.

KC can you say again.

Can you ask again, please?

Yeah. So you guys mentioned that you plan on being break even in 4Q or 1Q of going forward. Is that -- how should we think about that? Is that like an adjusted EBITDA basis, because I’m looking at analyst…

Yeah.

… models and you have losses.

Yeah.

Have fallen throughout all of next year?

Yeah, KC. It’s on an adjusted EBITDA basis. Yes. Cash flow positive or breakeven.

Okay.

And this fourth quarter or first quarter next year?

Okay.

Yeah. And I think, again, KC, the challenge we have, which we’ve been working on for months, is how we fund these implementations, right? So that’s what we’ve been solving for and we think we have a solution for it. Again, no guarantees, but we feel pretty confident that we’ve got a solution for that. That is something that is replicatable and something that’s elastic that can grow with the company that solves that problem.

Okay. Like some sort of funding mechanism that can flex with your growth.

Yeah. Exactly. Something that’s a funding mechanism that is on terms that are favorable to a company like Rekor that can flex with our growth and give us the ability to do exactly what we’re talking about doing here.

Okay. And then one last question, Robert, I know you guys don’t give guidance on a year out and it’s only third quarter. But can you just kind of help us think about how to think about the revenue profile for 2024 as these state contracts kind of come online and you have this new perhaps funding and maybe you tack on some acquisitions. Like, how do you think about what this company looks like this time next year in terms of revenues?

I think we’ve all seen young companies that have crazy CAGRs, right? Like, when you look at Rekor from 2018 forward and remember the revenue that we have is, there’s no legacy revenue here from anything that’s not related to what we’re doing today. So, I said in the script that, we expect to double revenue again this year. So when you think about that, I think you can expect that to continue at that type of growth rate and it will accelerate if the funding mechanisms are -- there’s two challenges, the funding mechanism, which we think we have solved, right? But no guarantees, but we think we have it solved. And the second is, expanding our footprint so that we can do business in the states that we can transact with today, but haven’t been able to get to. So, we have customers that want to do business where we can’t get to them, right? Because we’ve been bogged down in other places, but we think we have a solution for both. So I would say if both of those things come together, the funding mechanism and the way we’re approaching expanding the footprint so that we can handle the business, then we can exceed the growth that you’ve seen to this point, right? I mean, it could just accelerate and increase. So I think…

Okay.

…when you look at the history of it, I think, it’s pretty impressive, and I think, it’s just very early stage, okay? The size of this market is massive, okay? The technology is being adopted. There’s no question about it, right? And it’s just a matter of being able to execute the business and get out there and do it and that’s a high class problem. So you just figure out, okay, how do we do this, and you just figure out how to do it and you go do it and that’s where we are now. That’s where Rekor is at a point where it’s -- it just needs to execute now. The business is there and we just need to figure out a way to execute and we will.

Great. Thank you very much for all your time.

Okay. Thank you.

Thank you. And at this time, there are no further questions. Now let’s turn the floor back over to Robert Berman for any closing comments.

Yeah. Well, thanks, everybody. Thanks for the support. Thanks for your patience and time. And I think Rekor, look, I think, we had a fantastic quarter. I think we’ve had a fantastic year. Introducing the technology is not all that easy, right? It’s not something that’s black and white. There are things that happen along the way. But because of the team we have and the people we have and the hard work that they’ve invested in this, I mean, we’ve gotten through it, right? So this company is now at the point where it’s going to scale and you’re going to see it. You’re already seeing it. You may not realize it, but you’re seeing it, right? And it’s going to continue and it’s going to accelerate and it’s going to grow. And this market is massive because at the end of the day, you’re replacing legacy technology with something that’s needed. I think everybody on this call can understand the need to have a connected layer of digital technology across these roadways. That allows for so many other things to happen, right? And Rekor is the company that’s going to do that in the same way that the guys that rolled out electricity back in the early 20th century did what they did. That’s exactly what we’re doing, okay? And then once you put that electricity grid out there, somebody else comes along and says, hey, can I hang my phone line on your electric pole, right? There’s a whole bunch of other things to come together with that. And we have all those pieces and that’s what we’re solving for and we’re on a path to do that. We’re going to execute that plan and we’re going to get it done. And we thank you all for your support and patience, and stick with us, stick with us. It’ll be worth it, okay? So much appreciated everyone.

Ladies and gentlemen, that does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.