Good afternoon, ladies and gentlemen, and welcome to today's Rekor Systems, Inc. Conference Call. My name is Kevin, and I will 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 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 and uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. We ask you 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. I’d now like to turn the conference over to Mr. David Desharnais, President and CEO of Rekor Systems.

Thank you operator and thanks to everyone for joining us today. I'll start with a brief update on customer activity, followed by an overview of the current market and our strategic priorities. Eyal will walk through our Q3, 2024 financial results and I'll conclude with an update on our market position goals for 2025 and the path forward. I'm pleased to report that the pipeline we've been nurturing for months is now entering the deployment phase, validating our growth strategy across all three core product areas; Urban Mobility with Discover, Transportation Management with Command and Public Safety with Scout. In each area, we're seeing steady platform expansion, increasing customer engagement and expanding strategic partnerships. Starting with Discover, we recently achieved the much anticipated inclusion of our systems on Florida's approved product list or APL, and have now begun the first wave of statewide deployments spearheaded by the Central Office of Florida DOT. These deployments are part of a statewide effort to provide comprehensive coverage across every district, ensuring precise roadway data and advanced analytics for emergency operations and beyond. I'm especially proud to report that our first installations have already been battle tested and proved their value. During one of the most challenging hurricane seasons in Florida's history, Rekor was a reliable and accurate source of traffic data for the state and its emergency operations, facilitating the safe evacuation of millions. While these back to back hurricanes required Florida DOT to prioritize emergency operations and evacuations for citizen safety during this time, we are now excited to be making renewed forward progress in Q4. With our inclusion on the APL and strong endorsement from Florida DOT's Central office, we are collaborating with multiple districts to expand the reach of Discover, leveraging existing and discretionary budgets for wider implementation across the…

Thank you David, and thanks for joining us today to discuss our results for the three and nine months ended September 30, 2024. I'd like to begin by highlighting recent strategic actions we've taken to optimize our cost structure which are projected to reduce 2025 expenses by up to $15 million compared to 2024. These initiatives include workforce restructure to better align our cost base with current business needs. We have placed our emphasis firmly on current operations and near term revenue producing opportunities while ensuring that we retain key talent and maintain the operational capacity required to deliver high quality service to our customers. In addition to a thorough evaluation, the timeline for our longer range development efforts and reduction of other expenses, we have implemented targeted compensation adjustments that include more equity based compensation in the total compensation packages. This demonstrates the long-term fate of our top employees in our future success. Now for the third quarter numbers. We had revenues of $10.5 million, an increase of 16% compared to Q3 2023, and for the nine months ended September 30, 2024, we achieved $32.8 million in revenue, an increase of $8.9 million or 37% over the same period last year. Our Urban Mobility segment, which consists of revenue derived from roadway data aggregation activities, was the main driver of our growth in the quarter. Recurring revenue reached $5.5 million in the third quarter of 2024, an increase of 14% over the same period last year. For the nine months ended September 30, 2024, recurring revenue totaled $16.8 million, an increase of 13% compared to the same period last year. Adjusted gross margin for the three months ended September 30, 2024 was 44%, a decrease from 52.6% for the same period last year. For the nine months ended September…

Thank you, Eyal. As you can see, we are taking deliberate actions to align our cost structure with the realities we've experienced in the government procurement cycle. Through a disciplined financial approach, we are positioning Rekor sustainable self-funded growth with a clear line of sight to positive cash flow in 2025. At the same time, we are at a defining moment in the evolution of roadway technology. Transportation departments across the U.S. are at a crossroads. They can either continue with outdated, unsafe, labor intensive methods or embrace modern AI driven solutions that provide better worker safety, deeper insights and increased efficiency and future proofing. We are well positioned to lead the way and support our forward looking customers as they continue to embrace digital infrastructure as part of this inevitable and massive wave of modernization and technology transition. Rekor has the capacity to deploy hundreds of thousands of our AI Edge units along with our software, ultimately transforming over 4.2 million miles of U.S. roadways. While exact deployment timelines are difficult to predict, once these agencies commit to this transition, we believe there is a potential for a 40% compound annual growth rate in revenue over the next five years. Achieving this level of growth would establish Rekor among a select group of industry leaders. Looking beyond technology and partnerships, we are building a company prepared to endure and thrive. As we move forward we expect to deliver consistent revenue growth, expanding gross margins and enhanced predictability. Our disciplined approach and commitment to financial independence not only supports a self-sustaining growth model, but also paves the way to unlock Rekor's multibillion dollar potential and to deliver outstanding value to our stakeholders. We're excited about the road ahead. With Rekor's dedicated global team leading AI solutions across each of our product lines and strategic partnerships, we are uniquely positioned to modernize millions of miles of U.S. Roadways and paved the way for global expansion. Rekor’s thought leadership and influential presence on the boards of leading industry bodies also places us squarely at the forefront of transforming the future of transportation. The future is bright and we look forward to continuing this journey together building safer, smarter and more efficient infrastructure for communities everywhere. Now I'd like to open the floor for any questions you may have. Operator?

[Operator Instructions] Our first question is coming from Mike Lattimore from Northland Capital Markets. Your line is now live.

Hi Dave, thank you. Congrats on the ITS appointment, David.

Thank you very much, Mike.

Just a couple quick things on the results in the quarter here. So recurring was down sequentially and if I recall last year the similar dynamic occurred when a hurricane came through in the third quarter. So I guess it was there. Is recurring revenue going to sort of was it impacted by the hurricanes in the quarter, like particularly the mobile site revenue, and does that bounce back in the fourth quarter?

Yes, Mike, thank you for the question. You are correct. We incurred the same kind of weather conditions, even worse in Q3. This result lower recurring revenues or lower revenues from recurring contracts. And we anticipate this to come back in Q4 and forward. Yes.

Okay, good. And then with regard to Florida, great to see you're on the APL list. You say deployments have commenced. Can you give a little more detail there? Is there a detailed plan for a number of endpoints per month or, certain districts farther ahead than other districts? Maybe just talk a little bit about kind of how visible this deployment program is.

Yes. So, Mike, in regards to Florida, as you know, the hurricane season has been pretty nasty this year. Right. The intention of the central office of Florida is they want to be able to have effectively eyeballs in every district to be able to get good coverage across the state during emergency operations. Obviously, I think you're in that market. And so Hurricane Sara is brewing again, and you understand there's a timeline associated with this and they're trying to get as much done between now and May to make sure that they're prepared for the next, whatever may come in next season. And so in terms of distribution, you can imagine every district will have a certain number of units and they're planning that out right now and we're working with them daily on it. I wouldn't be prepared to give you that detail on here, just for competitive reasons and other things. Right. But yes, it's a very, very close relationship, I would say in part because of the performance that we've demonstrated there in the past year of our engagement. But it really reached a peak of undeniable, evidence during the performance during the storms themselves, where we were literally the only devices able to provide accurate, reliable, sustainable data during the storm. So that really accelerated a lot of things that I would say otherwise would have taken a slower boat through, the channels and the labyrinth [ph] of procurement and things. So in this case, never let a crisis go to waste in that, in that way. And it's really helped kind of accelerate the planning there and also the confidence in the state to move very quickly. Now beyond that, every district operates also independently. So you have central office or central Florida that overlooks across the state for their needs. And then you have every district that has day to day operational needs for things like class count and speed and other statistics. And so we're engaged in parallel with the districts as well as the central office. And the districts themselves have their own needs. And when we talk about, the potential in a state like Florida, say, 18,000 devices over time. Right. If you look at that as the potential TAM of that area, then the districts play a pretty heavy role in that. And as we look to go beyond central office, we'll get that done. And then also in parallel working with the districts, that opens up tremendous, footprint and tapping into different budgets, some of which are existing budgets, some of our discretionary budgets, and some are budgets to come based on their future planning. But I would say net, very, very tight, trusted relationship we're building with Florida and we expect again that to be one of our largest revenue producing states over time. So I hope that provides some color there, Mike.

Yes, yes, thank you. And then just maybe thinking about it more broadly here in terms of the addressable market. You're talking in Florida here about several thousand units. And then I think historically you've mentioned kind of maybe the TAM is in the millions, but you know, Florida is one of the bigger states. So can you kind of think up like that, broader TAM versus what we're seeing in Florida right now?

Yes, I'll try to color that up in a way that you can extrapolate to how we think about this across different states. So if I take, if I take Florida, and for those of you that don't look at the stats here, Florida has about 122,000 miles of public roadways. Our concentration is really on the highways and interstates. And if you look at the mileage of highways and interstate miles, it's around 13,500 or so. Right. And if you look at the 18,000 sort of site potential in there, it equates to about 1.3 sites per mile. In some cases could be up to 2 per mile. Now I can tell you, living in the north or mid Atlantic, I should say, I will tell you going up and down I95 every quarter mile or so, I can tell you there's devices there. So when we start looking across the states, whether, you know, if you look at Texas and their road miles, if you look at Florida and their road miles, you look at Hawaii and New Mexico road miles, we see pretty easily 750,000 to a million, million and a half sites potential as a TAM. Now if you think about the devices, and this is how we think about it. We have an opportunity to be able to serve each of those states on their roadways with the superior data that we do produce for them for class count and speed. However, once you have that real estate, we'll just call it real estate. The ability to do upsells and cross sells there is enormous. And so when we think about the potential that 750,000 to a million and a half sites provides, it's not just one and done. It's the ability to expand upon that, add value added services on top. And frankly, we're starting to see this now pull in our additional platform. So what I'm talking about right now is Discover. But we also have our command platform and we also have our scout platform and those are tied together on the back end that allows us to do expansion. So the TAM is pretty significant. Even if you just looked at it independently as our urban mobility segment with Discover, it's a very, very good TAM overall. But then you start to look at the cross selling and upselling capability, it becomes really terrific. And that's what we see ahead for us.

Makes sense. And one last one just on G&A that was up sequentially. Was there any one time item in there?

Yes. You're right, Mike. We have a significant amount of onetime items there associated with the financing transaction we did in Q3, like the Yorkville, we did a new shelf and we did the warrant exercise that happened all in Q3 and resulted in expenses.

So, the $15 million of savings you expect is basically relative to the OpEx in the third quarter, probably excluding those onetime items, I would imagine?

Yes. Excluding the onetime items, as we said, we did the salary realignment with equity and some other measures to reduce our expense structure significantly in 2025.

Okay, thank you.

Thank you, Mike.

[Operator Instructions]. Our next question is coming from Louie DiPalma from William Blair. Your line is now live.

Good afternoon, David and Eyal.

Hey Louie.

You are making significant progress in Florida with the APL and you announced developments with Texas and New York. We were wondering how might the new presidential administration impact Rekor's business as there has been a lot of discussion of Dodge reducing red tape and bureaucracy and you have cited the inconsistent government procurement cycles, but could Dodge like expedite procurement and lead to a faster conversion of this like very large 750,000 TAM into like deployments and revenue?

That's something we've given a lot of thought to, obviously, leading up into the election season and obviously, the outcomes of the election. A couple of things I would say just as sort of contextual points is that the Infrastructure and Jobs Act or the Bipartisan Infrastructure Law, thankfully, was intended to extend beyond a single administration. So, that's still in place, that's still $1.2 trillion, and it's still within a 5-year duration of time. So regardless of the outcome of the election, that still stands and the money that has been earmarked or allocated already is still earmarked and allocated. Now, as we've kind of looked at this scenario planning here for what may happen, we kind of took a look at Trump's first term and just sort of as an indicator of what we can expect. And there's been no announcement of the Secretary of Transportation yet or the Department of Energy, those are still open positions yet to be fulfilled. But they will still have the infrastructure law to depend on and deploy. And the reality is that nothing has really fundamentally changed in terms of we've got increasing demand for travel, infrastructure is aging. The fact that fuel tax revenue is going down and that the existing sort of program spend for Departments of Transportation is insufficient to do what they need to do, the need to be able to leverage and tap the infrastructure law or the bipartisan infrastructure law is still there. And Trump is known to have a heavy focus on highway expansion for sure. When we think about an emphasis on rural areas of border surveillance, domestic ICE vehicle production, so standard petroleum vehicles. I mean, all of that bodes well for what we have as an offering today and we don't…

Thanks. And it seems the progress of the 1,000 camera deployment with State X has been impacted by the hurricane season, but what is the new time line for when that deployment should be completed? And once it's completed, should investors expect follow-on orders from State X? Like what is the market opportunity? And are you already in negotiations for follow-on tranches with State X?

Yes. So yes, yes and yes, Louie. So, State X, as we've referred to before in previous calls, as I've hopefully tried to make more clear today is Florida. With our inclusion on the APL, there's an enormous opportunity there. And our position in the state is very favorable, again, based on performance and based on relationship and the momentum. Keep in mind, we've had a long, longtime relationship with the state in Florida. And Florida is influential to other states, not only around Florida and adjacent to Florida but really across the nation. They are one of the top states when it comes to Federal Highways administration, and so many times, the question becomes what is Florida doing? And maybe that's what we should do when it comes to states and how they make decisions and so we're really pleased with that. The opportunity that I've outlined there is very real, and we're extremely well positioned. So, we're working with the districts now on deployment plans. It will tie into their program spend, it will tie into discretionary funds. And, yes, I mean, again, that's yes, yes and yes for us. We still have day-to-day operational things that we'll go through with them, there's still things that we're working on and time lines, how to stage that through the districts and labor and things related to that. But, yes, the opportunity is immense there.

And is there also the equivalent of approved product lists in some of your other large markets, such as New York and Texas and California?

There are and it becomes relevant depending on -- so APL or approved product list, there's different names for it, but similar kind of thing. Not every state has them, but a lot of states do. And a lot of states have reciprocal agreements. So, what one state does, another state will follow. And if it's good enough for them, it's good enough for us without having to go through what can be an elongated process sometimes. But having gone through now in multiple states, we have a growing experience on this and a lot of this can be templatized. In my earnings remarks, I talked about dealing with procurement and how we're codifying the process and building a framework. And part of that is we know this is going to become something. And we have answers now and I think we can accelerate that process. That's our expectation. So, that's for states that are buying equipment that they need to have on an approved product list. But our business model provides alternatives, like for example, some states don't need to buy equipment they will do data services only. And if it's a data services only, there's no equipment to buy per se so there's no approved product list to worry about. You're delivering a service, a data service at the end of the day. So, what we expect to see happen is that states that do have the opportunity to procure hardware is that we will navigate through the APL process, if there is one, we will lean on existing APLs that we currently have to help accelerate that process and or have a reciprocal agreement there. And the third option there is that we would look to partner with a local integrator that is already enabled with everything lined up with an APL to accelerate that process. So, I think, again, going back to just the main point is that states do have APLs. They become relevant if they have to buy equipment, but we see more and more states moving to more of a hybrid model and/or even a data services model. So, it will become less relevant, I would say, as we move forward. But if there is one, we'll navigate it. If there isn't one, that's great, too.

Sounds good. And lastly, does the $15 million in cost savings initiatives, does that provide enough liquidity cushion for Rekor to execute its plan until the company becomes free cash flow breakeven or free cash flow positive in the second half of next year?

Hi, Louie, yes. So the way we look at it, yes, we look on our expense structure and focus really on near-term revenues generating activities. And we believe that we did and the $15 million savings that we have will give us enough run rate to get to a free cash flow in 2025.

Thanks. That’s it for me.

[Operator Instructions]. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

I just want to say thank you very much for tuning in today. We've made, I would say, tremendous progress in a short period of time. We're a young company still, we've accomplished a lot. And a good example, I think, is getting through the processes with Florida as sort of a template and an example. We've learned a lot in that process, and I think it's going to accelerate our path forward. So, a lot of goodness coming out of that. And the changes that we've made from an operating expenses perspective is significant. Something like that is difficult to do. And we've got some amazing people and some rock stars that will be on to their next adventure, and we wish them well. But the folks that are remaining are fully committed to the plan here. We believe that the changes that we've made are going to allow us to cash flow our business as we move forward to profitability. And we're starting to see the business turn in the way that we expected. It took a little longer than we'd like to see, but it's on its way, and we expect this to continue into 2025 for sure and beyond. And so, we're excited about the path forward. We have a lot of work to do, and we're clear-eyed about that, and we're on it. So, thank you very much for the support and the patience and I believe that you're going to be well rewarded as we continue to navigate the path forward to what is an inevitable future. So, thank you very much for today, and I look forward to updating you in the next quarter.

Thank you. That does conclude today's webcast. You may now disconnect your line, and have a wonderful day. We thank you for your participation today.