Rekor Systems Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 8 speakers on the call.

Operator

Morning, ladies and gentlemen, and welcome to today's Recor Systems Inc. Conference Call. My name is John, and I will be your coordinator for today. 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 prediction of future performance or events are forward looking statements.

Operator

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.

Operator

And now I want to turn the presentation over to Mr. Eyal Henn, CFO of Recore Systems.

Speaker 1

Hi, everyone. Thanks for joining us to discuss our results for the 3 9 months ending September 30, 2023. We are happy to share our continued progress with you. I would like to start off by sharing 2 slides with you That I think really demonstrates the progress that Recor has made. Over the past 5 years, since we have been tracking our technology revenue, Recor has delivered a 2 68 percent compound annual growth rate or CAGR.

Speaker 1

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 2 acquisitions. During this time, we quickly gained a significant foothold in the transportation market and are becoming well recognized a thought leader within the industry. The next slide compares 3 other AI technology companies. As you can see on the left, the revenue per share for Recor is significantly higher than the other 3 companies and was accomplished in much less As you can also see on the right, we did all of this with the intelligent use of much less equity And these other AI tech companies, this gives you a good sense of the rapid progress that we have made while being mindful The continued revenues momentum and other achievements we've seen during Q3 and the last 9 months.

Speaker 1

As a result of our continued growth and progress, we are pleased to announce an unprecedented top line for the Q3 of 2023, With a consecutive quarter over quarter increase of 6.5%. It's noteworthy that we accomplished This is why we also continue to reduce our SG and A expenses. Over the last year, we have demonstrated that we can be financially prudent Even as we integrate significant acquisitions, it's also important to mention that we achieved this while continuing to make significant investments Now let's talk about some other significant additional details for Q3. Highlighting the tangible growth and forward momentum we've just discussed, we're pleased to share that our revenue for the Q3 increased To $9,100,000 34.5 percent higher than the $6,800,000 experienced in the same period last year and about 6.5% higher than the Q2 of 2023. Total revenue for the 9 months ended September 30, 2023 was $23,900,000 a significant increase of 77.4 percent over the same period in 2022, which had revenue of $13,500,000 Our 2023 growth is mainly organic with more and more states, municipalities and commercial customers adopting our technology across all applications.

Speaker 1

In the 1st 9 months of 2023, we also achieved a reduction in cash used for operations, Down to $26,700,000 from $13,400,000 in the same period last year. And I'd like to point out our 2023 results include one time payment for accrued accounts payable For 2022, professional fees and deployment of new systems. During the Q3, our cash burn continued to decline. This showcases our commitment to thoughtful and efficient financial management as we position Ricoh for growth and scale. Turning our attention to financial metrics and other recent developments, I'll cover several promising trends.

Speaker 1

Q3 2023 revenue achieved a robust $9,100,000 in revenues, demonstrating significant growth of 34,500,000 percent From the $6,800,000 recorded during the same period in 2023. We also continued our growth quarter over quarter, which was 6 Percent above Q2 of 2023. Revenue for the 1st 9 months of 2023 totaled $23,900,000 Up 70 7.4 percent from the $13,500,000 during the same period in 2022. As mentioned earlier, our revenue have grown organically since all operations for our recent acquisitions have been fully included. We've also seen remarkable improvement in adjusted gross margins, up to 52.6% for the Q3 of 2023 from 46 point 1% in the Q3 of 2022.

Speaker 1

This margin performance has been fueled both by technology advancement And the use of automation and process controls, enabling us to optimize costs and bolster margins. Operating losses due to our improved margins and reduction in SG and A expenses, we successfully decreased our operating loss From $12,800,000 in the Q3 of 2022, not including the goodwill impairment, to $9,800,000 in the Q3 of 2023. Furthermore, the 1st 9 months of 2023 show a reduction from $40,900,000 In the corresponding period in 2022, down to $32,800,000 even as we worked intently To complete the integration of the STS acquisition, adjusted EBITDA For the Q3 of 2023, the adjusted EBITDA loss stands at $6,600,000 An improvement of over 38 percent from the $10,700,000 in the same period last year. For the 1st 9 months of 2023, We reduced the adjusted EBITDA loss by 28.5 percent to $23,200,000 down from 32 point $4,000,000 in the same period last year. Quarter to quarter improvement from Q2 2023 was roughly $500,000 Reduction or approximately 7.6%.

Speaker 1

We anticipate this trend to continue as we continue to grow our top line and manage our operating Expenses prudently. As in previous quarters, we've borne one time expenses linked to payable management, asset and inventory system deployment and associate professional services. We'll continue to maintain a disciplined approach on operating expenses And diligently review each of our financial metrics to strategically allocate resources Enriched key performance indicators to provide a more granular insight into our upward trajectory. Our goal is to empower you to assess our ability to obtain new contracts and for shareholders to appreciate the enduring value these contracts bring to In the Q3 of 2023, our recurring revenue percentage Total revenue was 52.6%, a decrease from 71.4% during the same period last year. This was a result of different mix in the products and services we sold.

Speaker 1

As we stated before, we generally anticipate We have 65% to 75% of recurring revenues, which may vary based on the mix of sales between products and services We provide recurring revenue and those that produce point in time revenue. Recurring revenue for the 9 months Ended September 30, 2023 accounted for 62% of total revenue, a small decrease from 64 in the same period last year. In the Q3 of 2023, we executed contracts worth $8,400,000 A 74% increase over the $4,800,000 total contract value in the same quarter of 2023. Additionally, through the 9 months ended September 30, 2023, we secured contracts worth of $38,100,000 A 343% increase over the $8,600,000 of total contract value in the same period of 2022. Finally, as of September 30, 2023, our remaining performance obligation stood at $30,200,000 A prominent job of $8,800,000 or 41 percent compared with the $21,400,000 as of December 31, 2022.

Speaker 1

We project that approximately 73% of the remaining performance obligation As of September 30, 2023, will be realized in the coming 12 months. Moving to our financial condition and liquidity. In January, we completed the closing of senior secured notes In the aggregate amount of up to $15,000,000 led by our CEO, Robert Darren, with participation from other new and existing investors. At closing, dollars 12,500,000 was funded. In March 2023, we also completed a registered direct offering for $10,000,000 These transactions gave us the liquidity to continue executing our strategy.

Speaker 1

Our cash balance for September 30, 2023 was $7,000,000 an increase from $1,900,000 as of December 31, 2022. In July, a warrant holder exercised warrants, resulting in approximately $11,000,000 in cash proceeds. Our working capital position has also increased significantly. As of September 30, 2023, We had a working capital of $3,600,000 compared to a deficit of $6,000,000 as of December 31, 2022. The improvement in working capital was primarily due to increased cash and cash equivalents and accounts receivable.

Speaker 1

In summary, we're pleased to see continued solid results and synergistic impacts From our technology development efforts and strategic acquisitions, we also expect to have a strong Q4 and meet or beat The current estimates for the full year. This continues to give us confidence in our upward trajectory, Operational efficiencies and commitment to long term growth and shareholder value generation. With that, I will now turn the call over to David. David?

Speaker 2

Thank you, Eyal, And good afternoon to all of you that have joined us today. We appreciate your interest in Recor and in our progress. Building upon Eyal's comments about our financial performance and I'm pleased to report that the Q3 has marked yet another period of continued performance and growth for Recore. 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've all seen and read in the media lately, U.

Speaker 2

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 Traditional tools and methods for managing and optimizing this vital infrastructure are proving inadequate. The passage of the bilateral infrastructure law at the end of 2021 marked a historic $1,200,000,000,000 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 that we interact with are doing more than just reassess They are proactively looking to embrace AI and digital infrastructure technologies as a solution.

Speaker 2

For Recore, this is where preparedness and opportunity meet. The guiding vision of Recore 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 our award winning AI technology to collect, connect and organize the world's mobility data To create essential and comprehensive Roadway Intelligence that is useful and easily accessible for our customers. Our strategy is distinct in that we do not simply collect data as a pass through to customers As is common practice in the transportation industry, data for data is not helpful or useful. What's different about Recore and our approach is that we use AI to aggregate and fuse together massive amounts of volumes, Velocities and varieties of data, data about roadways, data about anything moving on or around the roadways And data about events that can impact roadways.

Speaker 2

And we bring all of this together to generate unique, real time And Predictive Insights and Roadway Intelligence that is used by our customers to help them make better, more informed mission critical decisions that improve the lives of people on roadways and the world around them. We provide our Roadway Intelligence solutions to both commercial and public sector customers across public safety, Urban Mobility and Transportation Management Market Segments. This past quarter, in particular, Has been pivotal for us in cementing our position as an essential innovator in AI for digital infrastructure and delivering significant breakthroughs in our products and platforms each of these market segments. We also worked to exponentially increase our distribution capacity, scale our internal systems and processes And strengthen our brand promise as a leading provider in Roadway Intelligence solutions. I am pleased to provide some key highlights in each of these areas on our call today.

Speaker 2

Starting with public safety and licensing, we made significant technology and AI model updates in the quarter, Dramatically expanding our geographic coverage and scope of vehicle recognition capabilities, including the latest plate designs and reflective properties And new vehicle makes and models across traditional combustion engine, hybrid and electric vehicles driving on roadways around the world. In parallel to these technology updates, we saw new and expanded adoption of our Scout vehicle recognition platform with major wins in Colorado, Florida and New Jersey. We also saw continued expansion of our footprint in Latin America, EMEA, Asia and North America and through our fast growing OEM licensing and reseller channels. Scout's vehicle recognition technology operates as the powerhouse engine under the hood of critical solutions provided by companies like Safe Fleet, Hayden AI and multiple others that are deploying tools to transit authorities and law enforcement agencies globally And across major metro areas in the United States, including New York, Philadelphia, Chicago and Washington, D. C.

Speaker 2

This represents Recor's technology licensing arm in action, and we expect this area to grow significantly in the coming quarters. Beyond law enforcement and transit, we've also continued to deepen our relationships and footprint with enterprise clients such as corporate campuses, Stadiums, universities, parking facilities, theme parks, casinos, retail establishments and more in the quarter. This expansion is supported by a growing set of regional value added resellers that we recently established to drive faster and more efficient market penetration And scale. Now let's shift attention to our performance in the Urban Mobility segment for the quarter. Departments of Transportation and commercial entities are supposed to conduct an estimated 5,000,000 traffic studies in the U.

Speaker 2

S. Each year. These traffic studies are mandated by the Federal Highways Administration and the U. S. Department of Transportation and must meet Exacting standards for vehicle counts, classification and speeds on all of their roadways.

Speaker 2

Today, states struggle to collect and report traffic data for most of their roadways due to the cost of collection And the inability for legacy technologies and manual approaches to keep up with and meet the evolving standards. The inability to properly report these traffic studies means states cannot recoup the much needed funding to build and maintain their vital infrastructure. This perpetual lack of underinvestment is also a reason why roadways and bridges in the U. S. At ReCore, nothing gives us more pleasure than reinventing normal, Creating technology and innovations that customers love and resetting their expectation for what normal should be.

Speaker 2

This is Certainly the case with our groundbreaking Discover platform for AI based traffic studies that we launched earlier this year. We built our ReCore Discover solution to provide an unmatched value proposition for our customers. Our unique AI driven approach delivers substantial cost savings per data collection site compared to traditional legacy methods and assures fast, safe and non intrusive deployment, keeping road workers out of harm's way. We do this at a fraction of the cost and in a fraction of the time safely, flexibly and with the highest levels of reliability and accuracy made possible by Advanced AI. Using the Discover platform, customers can now easily and completely collect data across all of their roadways, Address the federal requirements for traffic data coverage and accuracy and automatically generate comprehensive reporting For class, count and speed across all of their roadways.

Speaker 2

Using Discover, customers can now substantiate, secure and reclaim federal funds back to their state Critical Infrastructure Development and they're doing that. In the quarter, despite incredibly challenging weather conditions from an intense hurricane In our Southeast markets that continuously disrupted roadway operations, our dedicated teams in Georgia, Florida, Alabama, the Carolinas and Virginia Rose to the occasion. As a result, we recorded our most successful quarter ever in our history for the volume of both permanent And short term traffic studies and a major milestone for the year so far. Our customer pipeline for our Urban Mobility segment continues to expand across the United States as well. Already generating significant revenue from our footprint in key states such Georgia, Florida and South Carolina, our influence continues to broaden.

Speaker 2

With an additional 14 pilot programs already underway in various states, Including New Mexico, North Carolina, Maryland, New York, Montana and Colorado and more, our upward trajectory for continued growth here is more than promising. Shifting gears to our transportation management market. I'm excited to share that we have also made significant progress here in the quarter as well, including major new technological advancements, expanded partner programs and customer growth. Traffic Management Centers shoulder a substantial responsibility, tasked with ensuring smooth and safe traffic flow across extensive road networks. Their role is critical in managing and optimizing traffic, tasks made increasingly difficult due to chronic under staffing and reliance on outdated tools.

Speaker 2

As a leader in Roadway Intelligent Solutions and building on the success of our ReCore Command platform, which is already popular among major traffic Management centers both in the U. S. And internationally, we delivered an enhanced suite of new advanced capabilities, tools and actionable insights in the quarter That further create a force multiplier for traffic management centers and provide an even more comprehensive and essential toolkit for situational awareness and response Roadway status, incident persistent scoring and automated response Planning are among a few examples of these new capabilities that were released to the market. We also unveiled a groundbreaking new approach and predictive analytics To assess roadway and crash risk, enabling traffic managers to foresee potential road hazards and accidents hours in advance, Proactive responsiveness to an incident saves lives and being able to do this again is a force multiplier for our customers. In fact, traffic management centers enthusiastically report to us over and over that by using our ReCore Command platform, they can now automatically detect Up to 49% more potentially fatal incidents that would have otherwise been missed And respond to incidences up to 23 minutes faster than traditional methods.

Speaker 2

Not only does this translate to reduced congestion on our roadways and secondary Crashes, but more importantly, it saves lives. Recore stands alone in our ability to provide these kinds of real time and predictive insights Traffic Management Centers. For these reasons and more, we are observing an increase in annual revenue per customer, growth and profitability per customer and a sharp rise in engagement, Adoption and usage of new capabilities. We believe that this momentum will continue to build and here's why. Efficiencies like these also deliver substantial operational and fiscal benefits to our customers, amounting to tens of 1,000,000 of dollars in potential direct And indirect savings per year to the state.

Speaker 2

All of these compounding advantages work together And it's why customers choose Recore. Supporting this, I'm pleased to report that we Florida and California. We also advanced our work with the Oregon Department of Transportation, where we are partnering with Sintra And serving as the core technology platform and hub for all data and connected vehicle providers, Oregon aims to deploy a first of its kind comprehensive ambient computer solution for roadway usage charging. Across what is today the highest concentration per capita of electric and hybrid vehicles on roadways in the U. S.

Speaker 2

Many other states are closely monitoring our work in Oregon as a potential template for their own road usage programs in the coming year. In addition to this, we also kicked off new projects in multiple other states, counties and municipal districts as part of a targeted sales campaign And marketing initiatives to reach 800 cities, counties and municipal planning organizations in the U. S. We believe this is a segment of the transportation market That is wildly underserved today and where ReCore can deliver unique and disproportionate impact as we do at the state level. We are well positioned to help connect the dots and enable sharing and collaboration between agencies at all levels across the state and even across multiple states.

Speaker 2

As we look ahead, customers in this segment have told us they often struggle to manage through arcane complexities and timeliness of traditional government procurement systems To aid in this and to accelerate growth in this segment, this quarter we also announced deepened partnership And a co selling channel relationship with Amazon, its AWS Marketplace and its Public Sector team, Making the ReCore Command platform available and accessible for easier government procurement. This will make technology adoption and deployment much simpler for states, Counties and municipalities and ensures immediate and continuous access and scalability on demand for them as they adopt and expand usage of our Roadway Intelligence Solutions. Overall, we are encouraged with the progress that we've made this quarter in the Transportation Management customer segment. I believe the best is yet to come as we continue to expand and scale our technology, partners and customer growth. In summary, the Q3 has been another period of solid performance for our company, marked by substantial product innovations Across each of our customer markets and growth in both the size and the strength of our relationships with clients.

Speaker 2

At the same time, We have continued to aggressively innovate and expand our range of products and services with each new product designed modularly to integrate seamlessly with our Recor One Roadway Intelligence engine. Designing our systems wisely in this way Optimizes our technology investments for speed, reuse and scale and shortens time to market and profitability for each segment. By almost any measure, Recor is in a stronger position now than at any time in our past. We have momentum I believe our relentless focus and execution against our vision and mission will continue to propel us into further exceptional growth and opportunity ahead. In closing, I want to recognize that while we're not immune to the significant and continuous market, financial and geopolitical up faced here in the U.

Speaker 2

S. And around the world. We are resolute in our vision and are working hard to build something important, something durable, Something that matters to our customers and something that we can tell our grandchildren about. Such things are not meant to be easy. We are incredibly fortunate to have a group of dedicated ReCore employees around the world who sacrifices dedication and passion for our shared vision Is what builds ReCore.

Speaker 2

And we remain ever grateful to our customers for their business and trust and to you, our shareholders, for your continued encouragement and support. Thank you for spending time with us today, and I look forward to keeping you up to date on our continued progress. At this point, I'll turn the call over to Robert Berman, our CEO and Chairman of Recor, for final remarks and Q and A. Robert?

Speaker 3

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, Recore has experienced a 2 68 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.

Speaker 3

And at the same time, we've solidified our market presence and emerged as industry thought leaders in Roadway Intelligence. Our acquisition of WayCare in August of 2021 and STS in June of 2022 brought combined revenue of approximately $15,000,000 Since then and despite the sale of our last non core asset in the Q4 of 2022, which resulted in a reduction of $2,500,000 of gross revenue. Our top line 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 Q4 of 2023, Recor will have again more than doubled its top line.

Speaker 3

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 reach these milestones While avoiding the heavy dilution that is often seen in the sector.

Speaker 3

This strategic approach has allowed us to advance steadily, Mindful of preserving and maximizing shareholder value as the company moves towards breakeven between Q4 this year and Q1 of 2024. As the company scales its growth, most of the capital we'll need is directly related to the installations of roadside IoT We're going to continue to be efficient, avoid using equity and work to address this funding with debt And other mechanisms as much as possible. In addition, as our footprint grows from East to West, The opportunity to transact in states where we have no direct presence or people continues to be a challenge. We don't see these as problems, Well, more is challenges and opportunities that our technological lead puts us in a position to seize. And we'll have more to say about this in the coming weeks.

Speaker 3

In closing, I want to express my deep gratitude to our shareholders for your trust, support and belief in our vision. You've been the foundation of our achievements and together we are just not navigating the future, we're shaping it. Now, I'd like to open the floor for any questions you may have and 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?

Operator

Thank you. We will now be conducting the question and answer session. And the first question comes from the line of Mike Latimore with Northland Capital Markets.

Speaker 4

Congrats on the strong organic growth here. You've 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?

Speaker 3

Mike, I don't know that I can speak directly to the percentage, but it was a large percentage of the bookings in the quarter and will continue to be in the 4th quarter. And that's where our focus is and what I referenced with respect to rolling out these IoT

Speaker 4

And

Speaker 2

Yes. As you look to the Q4,

Speaker 4

do you see kind of all three business segments driving Kind of 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 4th quarter?

Speaker 3

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 our team notes, 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.

Speaker 3

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 and 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 in a couple of years down the road where traffic management starts to kind of catch up like a horse race.

Speaker 3

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 that's a good way of looking at it Right now, David, do you have any thoughts in that regard?

Speaker 2

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

Speaker 4

Great. And how many on the urban mobility side of things, how many deployments or site deployments can you Due per day, I mean, do you have enough resource to deploy certain amounts per day now?

Speaker 3

David, do you want to take that?

Speaker 2

Yes. There's some multi stage process like in core concrete, you have to wait For the set, etcetera. But after that, you can do this pretty efficiently 4 to 6 a day If the crews are all operating? That's pretty typical.

Speaker 3

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

Speaker 2

Per crew, yes. Per crew, per like region or segment of Redway, yes.

Speaker 3

They go in like 4, 5, 6 hours you can put a system on.

Speaker 4

Right. How many crews do you have then? 4 to 6 per How many crews?

Speaker 3

David right now. 4

Speaker 2

and Building FIF. So 4 between call it 4.5.

Speaker 4

Yes, yes. Makes sense. Okay, great. Thanks, Michael.

Speaker 3

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 5 gs towers for cell companies and others. So that's the nature of the labor required.

Speaker 3

So it's pretty well expandable and that's why I had mentioned earlier the challenge that Recore 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.

Speaker 4

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

Speaker 3

Yes. Thank you.

Operator

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

Speaker 5

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, can you give us an update? Was it really more of just kind of a one time delay in terms of project implementations?

Speaker 5

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 year end?

Speaker 1

So on the

Speaker 2

yes, 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 the threat of the event that slows things down because you can't put crews out there. 2nd of all, And in the nature of some of the work that we do, even rain, heavy rain can make an impact.

Speaker 2

And so you don't send crews out In the dangerous kind of weather like that. So it's episodic or 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.

Speaker 2

And so it's really just a matter of scheduling right now. And so those are progressing well. And we have 2 that are in process right now and we'll 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.

Speaker 5

Understood. And then final question for me. It seems like the real Gating factor here is just the ability to have crews that 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

Speaker 3

So, as we approach Breakeven here. The majority of the capital that ReCore 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 It 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 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.

Speaker 3

But we think we have that 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.

Speaker 5

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

Speaker 3

Thank you. Thank you.

Operator

The next question comes from the line of Casey Ambrecht with Shay Please proceed with your question.

Speaker 6

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?

Speaker 6

Or can we think about actually landing some large Actual state contracts and then across lowering your footprint out across that region?

Speaker 3

Well, that's a good question, Casey. So there's multiple pieces of this business, but The states are required to do this data collection as our other municipalities like counties and towns, villages, Cities and so forth. These state contracts are typically done with 1 or 2 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 STS because STS had Pioneer, 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.

Speaker 3

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 What's happening right now which is at the more local level and that's probably equal in size to that It 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 significant state contracts. We already have them. We already have some pretty significant state contracts.

Speaker 3

So I think that

Speaker 6

will continue. Robert, in terms of like these large state contracts, What's the is there like a duration? Are they 5 year contracts for X million? Like how do we think about kind of the

Speaker 3

impact there? Yes, this is a good question. So the best way I can answer you is by telling you history. As an example, the state of Georgia has been a customer of ours through our acquisition of STS since 1997. So the contracts typically run 5, 7, 10 years and it's a very sticky business and The DOTs very seldom change their service providers because they can't afford to lose the service and the data.

Speaker 3

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.

Speaker 6

That kind of leads me to my next question. Like when you think about are there other companies you're Familiar with that or like another recall out there that's kind of rolling out this national footprint?

Speaker 3

There is nobody that we know of. No. There is nobody that we know of that's putting IoT sensors roadside for the purposes What we're talking about doing here. And none specifically that have the service side of the business, which is what makes Recor Frank? Casey, look, if you think about new technology and dealing with government, right?

Speaker 3

So they have this Technology that they've been using for 50, 60, 70 years, it could be an induction loop in 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 It is what makes us unique, okay? And I say that in the same way that when you think about Amazon, what are they, a technology company Or are they a real estate owner? Or are they do they own an airline?

Speaker 3

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 Recor in that way Very, very unique. It's very unique. And I can't think of another company Like Recor, right?

Speaker 3

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 But I can't think of any other company that has the proprietary tech that we have that also has, as David mentioned earlier, You know, thousands of man hours of understanding, you know, 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 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.

Speaker 3

It's very important.

Speaker 6

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

Speaker 3

I'll answer that.

Speaker 1

Can you ask again, please?

Speaker 6

Yes. So you guys mentioned that you plan on being breakeven in 4Q or 1Q of Going forward, is that how should we think about that one? Is that like on an adjusted EBITDA basis? Because I'm looking at analyst models and losses Yes,

Speaker 1

it's on an adjusted EBITDA basis, yes, cash flow positive or breakeven.

Speaker 2

And this Q4 or Q1 of next year?

Speaker 3

Yes. And I think again Casey, the challenge we have, which we've been working on for months It 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.

Speaker 3

That is something that It's replicable and something that's elastic that can grow with the company that solves that problem.

Speaker 4

Okay. Like some

Speaker 6

sort of funding mechanism that can flex with your growth?

Speaker 3

Yes, exactly. Something that's a funding mechanism That is on terms that are favorable to a company like Recor that can flex with our growth And give us the ability to do exactly what we're talking about doing here. Okay.

Speaker 6

And then one last question, Robert. I know you guys don't give guidance So I'm a year out and it's only Q3. But can you just kind of help us think about how to think about the revenue profile for 2024 as these state contracts Come online and you have this new perhaps funding and maybe tack on some acquisitions. Like how do you think about what this company looks like this time next year In terms of revenues?

Speaker 3

I think we've all seen young companies that have Crazy CAGRs, right? Like when you look at ReCore from 2018 forward. And remember, the revenue that we have 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 That type of growth rate and it will accelerate if the funding mechanisms are there's 2 challenges.

Speaker 3

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, 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?

Speaker 3

I mean, it could just accelerate and increase. So I think 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.

Speaker 3

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 ReCore is.

Speaker 3

ReCore 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.

Speaker 6

Great. Thank you very much for all your time.

Speaker 3

Okay. Thank you.

Operator

Thank you. And at this There are no further questions. And I'd like to turn the floor back over to Robert Berman for any closing comments.

Speaker 3

Yes. Look, thanks everybody. Thanks for the support. Thanks for your patience and time. And I think Recor look, I think we had a fantastic quarter.

Speaker 3

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.

Speaker 3

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.

Speaker 3

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 Recor 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?

Speaker 3

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 And we're going to get it done. And we thank you all for your support and patience and stick with us.

Speaker 7

Ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines

Operator

at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
Rekor Systems Q3 2023
00:00 / 00:00