Rekor Systems Q4 2024 Earnings Call Transcript

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March 31, 2025

There are 6 speakers on the call.

Operator

afternoon, ladies and gentlemen, and welcome today to Recor Systems Inc. Conference Call. My name is Matt, and I will be your conference operator for today. 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.

Operator

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 other statements that may be construed as predicted 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 to refer to the full disclaimers in our earnings release. You should 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.

Operator

The company believes the presentation of non GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes only. I would now like to turn the conference over to Mr. Robert Berman, Interim President and CEO of Recor Systems. Thank you. You may begin.

Speaker 1

Thank you, Nat, and good afternoon, everyone. We appreciate your joining us today to discuss Recor Systems' fourth quarter and full year 2024 results. I'm pleased to share that we ended 2024 with strong momentum, reflecting the deep commitment of our teams, the trust of our customers and the continued innovation we bring to transforming roadway intelligence and public safety through AI driven, data driven solutions. In today's call, I'll begin reviewing our performance in the fourth quarter of twenty twenty four. Next, I'll highlight some of our strategic wins, product developments and major partnerships from both Q4 and throughout the year.

Speaker 1

I'll also discuss the progress we made over the course of 2024, including the ways we refined our strategic focus and strengthening our financial processes. And after that, I'll share our outlook for 2025 and beyond. Then I'll turn things over to our Chief Financial Officer, Eyal Henn, who will provide more details on our financial performance. And following our remarks, we'll welcome your questions. Let's start with our performance in the fourth quarter.

Speaker 1

In the fourth quarter, we saw strong demand for our core platforms, Recore Scout, Recore Discover and Recore Command across both public sector agencies and commercial partners. From an operational standpoint, we maintained disciplined spending while strategically investing in growth and innovation. This approach resulted in approximately 49% reduction in EBITDA loss in the fourth quarter of twenty twenty four versus the third quarter of twenty twenty four, aligning with our plan to achieve stronger profitability while supporting the development of next generation technology. While the fourth quarter capped off a solid finish, our progress throughout 2024 has enabled Recore to enter 2025 in a strong footing. We entered 2024 with growing customer momentum supported by pipeline developed through the second half of twenty twenty three and we kept to our core mission of driving the digital transformation of roadway infrastructure.

Speaker 1

Throughout 2024, we continue to gain traction in states like Texas, Florida, Georgia, Maryland and New Mexico, demonstrating the tangible value of our AI driven platforms across urban mobility, transportation management and public safety. In Florida, for instance, we achieved inclusion on the state's approved product list. This milestone allows us to roll out our solutions more broadly and provided a spotlight on how our devices and the data they collect are critical for not only traffic collection, but also enabling emergency evacuation routes during challenging hurricane seasons. Speaking about Florida, Georgia, Texas and other states, let me be clear about an important point for our shareholders. After a thorough evaluation, the Board has determined that continuing to wait on traditional government contracting timelines is no longer in the best interest of our shareholders.

Speaker 1

Relying on the uncertain timing of large externally driven contracts placed the company in a position where we risk unnecessary shareholder dilution, funding scale in anticipation of orders rather than in response to secured revenue. While we remain highly confident in our robust government contracting pipeline and believe it's a matter of when, not if, those orders come through, we're no longer willing to anchor our operational model to the uncertainty of government timelines. We are now taking control of our future. We're shifting to a strategy that is grounded in the company's current, healthy and more predictable revenue base. Our goal is to operate the company at this level with a clear path to breakeven.

Speaker 1

Any upside from new large government contracts will be additive, but no longer essential to our baseline strategy. This is a proactive move to protect shareholder value. It reflects the Board's commitment to financial discipline, operational focus and reducing reliance on external variables beyond our control. Simply put, we're aligning the company's cost structure and strategic direction with what we can control rather than waiting on what we can't. Nationally, as everyone is aware, the new Trump administration is intently focused on addressing any waste by the federal government.

Speaker 1

This priority is evident at the highest levels of government and only recently has focus turned to the USDOT, where the DOGE and the new USDOT leadership is actively targeting inefficiencies stemming from outdated technology. This comprehensive overhaul at the federal level positions ReCore advantageously, and we are securing our seat at the table to offer practical solutions to addressing number of deep rooted inefficiencies. Partnerships remained a cornerstone of our strategy in 2024. We deepened relationships with global technology leaders such as Amazon Web Services and NVIDIA, both of which recognize the potential of our AI driven transportation platforms. We also expanded our reach in public safety through collaborations with a distribution partner in New Mexico, a new distribution partner in Hawaii, Sound Thinking, formerly ShotSpotter, SoundHound and MS2, bolstering our channel presence and opening the door to new state departments of transportation and public safety agencies.

Speaker 1

During the year, we invested in broadening our global intellectual property portfolio, securing patents for detecting and quantifying irregular traffic congestion, both in The United States and Europe and fortifying our approach to protecting personally identifiable information. This IP expansion positions us to maintain our leadership in AI based solutions that addresses the increasing demands of transportation, safety and data privacy worldwide. As many of you saw in our recent announcements, we have been very actively recently with new deployments, technology breakthroughs and partnerships that will help us accelerate our momentum in 2025. One example is our expanded relationship with the New Mexico Department of Transportation, where the second phase of implementing our Recore Discover platform and non intrusive video based Edge Series systems is now underway. The initiative utilizes a 100% SaaS like pay for data model installed through an authorized third party to demonstrate the scalability and flexibility of our platform in managing and analyzing traffic data.

Speaker 1

Pay for data is a business model that can be a game changer for DOTs and aligns our company's capabilities and we continue to educate DOTs. They are increasingly realizing that there is a better, safer and real time way to capture traffic data. Meanwhile, RecoreScout secured a major certification for New Jersey's statewide network ALPR program or New Jersey SNAP. This certification, backed by $13,000,000 in state funding, positions us as a trusted go to provider for agencies that require real time, highly accurate vehicle recognition capabilities. We also introduced enhancements to our core solutions that emphasize advanced AI features.

Speaker 1

During the Transportation Research Board's twenty twenty five annual meeting, we unveiled our new incident priority ranking feature in Recore Command, which harnesses AI and real time data to help traffic and emergency operation centers respond faster to high impact incidents. Early results from customer tests have shown reductions of up to 60% in the time from incident detection to resource allocation. To support these innovations and our continued growth, we took steps in Q4 to further strengthen our financial position. By December 31, we had fully satisfied the remaining balance of our August 2024 prepaid advance agreement with an affiliate of York Phil Advisors Global totaling $15,000,000 This early repayment significantly enhanced our balance sheet and improved our flexibility to pursue strategic growth opportunities in 2025. Now, I will turn the call over to our CFO, Eyal Henn, for a deeper look at our financial results for Q4 and the full year.

Speaker 1

But before passing it over to Eyal, allow me to take a moment to mention the departure of David deHarnay, our former CEO. David joined Recore in January of twenty twenty two as President and in 2024, became President and CEO. David submitted his resignation earlier this month and the board accepted it with our thanks for his contributions. And we sincerely wish him success in his future endeavors. The board has begun a process to identify a new CEO.

Speaker 1

During the interim, I will assure continuity by continuing to lead the company. Eyal?

Speaker 2

Thank you, Robert, and thanks to all of you joining us today to discuss our results for the three months and twelve months that ended 12/31/2024. We are pleased to report fourth quarter twenty twenty four revenue of $13,300,000 suppressing consensus estimates by 3% and marking significant reacceleration in our year over year growth rate, which has returned above 20%. Our Urban Mobility segment, driven by robust demand for our new roadway data aggregation solution, primarily contributed to our overall growth. Public Safety, our second largest revenue source, also achieved solid mid teens growth. This performance was bolstered by increased momentum from strategic licensing partnerships, notably with key partners.

Speaker 2

Recurring revenues for the quarter totaled $5,800,000 reflecting a modest 2% decline year over year. This decrease was largely attributable to timing differences. However, for the full year 2024, Ricoh reported revenue of $46,000,000 representing a robust increase of 32% compared to $34,900,000 in 2023. Product key services revenue grew significantly to $23,400,000 up 65% year over year. As a reminder, initial sales of our Edge AI fixed and mobile site solutions are reflected in this line item and can serve as a leading indicator for future recurring data revenues.

Speaker 2

Adjusted gross margin rebounded strongly in the fourth quarter of twenty twenty four to fifty two percent, up from 44% in Q3 twenty twenty four, driven by recent contracts with and the delivery of higher margin offerings. For the full year 2024, adjusted gross margin slightly decreased to 49.3% compared to 52.8% in 2023, reflecting a higher proportion of SaaS revenue in the overall mix. Looking ahead, we expect to see steady gross margin improvement driven by an enhanced SaaS revenue mix and increased contribution from our Pay for Data contracts. As indicated on our third quarter call in November, we proactively optimized our cost structure to sharpen our focus on near term revenue generation. This decisive action began building tangible financial benefits in Q4, resulting in a reduction of our adjusted EBITDA loss to approximately $4,700,000 significantly improved from $9,200,000 in Q3 twenty twenty four.

Speaker 2

Full year 2024 adjusted EBITDA loss remained relatively flat year over year at $29,100,000 as most of our cost optimization efforts took effect toward the end of Q4 twenty twenty four. Moving forward, we will continue to work towards steady declines in adjusted EBITDA losses as revenue grows, supported by an improving gross margin. Of capital allocation, following the amendment of our prepaid advance agreement with your field advisors to eliminate the option for an additional $20,000,000 advance, we fully satisfied the outstanding balance of $15,000,000 on 12/31/2024, ahead of schedule. Clearing this outstanding balance underscores our commitment to prudent financial management and disciplined capital allocation. In February 2025, we established a $25,000,000 at the market issuance sales agreement with Northland.

Speaker 2

This facility allows Recor to opportunistically raise capital over the next twelve months as we continue executing our strategy and capitalizing on growing momentum with state DOT and public safety agency customers. In summary, we are very pleased with our solid fourth quarter results, which exceeded expectation across most key metrics. We remain confident in our technological advancement, increasing customer traction and accelerating go to market momentum. And we continue to be grateful for the ongoing support of our investors. Now, I will turn the call back to Robert.

Speaker 2

Robert?

Speaker 1

Hey, Al, thank you. And now I'd like to open the floor for any questions you may have. Operator?

Speaker 2

Thank

Operator

First question is from Louie DiPalma from William Blair. Please go ahead.

Speaker 3

Great. Good afternoon, David and Eyal. FLOC safety has experienced significant momentum with their license plate reader cameras and you guys have a very similar solution. And so from a technical perspective, are you able to offer the same types of capabilities as the flock to take advantage of industry demand from the law enforcement side? Thanks.

Speaker 1

This is Robert Furman. I think that it's not a fair way to compare FLOC and Recore, okay. They've had hundreds of millions of dollars, billions of dollars worth of funding from VCs. We never went after the law enforcement market. We've gone after the commercial market.

Speaker 1

We've been very successful in doing that and OEMing our software, which is much less expensive way to sell, more profitable margins at the end of the day. So it's apples and oranges. As far as our tech compared to theirs, I think we have the best vehicle recognition OPR software in the business, right? So if you look at our customers, I think that speaks to that.

Speaker 3

Thanks, Robert. And one for Eyal. How should we think about the timeline for free cash flow breakeven?

Speaker 2

As we thank you, Louis, for the question. As we mentioned in previous earnings call, our thought is that at the end of the year, we anticipate that and we still keep it.

Speaker 3

Thanks. Another one, you both, Robert and Eyal, you discussed your many partnerships. And how has the partnership with Sound Thinking progressed? Is that still ramping? And are there any early data points to indicate the traction that's receiving in the market?

Speaker 1

Well, you'd have to speak to sound thinking, but I think that they're out there selling. I think they're making progress. They're doing a number of pilots. And to us, that's a good example of a channel partner to sell our tech. And we expect that to pay off in 'twenty five.

Speaker 3

Great. And one final one with the earlier, I think it was in the second quarter or the third quarter of last year, you identified Florida as the customer for the contract involving over 1,000 cameras. How what has been the progress of that rollout? And should that lead to more contracts and awards within the State of Florida?

Speaker 1

Yes, that's a really good question. And I think I said it earlier in our prepared statements, but look, dealing with government is obviously much different than B2C and government contracting requires a process and state government like federal government has a process. And I can tell you that Florida, Texas, Georgia and there are others are working through the process and we're very optimistic about where we stand with all those states. But if you were to look into the government procurement process, one's free to a company is free to talk about these procurements when they're only in the early stages and you're in the capture stage, but once there's open RFPs and there have been proposals that have been submitted, we can't talk about those because it's a violation of their procurement laws. But I can say that things in Florida, Texas, Georgia and other states have proceeding well and they're on the state's timeline not ours, but those procurements are ongoing And they're actually in procurement stage, which means that there have been proposals submitted and the award timing is up to the state, but we feel good about where we are, but we just can't discuss it.

Speaker 1

And I think that's what I said I meant earlier by saying, we'll allot ourselves to what we can control and what we can't control, right? So we're positioning ourselves so that as these things happen, we can scale and scale quickly with the customer, but we're not going to sit around and wait because if it takes another week or two or three or a month for the state to award a contract, we can't sit around and wait for that. We have to be able to marry our expenses and our revenues with what we have in our hand, right? And that's the approach we're taking.

Speaker 3

Sounds good. Thanks. That's it for me.

Speaker 1

Thank you.

Operator

Next question is from Tim Moore from ClearStreet. Please go ahead.

Speaker 4

Thanks. Robert, you mentioned clearly in your open remarks that maybe a pivot away obviously from waiting on the large lumpy dot contracts that were tying up working capital and spending. Can you give us any kind of thoughts at this point in the year? Maybe color on what you think organic growth could be this year without any acquisitions? Do you think it could be high teens growth?

Speaker 1

I'd like to put a number on it. The only thing I'll say is that we've put a lot of time and effort and money in developing these products to the point that we can sell. And there's a difference between a product and a project. And Recore has completed over the past few years a lot of projects that are now products. And we're out there selling those products.

Speaker 1

And we believe that we're about to see the fruits of that labor and effort come to fruition, right. But again, it's outside of our control, but it's not as if it's early stage discussion. We spend a lot of time, effort and resources getting these governments familiar with this technology. It's new, right? It's AI, it's new, it's a different way of doing things.

Speaker 1

They've been doing it for many, many decades using legacy tech takes time, but we're through that piece of it and now we're at the adoption stage and the scale stage. So I think that that's the good news and we just have to wait for the outcome and I think it's coming, but we're not going to put any dates on it, but it's not as if we're not at the last couple of yards and before we get to the end zone, but it's government.

Speaker 4

No, understood. Another question I had, it seemed like you did some pretty good cost cutting savings in the quarter despite really probably only starting in late November. I mean, mean, the operating expenses ignoring the impairment charge, they came in like $2,500,000 less than what I was expecting. How is that going and the implementation and you're still pretty much on track for a pretty substantial cost savings this year?

Speaker 1

I think the company spent a lot of money over the last few years developing this technology and getting it ready for scale. And again, being B2G, once you get the technology ready, you have to decide do you want to focus on the here and now and not three years from now. So a lot of our cost cutting measures were focused on the here and now and we're flexible enough to be able to scale when that happens and then we can focus on what's down the road when we're down the road. So that's where we are and we expect when we see the results of all that we've done over the past couple of years come to fruition that it will pay off our shareholders and we're being very careful about the pool of shareholders and we want to make sure that we get this company's profitability as quickly as possible and we can scale with that based on the resources we have, staff we have, the supply chain we have and so forth, and we can worry about other things later when we need to worry about those things.

Speaker 4

Yes. That's good progress. It's really important. And my last question might be a little bit more for Eyal. I saw the 10 ks that came out.

Speaker 4

I think it said about 111,000,000 shares as of Friday. I backed into the fourth quarter shares. Average was something like 93,000,000. I'm just trying to wrap my head around maybe, obviously Yorkville affiliate got shares and the payoff. What is kind of the liquidity today or maybe how much of the ATM was tapped in the first quarter?

Speaker 2

We are not we disclosed if you look on the subsequent events, Tim, we disclosed the usage of the ATM. But remember, as Robert mentioned, we have a lot of things with states for long term contracts and we have the vehicles of the revenue sharing notes to improve our liquidity once these contracts are coming rather than have dilutive funding of the company.

Speaker 1

Yes. Let me just add can I just add to what Eyal said? Like everything else, things change. And what we've seen with our government customers is they're more interested in data as a service than they are about buying technology that may or may not work and then they have to fix and replace every few years. So that's why we put that prime revenue sharing note mechanism in place a while ago.

Speaker 1

And we believe that given the direction that we're headed in that that will be our primary source of funding going forward because that seems to be the way the customers, the government customers want to acquire the technology, which makes sense for them, right, if you think about it. And that makes sense for us and our shareholders, right? So that's our plan.

Speaker 4

That's a great mechanism, the revenue sharing. Thanks a lot. And that's it for my questions.

Speaker 1

Thank you.

Speaker 2

Thank you.

Operator

Next question is from Mike Latimore from Northland Capital.

Speaker 2

Please go ahead.

Speaker 5

Hi, this is Aditya on behalf of Mike Latimore. Could you give some color on the first quarter of twenty twenty five? Should we expect similar business as what we saw in the fourth quarter?

Speaker 2

Sorry, we do not provide any guidance at this point for 2025. Whatever we discussed 2025, that's what we can't disclose at this point.

Speaker 5

Got it. And how many cameras are deployed in Florida as of now?

Speaker 2

Robert, do you want to take it?

Speaker 1

Yes. I don't think we can disclose that because that would be disclosing revenue for Q1, which is we're not through yet. But our relationship with Florida is good. We can continue to work with them. And I think that's a Q1 question and I appreciate your ask, but I think we have to stick to the rules.

Speaker 5

Got it. And which other states have the best potential to offer a contract for Discover this year?

Speaker 1

Well, we did more than 15 proof of concept installments back when as we were introducing this technology to the states. And almost all of them are at the deployment stage where we're either deploying in mass or we're responding to RFPs. And again, the RFP process, just for shareholders that are listening to this, what the hell does that mean, right? So there are very strict rules, right? So once there's an RFP that is issued, a company can be dequeued, okay, for talking to either the agency or the procurement department, which in some states, most states is separate from the agency, right?

Speaker 1

So we have to be very careful about what we say other than that we're in a process, which is different than the capture or the discovery stage of trying to introduce new technology. Look, I feel comfortable saying this, that we introduced new technology, we work with our state customers to say, hey, what do you think, how does this work for you, how can we make it better? That took some time, and it was well worth it, right? And government business is very sticky once you get there and we cross that threshold with the majority of where we did those POCs and others that have reached out and the technology we now see adoption of. And I will also say that we see inertia of what the technology does, which is that it is non intrusive, meaning you're not putting people out in harm's way, you're not closing lanes.

Speaker 1

It makes sense because you're paying for the data as a service so that if you don't get the data, you're not paying for the service, right? So broken technology, you don't have that. It's a good model, right? But it takes a little bit of time for government to change the way they do things. And that's consistent with what you see with the new administration, right?

Speaker 1

They're talking about using new technology AI and other things throughout government. So it's good because we think we're in the right place at the right time. We're very happy with the response that we've gotten from our government customers, but we just want to be careful because we have these open procurements.

Operator

This concludes the question and answer session. I'd like to turn the floor back to management for any closing comments.

Speaker 1

All right. Well, look, thanks everybody for your patience, your support and everything else. There's a lot going on out there, but I'm proud of where we are and I think that we're pleased with the progress the company has made. And as I said, there's some inertia behind what we're doing and that should pay off for our shareholders in 2025 and beyond. And thank you, everyone, for your continued interest.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you, again, for your participation.

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