Good afternoon, ladies and gentlemen, and welcome to today's Rekor Systems, Inc. Conference Call. My name is Diego, and I will be your coordinator 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. 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 only. I would now like to turn the presentation over to Mr. David Desharnais, President and CEO of Rekor Systems.

Good afternoon, and thank you for joining us today. As I conclude my first full quarter as President and CEO of Rekor, I am pleased to share our solid progress in the quarter and strategic vision for the future. Over the past 90 days, since stepping into this role, I've delved deeply into every aspect of our business. I've been focusing on refining our financial processes, enhancing the work that we are doing in government relations and driving operational excellence across our sales team and field operations. My commitment is to establish and strengthen the governance structures and scaling mechanisms that will help transform Rekor into a more predictable growth engine. And I'm encouraged by the team's positive response to the direction and priorities that have been set and the substantial progress we've made so far. Also, over the past three months, I've had the privilege of engaging with many of our investors and shareholders globally. Your insights have been invaluable to me, and I want you to know that I'm listening. Our conversations have reinforced three key themes: strong enthusiasm for our market position and opportunities; concerns about securing necessary capital to continue our significant growth trajectory amidst macroeconomic uncertainty and slow government contracting cycles; and finally, eagerness for meaningful customer traction. Today, I'll address these three areas and provide insight into our path forward. To begin with, let me stress that navigating the complex procurement processes of federal, state, and local government agencies is challenging. But it also provides an opportunity with unparalleled long-range stability and growth potential. While we've been fielding our AI-based solutions in the transportation and traffic segments for just over a year at this point, namely our Discover and Command platforms, we have moved at a rapid pace, gaining awareness, preference, and adoption across multiple states, including South Carolina, Georgia, Florida, New Mexico, Texas, Colorado, Ohio, Maryland, Oklahoma, Kansas, Oregon, and multiple others in the works. However, it is important that we remain realistic given that the government contracting process is opaque at best and has its own pace and timeline. It is something that we will continue to be conservative with in setting expectations as it relates to timing of deals and expansion. Along this line, and as an update to our last earnings call, I wanted to update you on the upcoming deployment of up to 1,000 Discover and Edge units, equating to a potential upside of approximately $35 million in revenue, in one of the largest states in the U.S. as they finalized their AI policy. As of today, I'm pleased to share that we've initiated deployments in the region. However, progress has been hampered by continuous interruptions resulting from multiple storms of this hurricane season, most recently by Hurricane Debby. We don't control these things, of course, but the state does not permit anybody to work roadside in hazardous weather conditions in the period leading up to the storm, during the storm itself, of course, but also in the immediate aftermath. Understandably, this has impacted our expected timeline for deployments, as the state is prioritizing emergency response efforts for its citizens. But the initial sites we have already activated have performed flawlessly under these extreme conditions and have already proven to be mission-critical, delivering vital insights to the state's emergency operations center to support evacuation routes during these storms. This underscores the essential role our technology plays, further cementing Rekor as a trusted and indispensable partner in this state, which will pay dividends. As I also highlighted in the previous call, the transportation infrastructure industry is undergoing a massive and generational technology refresh, and that within our existing Southeast footprint alone, we see the potential to add 6,000 to 8,000 sites, which could generate an estimated $200 million to $300 million in cash flows over the coming years. Rekor's reputation as a trusted partner in the Southeastern states has never been stronger, and our success is being closely monitored by other states nationwide, as we continue to execute our growth strategy. Given our recent performance with these states during these crises, it only positions us more strongly for our continued expansion in the region. Our growing recognition and reputation, along with the ongoing infrastructure overhaul that is happening, puts us in an ideal spot to capitalize on this transformative period in the industry. So while we must continue to navigate the complex and often slow-moving procurement processes of state and local governments, it also provides us a unique opportunity for long-term and durable growth that we believe will benefit our investors in the long run. Despite the relatively short time we've been deploying our technology in market, we're experiencing continuous accelerated growth, and I'm confident in our ability to sustain this momentum. Later in the call, I'll discuss some of the new contracts we've secured during the last quarter and examples of meaningful traction we're experiencing. Before diving into these details, I'll now hand the call over to Eyal Hen, Rekor's CFO. He'll review our financial highlights for the quarter and discuss the proactive steps we're taking to solidify our capital position and protect our shareholders, as we navigate the uncertainties of the current macroeconomic environment and B2G domain.

Thank you, David. Hello, everyone, and thanks for joining us today to discuss our results for the six and three months ended June 30, 2024. I would like to start with our recent announcement that we have just infused $15 million into the company for a facility that can provide up to another $20 million in capital should we need it. The agreement is designed with strong shareholder protection, including a $2.6 million monthly cap on prepaid balance conversions to equity, and a ban on short selling by the counterparty, which minimizes dilution and allows us to draw less capital or repay the notes early once our expected contracts materialize. Full details about this agreement have been provided in our 8-K concerning the financing, and I won't delve into them now. Suffice it to say that this gives us the necessary resources to address the recent government contract delays we've been facing. This injection of funds positions us to meet our 2024 growth targets. And as is shown by our Q2 performance, we are making solid progress against this. We'll continue to drive operational efficiencies and carefully manage our cash flow to ensure it is used effectively, but at the same time, we have improved our metrics year-over-year and quarter-over-quarter. Going forward, some of the larger recurring revenue contracts we are pursuing may involve significant upfront installation expenses. If additional capital is needed for this implementation, we plan to prioritize non-dilutive financing options, such as issuing an additional series to our revenue-sharing notes. We expect to continue to address our capital needs prudently, expanding our industry leadership and fulfilling our customer commitment as needed. In this regard, we have engaged B.C. Ziegler and Company, a specialty investment bank, to serve as placement agent and market maker in connection with future issuances of our revenue-sharing notes. Over the past few months, we've been in discussions with them as well as with rating agencies to work on getting these notes rated, which should help reduce overall cost and improve their marketability. We anticipate continuing to use this structure, which aligns potential future debt to the growth of fully performing contracts as a primary funding source of additional growth capital. Now I'm pleased to talk about our financial highlights for the three and six months ended June 30, 2024. In the second quarter of 2024, our revenue reached a record $12.4 million, marking a significant growth of 45% from the $8.6 million in the same period last year. We also demonstrated robust revenue growth quarter-over-quarter at over 27% above Q1 2024. In the six months ended June 30, 2024, we achieved $22.2 million in revenue, an increase of 51% from the $14.7 million we marked in the same period last year. Recurring revenue also increased by 8.9% from $5.8 million in the same quarter of 2023, compared to $6.3 million in the same quarter of 2024. Our adjusted gross margin for the three months ended June 30, 2024, was 53.5%, an increase from 51.8% in the second quarter of 2023. This increase was primarily due to a higher margin mix of sales during this quarter. As previously explained, we expect a primary benefit of our technology refresh efforts to allow us to move from lower margin to higher margin sales over time. However, during the early growth phase we are in, this evolution may be choppy, as we saw at the beginning of this year. The adjusted gross margin for the six months ended June 30, 2024, was 50.2%, a decrease from 52.5% for the same period last year. The decrease is mainly due to the lower margins we experienced at the beginning of the year. We also continue to see improvements in our adjusted EBITDA loss. For our second quarter, it's now set at $5.8 million, an improvement of over 19% from the $7.2 million in the same period last year. The adjusted EBITDA loss for the six months ended June 30, 2024, was down to $15.2 million from $16.5 million in the same period last year. Lastly, another significant development in the second quarter of 2024 was the exercise of 3,675,000 warrants in June 2024, which resulted in $5.2 million of cash to the company, of which $3.2 million was received in July after the balance sheet date. Also in July, we sold our remaining 19.9% ownership of Global Public Safety for $1.5 million. And of course, as highlighted earlier, we received $15 million under our prepaid advance agreement, which has been structured to provide up to $35 million under appropriate circumstances. In summary, we are very pleased with our solid second quarter results and the synergistic and accretive impact of our recent acquisition. Our capital raise and the engagement with Ziegler are instrumental enablers in continuing to secure our leadership position in the industry. Our financial and operational strategies are designed to capitalize on future growth opportunities.

Thanks, Eyal. As Eyal highlighted, we delivered a solid Q2, performing well against all metrics and achieving the highest top-line revenue in our history. And with the capital now in place to support our continued growth, we are laser-focused on executing our customer expansion plans and driving what we expect will be strong year-over-year growth, along with a healthy pipeline dynamic heading into 2025. Now I'd like to share some important business highlights from the quarter. As mentioned earlier, a major theme I probed from investors is the strong enthusiasm for our market position and opportunity and eagerness to see customer traction. I'm pleased to share that the progress we've made in the past quarter across each of our business segments is meaningful and continues to lay a solid foundation for continued growth. Rekor's industry reputation as the leader in roadway intelligence is steadily growing, with our brand and AI-based solutions gaining recognition across multiple high-profile forums and institutions. We are regularly invited to share insights and success stories in local and national media, underscoring our thought leadership in the future of AI and transportation. We were also proud to recently have the Baltimore Business Journal recognize us as the number one fastest-growing company in the region, as well as highlight our commitment to digitizing critical transportation infrastructure across the nation. Additionally, we were honored with a special invitation to join a high-profile panel alongside leaders from TxDOT and Amazon/AWS. During the event, the CIO of TxDOT highlighted Rekor's industry leadership and the significant impact of our technology in Texas. Notably, Rekor Command was credited with helping achieve a 29% reduction in secondary crashes and a 44-minute improvement in incident resolution times, underscoring our vital role in their mission-critical efforts to save lives on their roadways. This quarter, Rekor was prominently featured by ITS Americas as a leading force in the current and future landscape of AI for digital infrastructure and transportation. They highlighted multiple Rekor use cases, where we are proving to improve transportation and citizen safety across state and local roadways. This recognition, along with the award of multiple new technology patents we received this year, reflects our team's ongoing commitment to advancing the state-of-the-art of roadway intelligence. Our proven technology solutions are centered around our three growth pillars: public safety with our Scout platform, transportation management with Command, and urban mobility with Discover. I'd like to start with our first growth pillar, public safety and Scout. Rekor's reputation as a leader in AI-based vehicle and license plate recognition is well known and continues to grow in what is a noisy and fragmented market. We believe that the future of this industry sector will be defined by open platforms and seamless integration into existing public safety infrastructure, principles that are central to our growth strategy. As such, our focus has been and remains on integrating our technology into existing law enforcement and security systems, while expanding our market reach through partnerships with OEMs, resellers and third-party channels. A key example of this strategy in action is our recently announced partnership with SoundThinking, a leading public safety technology company known for delivering AI and data-driven solutions to law enforcement, civic leaders, and security professionals. SoundThinking is already trusted by thousands of public safety agencies across the U.S. By integrating Scout technology with their ShotSpotter gunshot detection solution, we are providing an end-to-end public safety offering through new go-to-market channels that immediately enhances public safety for major cities and strengthens Rekor's presence in key markets. In addition, this quarter, Scout was recognized by Amazon Web Services as the first in the industry to achieve the well-architected stamp of approval, joining the rest of our portfolio in the marketplace. This achievement is important because not only does this speak volumes about the strength and differentiation of our technology, but also brings Scout into the highly selective AWS Marketplace. It also expands our reach by enabling customers to access Scout through the AWS Partner Network and Amazon Business distribution and procurement channels. This positions us to integrate more seamlessly with leading technology platforms, ensuring that our offerings are accessible to a wider audience. Also, we expanded our relationship with NVIDIA as well as our participation in their Metropolis Partner Network, building upon NVIDIA's most advanced Jetpack technology for our customers. Our deep technical collaboration with NVIDIA powers our advanced computer vision and machine learning technologies, accelerating time to market for new features and simplifying customer adoption. Looking ahead in the Public Safety segment, we are focused on licensing our vehicle recognition SDK through third-party e-commerce platforms and developer portals. This approach will empower third-party developers to create new innovative market applications that leverage Rekor technology at their core. In addition to this, we're developing the next generation of Scout. Our next-gen platform not only promises to strengthen our leadership in the public safety sector, but also pave the way for continued growth and innovation across the industry and with our partners. Moving on to Pillar 2, our Transportation Management segment and the Rekor Command platform. Departments of Transportation are confronting an increasingly complex and demanding environment in their mission to ensure roadway safety and keep traffic moving. With the increase of sophisticated vehicles, the growing issue of distracted driving, aging roadway infrastructure, and never-ending road work and traffic interruptions, the challenges are multiplying for these agencies. Compounding these difficulties are the deep organizational and data silos that DOTs must navigate to try to keep traffic flowing and people safe. The situation is further strained by the rapidly increasing retirement of seasoned DOT professionals from agencies and the ongoing struggle to recruit skilled talent quickly enough to meet these escalating demands. The Rekor Command platform addresses these challenges by providing tools that are full-stack solutions rather than silos. And that leverage AI to process and integrate massive and disparate data sets, turning them into actionable insights that can be shared across departments and agencies in a single source of truth in the single payment blast. This comprehensive view of roadway and mobility data provides real-time visualization, situational awareness, predictive analytics, and more, enabling agents to effectively manage roadways despite the increasing demands and limited resources. As mentioned earlier, our work with TxDOT has been particularly impactful for Texas roadways and recognized across the U.S. Building on this momentum and in alignment with TxDOT's record-breaking $142 billion investment in transportation infrastructure over the next 10 years, we launched the Construction Partner Program this quarter with TxDOT. The PPP is a vital citizen-facing app powered by Command designed to enhance mobility and roadway safety across Texas through real-time incident monitoring and work zone management. Additionally, in collaboration with TxDOT and the University of Texas at Austin, we developed an economic benefit calculator that assesses and validates the efficiency and monetary benefits of key metrics like crash reduction and congestion improvement, helping any transportation agency clearly understand and visually see the return on investment they make in our Command platform. But our progress isn't limited to Texas. We're pleased to also announce the initial adoption of the Command platform in Oklahoma and Kansas, further extending our reach and ability to drive influence and adoption across state lines as we build out a connected network of smart roadways both regionally and nationally. Similarly, in Oregon, Umatilla County announced their adoption of Command in conjunction with the state's connected vehicle ecosystem, bringing advanced roadway intelligence to the unique challenges facing rural areas and communities and supporting the work we're doing with Oregon DOT's road usage charge program statewide. These developments highlight the growing recognition and adoption of Command across the country. The expansion of our footprint in this segment underscores our commitment to transforming roadway and traffic management by delivering unprecedented visibility and insights that legacy systems just can't offer. Our solutions enable agencies to monitor traffic in real-time, break the data and organizational silos, and utilize AI-driven insights to respond to incidents faster, reduce response times, and vastly improve the time it takes to get roads back to normal. Our continued innovations and strategic partnerships ensure that we will continue to lead the way in providing the technology and insights needed for smarter, safer, and more efficient roadways. Last but not least, I'd like to share some progress that we've made this quarter in the third growth pillar, our Urban Mobility segment and our Rekor Discover platform. As mentioned in our last earnings call, the traffic data collection industry is at a pivotal moment, which is a significant growth driver for Rekor. We believe we are leading one of the largest legacy data collection technology refreshes in the U.S., where millions of outdated and legacy-based traffic study sites across the U.S. roadways will be replaced with advanced AI-driven solutions. Our Discover platform, initially built on the foundation of our 2022 acquisition of Southern Traffic Services and further strengthened by our acquisition of All Traffic Data earlier this year, has transformed the permanent and short-term traffic study landscape. It allows us to replace legacy systems with secure, connected, and modular AI-based solutions that integrate seamlessly into existing infrastructure, greatly enhancing safety and sustainability for our customers. The platform's mission-critical status was clearly demonstrated recently during Hurricane Debby, where we supported multiple states in the Southeast in managing roadways and evacuation routes in real-time, ensuring citizen safety during emergency operations. This quarter, I'm pleased to share that we were awarded over $15 million in new contracts, highlighting the strong demand for Discover and better traffic data management reporting as states look to modernize and digitize their legacy roadway infrastructure. Notably, we expanded our reach westward with statewide contracts in Ohio and Texas. These contracts not only cover the maintenance, repair, and replacement of existing infrastructure but also pave the way to transition failing traffic data collection sites to AI across the state. It's worth noting that this new Texas contract is independent from the work we're already doing in Texas with Command, illustrating our land and expand strategy in action. Our approach is to penetrate a state by delivering clear value with one of our platforms and then expand to the next platform in our portfolio, and then the next. And along the way, we have the opportunity to continue to layer on new value-added services over the top, such as air quality, electric vehicle studies, weight in tonnage and more, increasing the value we deliver to the state and our revenue potential. As another example of customer traction, we also announced a new $1.5 million contract with Maryland Department of Transportation to deploy the Discover platform across some of the nation's most heavily used corridors, including I-95, I-495, and I-695. This win, which is over and above our AI-based class, count and speed offering, focuses on corridor management and sustainability, incorporating advanced environmental analytics like carbon reduction, EV counting, and air quality monitoring, weight and tonnage and volume by lane through our new Vehicle Insight solution. These enhancements will help Maryland improve traffic management while addressing environmental concerns, and this has further opened the door to additional opportunities within the state. In addition, we also expanded into Colorado's Pitkin County, where we are deploying Discover in the highly trafficked Aspen area and surrounding region. This new contract includes our Discover class, count, and speed offering, as well as air quality monitoring, once again showcasing our ability to grow our footprint by providing value-added services on top of existing infrastructure. This project supports better roadway planning maintenance and sustainability in a region known for driving environmental improvements. Looking ahead, we continue to see significant momentum and opportunities emerging for Discover. Our recent strategic partnership with MS2, a leader in transportation data management for states, is expanding our reach to dozens of new state DOTs and numerous cities and counties across the U.S. This collaboration, combined with our mission of collecting, connecting, and organizing the world's mobility data to make it useful and accessible for unique insights, positions Rekor on a fast path to becoming the leading roadway intelligence data exchange for the industry, laying a strong foundation for the continued success, holding enormous and durable value at the core of our strategy. As we close out my first full quarter as CEO of Rekor, I'm encouraged by the solid progress we've made across all of our growth pillars. We've continued to navigate the complexities of government procurement, secured multiple multimillion dollar contracts, and expanded our reach into key states like Ohio, Texas, Maryland, Colorado, Kansas, and Oklahoma. Our strategic partnerships with industry leaders such as AWS, NVIDIA, SoundThinking, and MS2 are further strengthening our market presence and positioning Rekor as a leader in providing roadway intelligence to the industry. As I mentioned earlier, in my discussions with many investors over the past 90 days, the key themes you raised such as market opportunities, capital needs, and meaningful traction have been top of mind for me. We've made important strides in each of these areas in the quarter, securing necessary capital to continue our growth, winning new contracts, and expanding our market footprint. While we remain cautious due to the inherent complexities and unpredictability of government contracting, the traction we've gained this quarter is a strong indication that we're on the right path. We're committed to building on this momentum and continuing to deliver our strategic vision. I look forward to updating you on our continued progress in Q3. Thank you. We'll now move on to Q&A.

Our first question comes from Michael Latimore with Northland Capital Markets. Please state your question.

All right. Thank you. Yes. Yes, great to see all the news recently, contracts and with a 27% sequential growth in the quarter here. I guess, in terms of this kind of large contract you highlighted here, 1,000 units potentially, I guess, one, are those basically going to go into locations that you currently manage, and you upgrade them? Or are there also new locations embedded in that? And then what's your thought on time to get all these deployed now?

Hi there. Mike, good to have you on the call. Thanks for the question. So in terms of the large contract, yes, we do have management responsibility for a number of these. But it's a mixture of existing as well as new areas that otherwise would not have been done. The mixture of areas that would have normally been done with portable or short-term, that will move to a more permanent solution because now it can be done. So that's a lot of new opportunity there for us. But to answer your direct question, it is a mixture of existing ones that are scheduled for replacement and new ones that otherwise could not have been done.

Great. It sounds like you have begun deploying the units. Over what timeframe do you expect to deploy the 1,000 units?

We would expect that it likely depends on a few factors. In the region, there are forecasts predicting about 20 to 24 named storms and 8 to 12 hurricanes between June and November. If those events do not occur and we have clear sunny days, we estimate that it would take roughly six months to manage that with our current resources. This timeframe could extend depending on the circumstances. That's the expectation I have.

Yes. Yes. Okay. Yes. I'm near to the Gulf Coast and very attuned to those forecasts. So for sure. Is the pricing model here related to hardware and maintenance, or is it the full subscription model?

In the cases that we're talking about, because we're discussing a regional area, it varies by the states in the Southeast. But the one in particular that I'm referring to is a mixture of hardware and subscription bundled together. So paid upfront in the way that the state would like to do that through their procurement processes. But it very much is over time. But I would say it is bundled together.

Okay. Great. Regarding the Texas news, you mentioned it involves maintenance and repair. Could you confirm that this is the nature of that deal? Additionally, do you see a similar opportunity in Texas like the large one we just discussed?

Regarding the Texas opportunity, we excel at evaluating, maintaining, replacing, and repairing existing infrastructure, which is why we are valued by the states. We also have the chance to track every device on the roadway and incorporate AI in our replacements. Currently, we are positioned to capitalize on both of these opportunities, and we are just beginning this process. It’s essential for us to ensure that we maximize our earnings from this opportunity, which will involve both ongoing maintenance and AI-related replacements.

Great. And just last one on ATD. How is that tracking with your expectations? Have they helped with some of these recent wins?

Actually very well. I'm very pleased with the acquisition as we have been over time with our STS acquisition as well. Excellent team, it broadened the market for us. We're doing work in new states that we've never done. And also now integrating our AI technologies into the workflow. So I really truly could not be happier with that team and also with the progress we're making in terms of integration, but also new business. So yes, very well, actually.

Yes, great. Thanks a lot. Best of luck this year. Thank you.

Thank you, Mike.

Our next question comes from Noah Levitz with William Blair. Please state your question.

David, Eyal good afternoon. This is Noah Levitz on for Louie DiPalma. Thank you for taking my questions. To start off, as it relates to your new partnership with SoundThinking for PlateRanger, just to gain some more color, how is your solution going to stack up versus some of the existing solutions already on the market? Will it be priced comparatively to some of the others? And then can you also elaborate on any other differentiators that you're going to provide?

So yes, a very good question. We're excited about this relationship. SoundThinking is a respected name and brand in the law enforcement area, and so we're thrilled with the opportunity to work with them. In terms of our go-to-market and pricing, that's really up to how SoundThinking wants to approach their market. They've got a large installed base that will expand into, including vehicle recognition and LPR and the connection with PlateRanger, which is powered by Rekor under the hood of that and connecting to their ShotSpotter. In terms of how it compares competitively, one of the things I can say objectively through third-party benchmarking is that Rekor's license plate recognition and vehicle recognition technology is at the top of the stack. So from a competitive nature, we still feel very good about that. In terms of how SoundThinking and their ShotSpotter technology stacks up, we believe, and we've heard enough evidence from our customers that this is a leading technology in the market. So to me, it's like chocolate and peanut butter coming together, so you really have an end-to-end solution now for law enforcement to have the tools that they need to increase public safety. And so pricing, it's going to be up to how SoundThinking wants to structure that with our customers, not us. So I can't comment on that. But our solution together with SoundThinking is where we are effectively working with SoundThinking as a channel to market. And so again, the rest of that engagement will support it, but it really starts with SoundThinking. Does that help you understand, Noah?

Yes. No, that was very helpful. And then just a little follow-up on that. Will it be utilizing solar? There's a lot of traction with solar power LPR cameras. So I was interested if PlateRanger will also be doing that?

Yes. Yes, indeed, it will. The technology, again, from a physicality standpoint is Rekor technology under the hood, both from a hardware perspective as well as the software perspective and the AI agents that run. So we've always been solar. So solar is absolutely part of it, and it's, in fact, a strong differentiator for us as well.

Great. That was it from me. Thank you very much.

All right. Thanks, Noah. Appreciate it.

Thank you for taking the question. David, it was good to hear the update this quarter. I have a couple of clarifications. Regarding the $35 million contract mentioned last quarter, I assume it's related to Florida, based on your comment about the hurricane. I'd like to understand if this contract will last over six months, which seems likely depending on the season. This would add approximately $6 million in revenue per quarter if distributed equally. How should we consider profitability for Rekor once such a contract is in place?

I'm trying to understand; maybe you can clarify the question better than I can?

You reported a loss of $5.5 million in EBITDA this quarter. If this contract comes through, it could generate an additional $6 million in monthly revenue. Assuming it takes about six months to fulfill, that would amount to a $35 million contract. How will this affect your profitability?

So you wouldn't implement it all at once. Let me clarify. Essentially, over a period of approximately six months, you will be gradually increasing the amount you put in each week, month, and quarter. You will ramp up over time. The structure of the contract would involve upfront payment, allowing you to recognize that revenue evenly over the designated time. The quicker you can deploy resources, the sooner the benefits will be realized. Does that address your question, K.C.?

Yes. And then how much of that would be like hardware versus kind of a SaaS type contract? Is it 50-50? Is it more hardware than SaaS? Like how do we think about that?

Yes, K.C., it's more on the hardware upfront and the SaaS is over time. So to your question on the $6 million every month, that's not $6 million maybe in cash if it all goes well, but the revenues are only for the hardware, and some of the SaaS as we recognize as we go. The contracts talk about three years upfront for SaaS. So we recognize it all the time.

Okay. And then you mentioned previous questions talked about Texas. How big can Texas be? Can it be the same size as this type of contract over time? Or is it a different size?

That's a very important question, K.C. Texas has the largest roadway network in the United States. Considering the miles of road there, you can expect a significant number of sensors. The opportunity is indeed substantial. There are many sensors on these roadways, and based on what we have been told by our customers, we learn that about half to two-thirds of them aren't delivering the needed results. This certainly presents a great opportunity.

Okay. And then lastly, you guys mentioned Georgia in your prepared commentary. It wasn't clear that you guys were there before. How big is Georgia today on an annual basis in your numbers?

Yes, we do not provide numbers per customer, but this is one of the largest customers that we have. And to your point, Georgia is over 30 years a customer with STS before the acquisition. It's a very large customer.

And did you upsell Georgia when you took over that company, STS? Did you increase the size of that contract?

Yes, the size of contracts no, but we did put AI units in Georgia.

Okay, which increased the revenue, right?

The current contract with Georgia is some sort of fixed price, we did increase the overall revenues from Georgia, yes, based on other parameters but not from the existing contracts. We have other sources of revenues in Georgia as well. It's the relationship that we have with Georgia and help us expand beyond the current contract.

Okay. So you just mentioned Florida, Georgia, and Texas as three important states. That's great to see. Can you explain the strategy behind the new facility you established with Ziegler? What kind of loan to values are you securing on contracts? How is it structured? If you were to establish a new facility in a state on the West Coast that is sizeable and requires significant capital, how much credit would you expect to get against the contract?

Are you talking about the revenue sharing contract?

No, the new financing facility you announced today is called Ziegler.

No. So I think you're confusing this with the thing. We announced a prepaid advance agreement, which is some sort of convertible. Yes, that's the $15 million upfront that we get. We oversee a $15 million upward cash, and there will be a conversion over time to retain the same. With Ziegler, it's the same structure that we set back in 2023. It's called revenue-sharing notes.

Yes, okay. Can you go through that?

Yes. In this structure, when we secure a new contract that is paid for data instead of the previously mentioned $35 million contract that was paid upfront for hardware, some states' procurement processes require payment for data without the intention of owning the hardware. This results in a smaller monthly fee for Software as a Service, including maintenance for the hardware and software. Under our current revenue-sharing notes structure, we receive $0.50 for every dollar. For instance, with a total contract value of $30 million over three years, our current agreement allows for us to grow up to 50%, which means an additional $15 million. This describes our current arrangement with the revenue-sharing notes.

Okay. Great. And then, David, now that you've been there really starting to run the company for over a quarter now, but have been there for a couple of years. What's your expectation for profitability considering that you have these large contracts coming online? When do you kind of cross that threshold?

Yes, we have goals for 2024, but I think the hurricane season might delay things until early 2025. There's a significant amount of time left this year, and we are executing various initiatives. So, while I remain optimistic, we must be realistic about the situation too. We will see how this unfolds, but it is possible that we could extend into the first half of 2025.

Okay. Great. A lot of momentum. Thank you very much for the time.

You bet. Thanks, K.C.

We have an additional question from Michael Latimore with Northland Capital Markets. Please state your question. Michael Latimore, you might have yourself muted. Go ahead.

Hi, there we go. Thanks. Yes. Just on these recent Command wins, can you explain the kind of the competitive dynamic there? Is there anything you're replacing? Or is this greenfield? And how does it roll out? Does it roll out statewide or does it go kind of city-by-city?

Thank you, Mike. Regarding the Command contracts we've announced, these are focused on regional areas rather than statewide for Oklahoma and Kansas. This regional approach is valuable as it allows us to establish a presence with less resistance. When operating at a state level, the dynamics change significantly. Entering at a regional level accelerates our efforts, particularly with the situations in Kansas and Oklahoma. In Oregon, especially in Umatilla County, we are engaging with a rural community that surprisingly experiences a lot of traffic and faces challenges similar to those at the state level. This approach allows them to utilize the same system and data as the statewide entities, which they previously lacked. It also integrates with the future connected vehicle ecosystem we are developing in Oregon. Overall, I would highlight that our regional strategy offers a quicker path in comparison to the more lengthy state approach, which can take up to 18 months. In contrast, regional efforts can be completed in just a few months, paving the way for future expansions. Additionally, we see opportunities along the Gulf Coast, particularly between Texas, Oklahoma, and Kansas, creating an intriguing corridor that crosses state lines. This is a unique development, and we anticipate continued growth at both state and regional levels.

Very good. Very good. Now and then just...

Mike, you asked the second question, and I just remembered. We're not replacing anything significant; we're simply moving away from traditional tools like spreadsheets and cameras. This is not about displacing an ATM system or anything similar. So that answers your question.

That makes sense, yes. So it's sort of like the digitization of that function as well, just like with Discover?

That's right. That's right.

And then on gross margin, that was up nicely sequentially. How should we think about gross margin kind of going forward here?

Thank you for the question, Mike. As I indicated during the call, we expect to achieve higher gross margins in the long run as we upgrade older technology with our newer solutions. In the short term, we may experience some fluctuations, but we anticipate a growth trajectory of around 50% to 55%. As we continue to replace more of the outdated technology, we expect gross margins to exceed 60% to 65%.

Okay. Very good. Thanks a lot.

Thank you.

Thanks, Mike.

Our next question comes from Ray Yacko. Please state your question.

Yes. Thanks for taking my call. With your partnership with SoundThinking and the rollout of PlateRanger, I believe, in September, will they go back to their existing customers that they have and offer it to them also? Or is it just their forward customers going forward? And do you also expect any other partnerships by the end of the year?

Ray, that's a great question. So listen, I can't speak for them, but I can tell you what we're observing, right? Because as they master the go-to-market for that on their timing, our expectation, and we're already seeing it, is that they are going into an existing customer base. I mean they've got a brilliant solution, but not a way to do vehicle recognition or LPR. So that complement is a no-brainer. And we've already done public webinars on this with their communities and stuff like that. So it's on. And that's a natural thing for them to do, and we're seeing that happen. How they're doing that sort of in the out years, I would expect the same, but I can't speak for them. I'm sure you can understand, but that would be a logical thing to do, yes.

And my second question is, with the share price being $0.12, $0.11 off the 52-week low, do you believe the profitability is what's holding the share price down at this time if you had mentioned profitability being pushed back to early quarter next year or maybe half of next year?

Yes. That's a crystal ball type of question. There's so many things that affect the stock price. But I would say, yes, one of the things that has been really clear to me, and we're really thrilled to talk about today was the progress and the traction that we're getting, and I would consider it meaningful traction with customers that we've been working with. And I think as we look forward, the value of the company is, we believe, to be substantial. And we're in it for the long-term, and we believe we're making the right decisions. We think the stock will be valued accordingly. In the short run, day-to-day, yes, I can't speak to the fluctuations, but our profitability, and frankly, our ability to continue to intercept the opportunity ahead, I think that was the big question with the ability to close sort of the concerns around capital, which we've done. The ability to be able to demonstrate meaningful customer traction, which we've done. And frankly, our technology position, I think we're doing the right things, and we're going to continue to do more of those. And so I can't speak to the crystal ball of the market, but we're going to continue to do what we're doing, which is executing against our plan.

Yes. As a shareholder, I've been around for a long time. I'm not involved in day-to-day operations, but I've been with the company since the BFDI days. I'm here to stay, and I appreciate how the division is structured. My last question is about Mastercard. Are there any updates regarding Mastercard?

No. With Mastercard, that situation predates my time at the company. I don't work for Mastercard and I'm unaware of their activities regarding that program. It's a Mastercard initiative, and we're not involved in expanding it with them. Therefore, I would say there's nothing new to report on that front. However, we do see interesting opportunities in the quick service restaurant space, which we think is very promising without relying on Mastercard. So stay tuned for more information. But as for the Mastercard aspect, there are no updates for the reasons I've mentioned.

Okay. And one last question I just thought of. Going back a couple of quarters ago with the State of Ohio and uninsured motorists' program. Nobody else seemed interested in that. I mean, it's just beside the State of Ohio that I believe you had to contract with?

Yes. It's not Ohio. It's Oklahoma. It's Oklahoma City.

Oklahoma, I'm sorry.

Yes. No problem, I'm just making it clear. Yes. Oklahoma has very good results. The state is overwhelmingly happy. This is something that's tied to legislation and such that it's done at a state-by-state level. So the merits are there. They're very clear. The roads are way safer. Uninsured motorists are off the roads. So for all the things that you and I would care about being on the road and knowing that the people that we're driving with, I mean that's all good in the Oklahoma market. How the other states want to do it, it's unpredictable. Legislation is legislation. So the merits are there, but we don't control the legislation part.

Thank you. And that's all the time we have for questions today. I'll now hand the floor back to management for closing remarks.

Well, thank you all for your questions and for joining us today. We've covered a lot of ground from our financial strategies and market opportunities to the progress we're making across each of our segments. So as we move forward, we remain committed to executing our plan, addressing your concerns, and driving value at the end of the day. We're excited about the opportunities ahead and confident in our ability to deliver on these commitments. So thank you again for your support, and we look forward to updating everyone on our Q3 call.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Have a wonderful day.