Earnings Call Transcript - REKR Q3 2020

Operator, Operator

Good afternoon, ladies and gentlemen. And welcome to the Rekor Systems Inc Conference Call. My name is Omar Stanley and I will be your coordinator for today. At this time, all participants are in a listen only mode. As a reminder, this conference call is being recorded for replay purposes. Before we get started, I'd like to read you the company's abbreviated Safe Harbor statement. I'd like 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, 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 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. Eyal Hen, CFO of Rekor Systems. Thank you.

Eyal Hen, CFO

Thank you. Good afternoon. Thank you for joining us to discuss the results of Rekor's third quarter nine months ended September 30, 2020 and provide an update on key business topics. On the call with me today is Robert Berman, President and CEO. Our company achieved more than 40% revenue growth in Q3 2020 over the same quarter in 2019. I'm going to present the highlights of the results for the three and nine months ended September 30, 2020. Revenue for the quarter was $2.1 million compared to $1.5 million the same period last year, growth of 40%. Revenue for the nine months ended September 30, 2020 was $6.4 million compared to $4 million for the same period last year, growth of 60%. The increase in revenue is attributable mainly to the substantial completion of the implementation phase of software and hardware contract, as well as an organic increase in revenue to our e-commerce platform. The revenue from our e-commerce platform grew from $167,000 in the third quarter of 2019 to $235,000 in the third quarter of 2020, which represents over 40% growth. Additionally, e-commerce revenue grew from $280,000 in the first nine months of 2019 to $621,000 in the first nine months of 2020, which represents more than double revenues from this channel. This growth was organic and not the result of a formal marketing campaign for this channel, which is planned for the near future. Gross margin for the quarter was 53.7% compared to 74.6% in the same period last year. Gross margin for the nine months ended September 30, 2020 was 67% compared to 70.9% in the same period last year. The lower margins are primarily attributable to the initial cost of building infrastructure in connection with our software and hardware contract. Because of the advantages of Rekor One platform, which we'll discuss later, it makes sense for us to install infrastructure to serve a large network when you begin service in an area. Total operating expenses for the quarter were $4.6 million compared to $3.6 million in the same period last year. The operating expenses for the nine months ended September 30, 2020 was $12.5 million compared to $8.1 million in the same period last year. The increase is attributable mainly to the implementation of our go-to-market plan to develop and promote our technology products and services, as well as recruiting additional manpower to support our growth plan. The complete reorientation of the company is to predict direction and solidify the corporate structure. Adjusted EBITDA for the quarter was a loss of $2.7 million as compared to a loss of $1.8 million in the same period last year. Adjusted EBITDA for the nine months ended September 30, 2020 was a loss of $6.8 million as compared to a loss of $3.9 million. The increase in loss was due to the increase in expenses as indicated before. Our cash balance as of September 30, 2020 was $24.4 million, and our working capital was $21.1 million. As we announced previously, we have retired the debt through exchange and cash transactions. And currently we're substantially debt-free. Our performance obligation balance has grown to $16.5 million, which represents future revenue under existing contracts. In summary, we continue to see a lot of momentum in the market. Our customer base is growing. We are excited about the many opportunities that lie ahead of us. Now, I would like to turn the call over to Robert.

Robert Berman, President & CEO

Thanks, Eyal. Good afternoon, everyone and welcome to the first quarterly earnings conference call for Rekor. In today's call, I'm going to provide you with an update on some key developments together with an overview of our business as it stands today. I'd like to start by mentioning a few key highlights. The sale of our two main business units at the end of the second quarter and the retirement of our debt this quarter, Rekor has completed the realignment that we began in 2019. We're now well positioned to take on the opportunities and challenges that three years of investment in vehicle recognition and intelligent roadway technologies has created for us. Just in the last year, we've gained a leading position in the government and commercial segments, as represented by our recent agreements with MasterCard and Verra Mobility, amongst others. This morning, we announced that the state of Oklahoma will be deploying the Rekor One platform across the state. This will identify uninsured motorists as part of the state's innovative effort to address the growing problem of uninsured motorists through proactive engagement rather than an increasing reliance on expensive personnel intensive enforcement efforts from the past. The statewide contract was won through competitive bidding where Rekor was shown to be the only company that possessed all the in-house capabilities and demonstrated the needed implementation of the program securely and efficiently. The award demonstrates clearly the value of Rekor One and shows that we are the leader in a large untapped new arena. Nationally, uninsured drivers are a significant problem with more than 12% or nearly one in every eight vehicles uninsured. And Rekor One is now the only platform that provides all the technology a state needs to identify these vehicles and take a progressive measure to ensure compliance. This innovative program not only makes the road safer for insured motorists but develops a new source of previously uncaptured revenue for the state. But this is just one facet of the value of Rekor One; Rekor One can provide for the governments; the beauty is that it can make multifunctional use of an existing network of roadway cameras. Since Rekor One can interface with multiple programming languages, support multiple operating systems, and facilitate rapid API communication from a variety of sources and facilitate rapid communication and collaborating and strategic decision-making for a variety of participating agencies. For example, a state using Rekor One for an uninsured vehicle program can extend the use of the network into lapse tags, vehicle counting, permissions, congestion pricing, unsafe speed, wrong way detection, and many others. The precise data needed by each agency can be stripped off at the source, distributed and stored in a way that meets all these agencies' needs for security and privacy protection. Rekor One is the first platform that serves as a unifying source of roadway intelligence for government agencies across cities, counties, and states. This means that as we expand from state to state, we are automatically positioned to expand our services into many other areas within each state. The Oklahoma unit is just one great example of how the platform can efficiently and economically support multiple community, safety, intelligent roadways, and revenue generation activities. As we like to say, with Rekor One each sensor can execute multiple missions. Since our core software has been developed using AI, we have over a three-year lead in intensive machine learning for vehicle recognition. And we just filed for six patents based on the products we've been developing out of that. This has led to several significant announcements for the third quarter of 2020. First is the launch of our new e-commerce platform. This is a new sales channel that gives us a broad array of customers quick access to vehicle intelligence solutions, solutions that can enhance their operations, automate tasks, and increase community safety. Next, MasterCard announced that they selected our vehicle recognition technology as a core component in the advanced AI-powered drive-thru solution that has been developing for several years. A pilot for this program has just launched at White Castle in the Midwest, because retailers and consumers navigate through one of the most disruptive periods in modern history. Teaming with MasterCard and their quick service restaurant partners not only helps us usher in the future of frictionless e-commerce, but it signals the value of our vehicle recognition technology in enabling low-touch, high-engagement experiences for retailers and the end customer. In early August of this year, we also announced that Verra Mobility, a global leader in smart transportation, will be a non-exclusive reseller of Rekor technology. Through this partnership, Verra Mobility will offer Rekor's entire line of vehicle recognition software and hardware products to its existing and extensive US customer base, as well as any new global prospects. Significantly, Rekor software will also power Verra Mobility's existing mobile and fixed camera systems, quickly setting a new standard of expectations throughout the industry. This past summer we also signed a five-year non-exclusive licensing agreement for school bus stop arm systems with Mesa Engineering, which is a primary engineering firm used by Conduent, another major force in the smart transportation arena. This agreement will further increase Rekor's market penetration in the state, local government, and international markets. Also during the third quarter, our public safety footprint expanded with the Collierville, Tennessee police department and this engagement includes Watchman Go, our first of its kind mobile app that processes on the device, delivering instantaneous results. In addition to the installation of a 17 camera system supported by Rekor's Watchman back office platform, the mobile app will give Collierville police officers convenient access to accurate real-time vehicle recognition wherever their smartphones can go, including remote areas and underground garages. We have a lot more to say about mobile apps in the near future. Most of we have successfully sold all of our non-core assets and discontinued investments beyond the scope of our current focus. With AOC key solutions and our Texas staffing company, which were instrumental in supporting our operations previously, were sold for profit. We continue to retain a 19.9% interest in Global Public Safety, affording local subsidiary available via Associates Anchor, a diversified services provider to federal, state, and local governments and commercial organizations. We believe this position is synergistic with our public safety business, and it has grown in value over time that we have owned it. Finally, from time to time I get investor questions on ROKER, the parking management app that uses our technology. ROKER is a mobility platform aimed at developing a smart parking ecosystem using Rekor technology. ROKER, which is Rekor's pulled backwards as a passive investment for Rekor, and I would encourage all of you to visit Rokerinc.com to stay up to date. At this point, I would like to turn the call back to the operator for questions.

Operator, Operator

[Operator Instructions] Our first question comes from Zack Cummins with B Riley FBR.

Zack Cummins, Analyst

Yes. Hi, good afternoon, Robert and Eyal. Thanks for making the time today to take some questions. So I know you had a pretty good year-over-year growth here in Q3. But I think it was a little bit below your expectations kind of heading into the quarter. So can you give us a sense of maybe some of the challenges that you ran into during the quarter and what you're seeing out there in terms of the environment for the rest of the year?

Eyal Hen, CFO

Sure, thanks, Zack. I think like most companies, COVID has had some impact on our business. We ran into issues with logistics where we had products tied up in customs that were going out of the country, we had issues with customers that would not allow our engineers and our technical people on site, and things like that. And it has also created delays in the chain of the way things happen because we deal with a lot of partners; things have to fall in line like dominoes, and I think that the whole country and world is out of whack right now. And really, it's hard to anticipate any of these things. So one example would be that we've got a large customer that has won a substantial contract in California for the California Highway Patrol, and they were supposed to start the implementation of their contract in the second quarter of this year, and they still haven't received the notice to proceed. So that's what's impacting things on that front. I'd say in addition to that, it's not just COVID. I think that there are a lot of things that Rekor has done over the last year related to building infrastructure with people and systems and so forth. Good examples are the e-commerce platform; we had hoped to have that done well over a quarter ago, but it was just technically a little bit more involved than we thought, and it didn't make any sense to try to launch it until it was completed. And from time to time, that's what you have when you're a development stage company. But we think we have most of that behind us and going into 2021, we're pretty sure that the end is going to be firing on all cylinders. We can't speak to the pandemic. I don't think anyone can. But I think we'll start seeing much better results next year.

Zack Cummins, Analyst

Understood. Thanks for that. And then I know you mentioned your e-commerce platform now that that's up and fully functional, how should we be thinking about the pace of contribution from that channel moving forward, since you're able to provide almost touchless transactions for your entire suite of products?

Robert Berman, President & CEO

Well, this is a point of contention around here, because we've all been anxious to start marketing. And we just didn't have the tools to do it with respect to the way the older website that was set up that was attracting the organic business that we have, did not have the ability to meet the needs of what it takes to really run a true digital campaign. So as an example, we have customers in over 50 countries. And if you want to offer products and market in those countries, the person on the other end needs to pull a platform that comes up in their language with their currency. So it's that type of thing that you need to have in place. But as Eyal said, previously, take a look at the numbers, this is all organic growth, we've not done any marketing, up until the last couple of weeks, we've done some trials with things. But you can see that we've doubled the business, for the same period last year to this year, I mean, it's grown to almost $700,000 for the nine months. And again, I would suggest that we're just starting to market now. And we've been finding some interesting things, and it looks positive, and we're seeing some good results with some of the test campaigns that we're doing. And I will say this that from my perspective, I would say that the amount of business that Rekor has on the e-commerce platform cannot be the entire universe of customers that are out there in 54 countries for that end. So, we'll probably have much better metrics in a couple more quarters because now we can begin to launch campaigns. And we'll see the growth, and we'll figure out how every dollar invested, what the return back is and the cost of acquisition, customer attrition, and other things. So, I would just caution everybody to let's give it a couple of quarters and see how it goes. But we're anticipating some pretty solid growth from it. So, again, if you look at the organic growth, that is purely organic, that's nothing more than inbound on a very basic site that just wasn't capable of really handling any more than it's doing. So hope that's helpful.

Zack Cummins, Analyst

Got it. That's helpful. And then in terms of the win that you announced this morning with the state of Oklahoma, can you talk a little bit more about the process behind being able to secure that win with Oklahoma, especially as your new Rekor One platform? I mean, how are you thinking about the total addressable opportunity just within Oklahoma and kind of how that can progress going forward? And it seems like this is something that can be readily adopted by other states outside of Oklahoma as we move forward?

Robert Berman, President & CEO

Zack, it's just absolutely a huge win for Rekor. The Rekor One platform was announced less than a month ago. And if you go back and take a look at the investor deck, you'll see that we focused on three areas, right: infrastructure, public safety, and revenue. And if you look at the slide in the deck on our website, on the revenue, you'll see uninsured motor vehicles as just one slice of the pie for that particular subcategory of Rekor One. States made revenue and uninsured motor vehicles are a huge problem across the United States. The numbers of vehicles that are uninsured are in the tens of millions. This is the first statewide program that addresses it, but it's not just the opportunity to get uninsured motor vehicles off the road and run a profitable program. This gives us the ability to deploy our system across the state. And then to use the system and showcase all the other tools that we have for a variety of different agencies from DLT to BMV to public safety and on and on, so it can spider web out into other services for other agencies. But the opportunity by itself is remarkable. And we're in early stage discussions with about a half a dozen states. We found them to be very receptive to the concept. Maybe it's a combination of the uninsured problem being such a big issue for many states creates a lot of friction, but it's also revenue generators, so things are probably different today than they were a year ago, prior to COVID. I think a lot of municipalities are going to be looking for revenue – the uninsured motor vehicle program is an elegant solution to that. Because it's a turnkey program, we're actually taking people that are driving uninsured and getting them compliant to where they're driving with insurance and so forth. So, it's a nice way to address the problem, and it's an elegant solution, and it generates revenue for states. So we think we're going to see a lot of interest from other states. The process was complex. There were a number of companies that looked at it, but Rekor was the only company that had a turnkey solution that was domiciled in the U.S. And that's an important thing. So we will also be the only company when other states start coming out, let's say that they're launching RFPs to look for such a solution. And we will be the only company that has experience running this program. So the market is remarkable. I think, looking at your report today, you're right that it's a $1.45 billion addressable market in the U.S. and the states have to deal with the uninsured problem. So we think we found an elegant solution to it. And I think it's going to roll out over time and take time, but it's going to roll out from state to state almost the way lotteries did back in the early days of lotteries.

Zack Cummins, Analyst

Understood, that's a helpful context. And then I know you briefly mentioned it in your script. But can you give us any additional updates from the MasterCard partnership? It sounds like you're starting some pilots with White Castle thus far and any expectation for additional QSR adoption before moving forward at the end of this year?

Robert Berman, President & CEO

Yes, I think that this is a good opportunity to get folks to understand better what this MasterCard opportunity is. So MasterCard has been working on a solution for several years. It is not a solution that involves just vehicle recognition, point of sale, boom, you're done. It is a solution that involves voice recognition that involves AI within the point of sale system or anticipated and expected ordering and a host of other things, including menu boards, and so forth. MasterCard's approach to this is developing a completely new experience for drive-throughs. And they've got a bunch of people working on this from data scientists to others, to not only improve the experience for the customer, but the operational efficiency of the restaurant, and so on and so forth. And it's a huge opportunity; MasterCard is looking to sell the solution to the fast-food industry worldwide. They've announced it; they're vested in it now. So they're public and going after it, but I will say this: these pilots are moving forward, and they're going well, but like anything else, when you bring a product to market, especially in the beta stage, things have to be tweaked, and changes have to be made, and so forth. So it's probably going to take a little bit more time. But the way we look at it is once MasterCard is comfortable with it and they go after the industry, they can be an 800-pound gorilla. There are hundreds of thousands of drive-throughs around the globe, okay? And this is MasterCard; they will gain penetration, and they're very happy with Rekor's performance so far. So we expect this to just grow, but it's going to grow through the years, and it's going to take some time, but once it starts to be deployed, we expect it to scale to something pretty sizable. And I often get questions and calls from people about MasterCard, and look; we've been working with them for almost a year now. We couldn't say anything about it until they announced it. And I think there's an expectation that based on the announcement that you're going to have revenue two weeks later – it doesn't work with something of this magnitude. They've got a fortune invested in this thing. And they're looking to attack it from a global perspective and penetrate the industry. And it's MasterCard; they're going to be successful with it, and we're going to ride on their coattails, but everybody's got to be patient with it. We've got to give them a chance to get the solution to where it works. And when it works with the relationships they have with these large chains, we think that they'll be very successful penetrating that market.

Zack Cummins, Analyst

Got it, that's helpful. And then on the reseller side, I know you signed a number of public safety and security resellers earlier this year. Can you give us an update in terms of learning how to get those partners fully trained and ramped? And when are you expecting to start to see more contribution from those partners?

Robert Berman, President & CEO

That's a good question. So going back to your prior question about some of the things that happened in the third quarter that may have taken a little longer; look, we've chosen to sell our products to resellers. We've got a three-legged stool here. So e-commerce is one leg; strategic partnerships with companies like MasterCard is another leg, and the third leg are resellers. So the choice of a direct sales force or resellers, we chose resellers because it's just a much better path. And what we've learned is it also takes time. Going through the process with Verra Mobility, which is a very large company, Verra Mobility was not prepared to go out there and really start pushing products into their customers until they were comfortable that collectively, both Verra Mobility and Rekor had all the tools in place that we need to service those customers. So there are a lot of different things that you need in the toolbox to actually put a reseller out there to start marketing your product. So we've got a complete system; we call them business in a box now. We've got all the systems that go along with it from a software perspective so that the resellers can be managed. And they can deal with us from a customer service perspective, a financial perspective, and other things. But it takes about 12 weeks to get a reseller through the program from the day that we vet them to the point where they could really go to market and start selling. I would say going into 2021, we've got less than a dozen resellers, and those include resellers on steroids, like Verra, and then some smaller ones. I think that's pretty good given the complexity of what it took to put this program together. Going into 2021, I think we're going to see that number increase each quarter. And we’re also looking at international resellers, which are a whole different ball game and bring a whole different set of issues. But we're doing all that now. So I think that the reseller program is going to work really well. I think we've got some great partners going into 2021. And I think we're going to be adding more every month as we get into the New Year.

Zack Cummins, Analyst

Understood. And then just final question for me. Thanks for taking all the questions today. But I noticed in the press release you had a brief statement saying you had a settlement agreement with Vigilant in place here this month; I understand the terms of the settlement are going to be confidential. But I mean can you give us a sense of, is there going to be any sort of meaningful impact to your business moving forward? Or I guess, how are you thinking about that relationship as we progress?

Robert Berman, President & CEO

Well, a meaningful impact is that the case is settled, and that's really the bottom line. Unfortunately, the terms of the settlement agreement are confidential. But it's not going to have any material impact on Rekor whatsoever. We don't have any licensing agreements; we don't have any obligations for payment. So it's not going to impact our business in any way, shape, or form. Other than the fact that it's gone and it gets rid of the overhang of people asking the question about the lawsuit that was frivolous to begin with. And that brought it to a settlement.

Operator, Operator

Our next question is from Casey Amber with Shale.

Unidentified Analyst, Analyst

Hi, guys, thanks very much for taking my question. Good to see the news on Oklahoma, or that type of breakthrough. I guess just a couple of questions because as we sit back and look at the landscape of your market, when we see this Oklahoma contact, can you just walk us through a little more detail? So I saw an article that there are 600,000 cars that are uninsured in Oklahoma, and you're going to get around $45 a car, and then you're going to get a fee for insurance selling that. How do we think about kind of the possibility on that contract?

Robert Berman, President & CEO

That's a fair question, Casey. We proposed to the state of Oklahoma that we believe that over a three-year period we could bring the number of uninsured motor vehicles down from the level that it is to a steady state of about 10%. So you can do the math, and we believe that program will work well, and we believe we can accomplish that. So it's really that simple. If you're starting with X number of uninsured motor vehicles, and we're bringing it down to a steady state of 10%, it's never going to go to zero, because you're always going to have new people that are uninsured for a variety of reasons. You can do the math; you see what we're being paid. On the insurance side; the insurance component of this was very important to us, as well as Oklahoma, because we believe, I personally believe that it's unfortunate that people that are driving uninsured that may be perfectly good drivers, let’s say, in most states, if they get caught and end up having to go into an assigned pool, they end up spending a much higher premium than they would otherwise pay if they were being insured based on their driving record. So we wanted to incorporate that into this program. And we've done that. The point of it is that if you've got somebody that's driving uninsured because they've fallen on hard times, or they lost their job, or they missed a credit card payment, that doesn't mean they should get whacked over the head with a $2,000 insurance premium. So yes, that's part of how you bring it down to that steady state by making it affordable. The way it's worked in the past, and states have a variety of different ways that they deal with uninsured motor vehicles, most of it is at the local VA level, which creates a lot of friction. But most people just get put into an assigned insurance pool at some ridiculous rate for a period of time which is not fair. So that's the way to look at the program. I would say that with the discussions we had with Oklahoma, going into this leading up to them doing an RFP and us winning, the credibility of being able to get the program launched in Oklahoma is going to help us in other states. You can do the math in other states, because it's basically that simple. The object is to get the number of uninsured motor vehicles down to a steady state of 10% from what it's starting at.

Unidentified Analyst, Analyst

So Robert, just I understand. So there are 100 people who are uninsured, trying to get it down to 10 people that run in Georgia; that steady state count as a percent.

Robert Berman, President & CEO

That's the objective; we're trying to get down to a steady state of 10% of the number of uninsured motor vehicles in the state over a three-year period. And then the continuing programs just continue to run.

Unidentified Analyst, Analyst

Okay, and then just so I understand, so you've got the camera. Because I'm trying to visualize, I think a lot of people, and I talked to people there. So a car is driving down a highway or towed or whatever. And the cameras are up, and they're just taking pictures, and they're just comparing the capture of the image versus your AI, and you guys can pull out which ones are uninsured in real-time?

Robert Berman, President & CEO

Well, we have – we're working, but I want to get into too much of what we're doing because some of it is proprietary, Casey. But bottom line – no, we have access to the vehicles that are uninsured. And then we brought them back to a website and an 800 number; they go into a diversion program that we manage, they pay a small diversion fee that drops to criminality. And then they go into the insurance underwriting process, they get insured, and then basically that's what happens going forward. So it was – it's a combination of a number of different things that we're doing to scrape and pull it in and make sure that we have an accurate list of uninsured motor vehicles because you don't want to have false positives because that can create problems as well. So it's a pretty neat program. And the beauty of it is that unlike law enforcement, where you need immediate notification if you're looking for an amber alert or a vehicle that was stolen, with the uninsured, if a person is not found today, they're found a week from now. The reason I'm saying that is because we can cover a state like Oklahoma with a limited amount of equipment to cover the entire state, so the cost of our implementing the program is not all that great. But that creates a statewide system for us that gives us the ability to upsell that to other agencies and for other things.

Unidentified Analyst, Analyst

Okay, the next question, second one, and that's my last one. Just, I've read a lot on the school bus initiatives; could you just kind of walk us through that and kind of talk a little bit about how big that can be? And how that—why would they want to upgrade or make their school buses smart? Just kind of walk through that a little bit.

Robert Berman, President & CEO

First, I just want to say that I've heard from one of our other shareholders that they listened into a Verra Mobility call, earnings call. And they talked extensively about the school bus platform, and Verra said on the call that the whole program is basically stalled in all the 20 some odd states that have passed legislation, because there aren't a lot of school buses out there yet, right? The first coming back; so everything's been pushed back a little bit. But the reason that someone would want to use ALPR and use our system is, first of all, we brought the cost of the equipment that they're using way down. And what that does is it allows every bus to be upfitted with equipment. Whereas before the convention prior to us coming along was that a company that's in this business will go into a school district and say you've got 100 bus routes; we can only cover 12 because we can't make the economics work. So that's the first thing that we've done. The second thing is that if you think about these horrible things, like, if you go look, you can Google and find that most child abductions happen in and around school bus stops, right? So there are a lot of people out there that troll school buses, and they watch where kids get off and on. And it's not just that it could be drug dealers too. Having functioning ALPR tie back to law enforcement, which is the same agency that's going to be running the school bus stop arm program with the school district, means that they can see the vehicles if there are any vehicles of interest that were on a hot list for some reason, that are around those buses and they see a pattern of it; it gives them the ability to deal with it, right? So the idea of adding a safety net around a school bus while it's moving is providing more protection. And just the idea that you're going to stop somebody from driving past an extended school bus stop arm and hitting a kid. So it makes perfect sense. When you put those two things together, that's why we were able to do deals with both and non-exclusive with the larger players in the business, because they want to make use of the technology. Like everything else, I mean, but if you go back three years, okay, there were only a few states that had legislation for a school bus stop arm, then there was some event that happened down in the Midwest, and then I think 17 or 18 states in 18 months passed legislation for, you had this huge watershed thing. When you look at the number of school buses in those states, it's over a couple hundred thousand, right? So everybody was gearing up for this big ramp up with this RFPs that came out, but then you have COVID and the buses aren't running. You can't do an implementation because you can't send your people because they don't want the person there. So it's not going away; it's just been pushed off a little bit and nothing's changed with our technology. I think we're in a good position with it as when we announced it.

Unidentified Analyst, Analyst

Okay. And then just lastly, just on the finance side. So listen, you've outlined the e-commerce strategies like Oklahoma, reseller strategies like Verra Mobility, and joint ventures with companies like MasterCard. So there's a lot of things going on, and you can see a lot of revenue growth developing. I guess, how do you think about your expense base? I mean, do the expenses need to grow?

Robert Berman, President & CEO

No, that's a fair question. I think the interesting thing that we've learned about this business is that it has tremendous operating leverage, and we obviously had to add a lot of folks here primarily in engineering and marketing to gear up to do all that we're doing, running a number of different projects at the same time. Implementations think about installing something like Oklahoma at the same time. You got places like Collierville and all the other things going on. To answer your question, I think the way this business works is that when you think about, let's say, the level that Zack has, when you get later into 2021 of SG&A and really operating expenses to run the whole company. I think that kind of gets to a steady state itself, where you're going to have incremental costs growing only in certain things like R&D. But that's going to be a pretty much, you can grow the revenues well beyond what he's talking about there without increasing expenses dramatically. So the answer is we are still going to be hiring. But it's starting to slow down. And we're getting to a point where we probably have more than enough of what we need to service all the different components of this business. When we do get to that revenue level, and we're going to get there, the expenses are not going to just follow the revenues on the same line. So there's going to be a lot of operating leverage here. It's great because it's still at the end of the day, really a software business, right? So with scale, it's going to have a lot of operating leverage.

Operator, Operator

Our next question is from David Harvey with DRH Capital.

Unidentified Analyst, Analyst

Hi, congratulations on Oklahoma, and congratulations on being debt-free. I am a little new to this story. So I apologize if this is basic, but could you talk about the strength of your patent protection? And what you see as potential threats in terms of competing efforts to develop something similar?

Robert Berman, President & CEO

Sure, it's a good question. First, let me just explain that we have about 30 different solutions that we deploy here. On our e-commerce platform, there are about 10. We announced a few weeks back that we're launching a mobile app, which is quite amazing in a couple of weeks here this month, it'll be launched. So that will add to the e-commerce platform. And then we have about 20 other products, some are just software and others are tightly bundled hardware and software products. All of those are derived out of primarily two proprietary products that we have. The first is that the algorithms that read a video stream, which is what we use for vehicle recognition, intelligent roadways, and the other is IP 360, the back-end citation notice platform that we've completely rebuilt and is now cloud-based. The advantages of the products that are AI are really more based on the machine learning with respect to protection, so there's a lot of proprietary sauce in the algorithms themselves; they were not patented for a lot of different reasons. The lawyers seem to think that's the right thing to do. But what really gives us protection with that is the machine learning. So the main algorithm was developed back in 2012 and 2013. It had an extensive period here to learn and to get smarter and faster and so forth. Beyond that, we think that we have a runway where it would take somebody can throw money at it, but you need the data to catch up with respect to machine learning because it really is all about data time. When it comes to extending our products into these other areas like Rekor One, the patents that we filed recently, and there are half a dozen of them, we think give us great protection with the ability to do a lot of what we talked about with Rekor One. I would encourage everybody to go back and look at the deck on the corporate website. There's a page there for Rekor One, and you can see it; the page that comes after that is about the patents that we filed. Without getting into the detail of the patents, I can try to frame this for you in a way that we don't want to give away any secrets here. But if we have the ability to identify something on a roadway, and there’s an existing database that we can pull from and marry those two things in order to create a solution at the end of that, that's patentable, okay? That's what we've done to create some of the products that we have for these governmental agencies, and we think it's going to be different for others to replicate and work around those patents. They'd have to come up with some pretty unique technology to do it. Not saying it can't happen because stuff is getting developed every day. That's one of the things that we've been dealing with while we've been building the company. It's like flying a plane and building it at the same time; the competitive and technological landscapes are shifting underneath our feet every month here for the last year and a half. We think we're well ahead of it, and we think we've done well protecting ourselves, and we feel good about where we are.

Unidentified Analyst, Analyst

That's great. And then based on your expectations for your outlook, do you think you can remain debt-free?

Robert Berman, President & CEO

I believe that we can remain debt-free. The question becomes the scale of certain programs. So as an example, MasterCard, if we’re required to go install thousands and thousands of locations for their program, we might choose that because it's MasterCard's credit, and we have long term contracts with them, that it might be better for the company to finance the production of that equipment for each one of those restaurants and finance that with a bank. But we would only do that if it made sense. But we'd be doing that based on significant growth in scale. Other than that, we do see ourselves remaining debt-free. So I guess my point would be that would come in if it were commercial, and we're there to help scale a program where we've got significant credit behind it with significant margin. It’s certainly better to do that than sell equity, right? So that would be the thought there.

Operator, Operator

Our next and last question comes from Ray Eco, Private Investor.

Unidentified Analyst, Analyst

Hey, Robert, thanks for taking my call. I appreciate you having this conference call and keeping shareholders up to speed between the conference call and especially the shareholders letter, which was put out back in April, which I thought had a lot of valuable information. My two questions are: one, are any updates on acquisitions in the near future? And my second question is also an update with Tesla. Thank you.

Robert Berman, President & CEO

Sure. We're, listen, we're always looking; we always see things. I don't believe that we have any pending major acquisitions that we'd be looking at. We believe that we can do most of what we're doing here organically and grow the company with what we have. But there are, from time to time, some interesting smaller pieces of technology that we see that may plug into, let's say, like Rekor One for certain things that, if they make sense, we would look at them, but they would be very small. The only reason that we would do something like that is speed to market. If there's a reason to buy something because it's cheaper than building it, and it can add to our platform, then those are the kinds of things that we would be looking at. But beyond that, we're really not thinking about much of anything. And with respect to Tesla, I can only tell you that it's just a process in progress. Again, there's an example. So what we've been working on with them was supposed to be showcased at the New York Auto Show in April. Then when they change the date to August, and then they canceled it. So that's where it is, but it's still being worked on, and it's a project in the pipeline.

Operator, Operator

Yes, I raced along the line. But that concludes our questions. I'd like to turn the floor back over to you for any concluding remarks.

Robert Berman, President & CEO

Yes, thank you, Omar. Thank you all for your interest in Rekor, especially for supporting the company and its recent achievements. Today, we're more confident than ever that the strong fundamentals of the business will enable us to deliver long-term value to our shareholders. We expect to continue to improve our business with growing sales and expand a global customer base, and the future looks bright. Look, we're in an emerging market, and we are dealing with things that are new and tremendous opportunities. I think Rekor is at the nexus of some very interesting things that are happening. The thing that we're most proud of here is the relationships that we have with some of our counterparties like MasterCard, like Verra Mobility, and others. I think that speaks for itself. We've got a great team here, and we've added some great people to the senior management team, and we've got a very supportive and wonderful board that contributes. We've got a good shareholder base. We hope everybody just has the patience because Rekor is the kind of company that you might see in Silicon Valley, and you wouldn't see us growing pains, but we're public. That creates an opportunity for everybody in the development stage company. So thank you all. We’ll see you again on our next call and hope to communicate the news we have between now and then.

Operator, Operator

All right. Thank you, everyone for your participation. This concludes today's conference. Have a great evening. You may disconnect your lines now.