Welcome back everyone. We have an update from Route1 Inc. Trades on the TSXV under the ticker ROI and the OTCQB under ROIUF. Is an operational technology company focused on parking operations, ALPR ecosystems, operational intelligence, secure mobility, and lifecycle operational engagement. Happy to welcome President and CEO Tony Busseri. Welcome, Tony. We are looking forward to hearing your update today.
Anna, good afternoon to you, Anna. Thanks for having me again today. Look forward to this quick update. Let me jump into it, if I may. I want to use a few minutes upfront today to update investors on three specific things. First, the quality of the business we are building. Second, the breadth of the commercial activity now underway.
Then lastly, why Q4 is primarily a conversion exercise. In saying that, it is not that Q3 will not show real and good progress. The underlying point is a simple one. Route1 is increasingly being built around recurring operating relationships, not simply individual technology transactions. Now, before we get into those three slides, I have to put up the traditional legal notice. I am going to keep you here for about 5 seconds, then I am going to flip into today's discussion. Moving forward.
The most important development since our August update is revenue quality. In Q2 of this year, gross revenue, and again, this is level setting, I am not saying something new here, we prior released Q2. Gross margin was about 45% versus 36% for the same period Q2 a year earlier. Lifecycle maintenance and support revenue grew about 12% year-over-year, and our annualized recurring revenue base had exceeded US$1.4 million per annum as of August 1st.
We have also publicly said that Q3 revenue should be generally consistent or slightly greater than Q2 revenue, while gross profit and EBITDA are expected to improve. As a pointed note, we expect to release our Q3 results in early November, and if it can be done, it will be done in advance of our AGM on November 10th. Those statements and where we are coming from are important to us.
We are not trying to simply maximize quarterly hardware volume. We are trying to build more recurring support, more operational services, deeper Comprehensive+ support relationships, greater Route1 ABI software adoption, and ultimately more EBITDA and cash flow. The economics of the business are beginning to reflect that transition. The second major change is the breadth of business development activity. Let us get specific.
Route1 is now creating opportunities through several repeatable motions. Expanding existing accounts, converting traditional VAR relationships, OEM and technology referrals, channel partner referrals, targeted university and public sector outreach, formal procurements, i.e. RFP responses, and opportunities by replacement cycles, regulatory changes, and operating requirements. That gives us a much broader opportunity base than we have had historically.
Opportunities can begin with a camera deployment or modernization requirement and then expand into the more sexier stuff, as we like to call it, integration, lifecycle support, Comprehensive+ programs, Route1 ABI software adoption, and recurring operating relationships. The issue today is not primarily opportunity creation. The pace of opportunity creation has by far exceeded the pace of order conversion.
As we all know, public sector and institutional customers can take months to move from commitment to a procurement to formal order issuance. That has been slower than we'd like. Q4 is increasingly about converting opportunities already created, not simply adding more pipeline. There is also an important change underway in our sector, the ALPR market itself. We increasingly see public sector LPR and parking focused LPR developing differently.
In public safety, architecture, data retention, authorized access, sharing, auditability, data residency, and customer control are becoming part of the purchasing decision. That does not mean agencies no longer value LPR, but it does mean that increasingly they want to understand and control how the technology operates within its environment over its lifecycle. Parking is different.
Parking customers remain heavily focused on enforcement productivity, occupancy, access, system reliability, integrated workflows, and measurable operating outcomes. Route1 sits in a very interesting position because we can combine customer controlled LPR architecture, lifecycle accountability through Comprehensive+, and operating intelligence through Route1 ABI. We believe that combination is becoming more relevant, not less. Route1 ABI is probably the clearest example of how our model is working, evolving. Development is increasingly being driven by actual customer operating requirements.
Recent work includes fixed camera trend analysis, weekday weekend segmentation, multi-zone and multi-permit survey analysis, structured workflows around surveys, zones, geo-fences and permits, and municipal reporting with map-based occupancy reviews. The objective is not simply to produce another dashboard. Parking operators already have significant technology and considerable data and dollars invested. Our opportunity is to help them derive more value from those existing investments, not to spend more capital.
We want Route1 ABI increasingly to help convert data into visibility into intelligence, and intelligence into day-to-day operating decisions. What should investors watch from us between now and the end of the year? Conversion. Not press release volume, not simply the number of opportunities in a pipeline. We have said publicly that we expect Q4 revenue growth compared with Q4, Q3, specifically Q4 bigger than Q3 revenue, and more importantly, further EBITDA improvement.
Our priorities are, one, close advanced opportunities. Two, convert procurement and approvals into formal orders. Three, grow recurring revenue. Four, expand Comprehensive+ and Route1 ABI recurring revenue elements. Five, further improve gross profit and EBITDA. And six, strengthen our balance sheet. The operating model is becoming clearer. The commercial opportunity base is broader. Our responsibility now is to turn that activity into revenue, recurring revenue, EBITDA, and cash. Anna, that's my update for today. I am glad to take questions.
Perfect. Thank you. You have said Q3 revenue should be generally consistent with Q2 while gross profit and EBITDA improve. What is changing in the business that allows the economics to improve without a major increase in revenue?
Good question. I am glad we are reinforcing this, right? It goes to revenue mix. We are becoming less dependent on lower margin transactional technology sales and more involved with, and we are weighted towards life cycle support, operational services, Comprehensive+, and Route1 ABI. Those relationships generally carry better gross margin characteristics and are more recurring. We are also maintaining discipline on operating expenses.
You put all that together, ultimately we are going to get similar revenue and better margin and better cash flow. That is exactly why we keep emphasizing revenue quality, gross profit, and EBITDA, and cash, not simply top-line volume.
You have said the pace of opportunity creation has exceeded the pace of order conversion. Why has conversion taken longer than expected and what are you doing differently in Q4?
Right. There is a couple things you can do. One, you need to increase the number of irons in the fire, and with enough of them in fire, they eventually stack themselves so that you work through the problem of timing. Specifically, we have had a long enough investment of time in our business development motions. We will start seeing a significant number of deals close, and that should then carry forward going forward.
If you go back in time, we launched a new technology, we launched a new approach to business, we started building business development motions around that, and now we have that pipeline that just keeps on expanding, and things are starting to fall relative to orders and new sales. We think that as we get all to 2026 here, this is not something we are going to be talking about in 2027.
Perfect. You described several different business development motions today. Is the opportunity base materially broader today than it was six or 12 months ago?
Yeah, for sure. For sure. It's not just like we're seeing a number of public safety opportunities pop up based off of the discussion I had earlier with the group here around the fact that some of our competitors or others in the market have had some challenges with protecting data, integrity of that data. We're seeing the things that we do really well in the parking management space now be in demand in the public safety space. So broader, deeper, wider. I think we're on the cusp of something real big here with the company.
The ALPR market is receiving considerably more scrutiny about privacy, cybersecurity, data.
Yep.
Is that a headwind for Route1, or does it create opportunity? What do you think?
Yeah. Instead of being arrogant with this, let's just go to facts. We work with a technology partner in Genetec that we believe are the most secure around the subject matter of protecting data. More importantly, or as importantly, the way they've structured their database is unique to the marketplace. A client's data is not shared then nationally.
Historically, it's been a bit of a limitation working with public safety groups that want to see data from around the country. We think that based off what's transpired over the last six to 12 months, it puts Genetec and Route1 in a very favorable position in the public safety marketplace. That being said, what you've discussed and described is relative to public safety deployment, not on the parking management side. I do like distinguishing between the two. A simple answer is, as a result of what's gone on that you described, it's opening up a new vertical for us. That's a positive.
If investors look back at Route1 on December 31st, what are the two or three things you want them to use to judge whether Q4 was successful?
Trending gross profit, trending EBITDA positively quarter-over-quarter, improved margins, strengthened balance sheet, and the size of the recurring revenue and gross profit being dramatically bigger than it was middle of this year. I've said this earlier in the presentation, I appreciate you bringing the question up, but look to our execution, not just concept.
Perfect. Well, thank you so much, Tony, for the update, and we certainly want to follow along with some more updates in the future.
Cheers. Thank you. Have a good one.