Rekor Reports First Quarter 2020 Financial Results

Unique Products Deployed In Tightly Bundled Software and Hardware Offerings Drives Solid Growth with 58% Year-Over-Year Increase in Revenue

Rekor Systems, Inc, (REKR) (“Rekor”), a Maryland-based company providing real-time roadway intelligence through AI-driven decisions, today reported unaudited financial results for the quarter ended March 31, 2020. The quarter is the first quarter that reflects the Company’s classification of all operations in its Professional Services segment as held for sale or discontinued operations as the Company moves forward with the decision to concentrate solely on its Technology segment.

First Quarter 2020 Financial and Operational Highlights‍

• First quarter 2020 revenue increased 58% to $1.6 million as compared to $1.0 million in the first quarter of 2019
• First quarter 2020 gross profit increased to 69% as compared to 51% in the first quarter of 2019
• Remaining performance obligations as of March 31, 2020 increased to $13.8 million from $10.1 million on December 31,2019

Management Commentary

“Even in the face of challenges presented by COVID-19, the essential nature of our software and hardware has allowed us to make continued progress on our go-to-market strategy.  With our strong footprint across multiple markets, in a short amount of time, Rekor has begun to disrupt a mature market with AI-driven technology, an innovative business model, and proven results. We have filled out our management team and are providing municipalities and businesses tools to increase safety and efficiencies by applying vehicle recognition data to their workflows and operations,” said Robert A. Berman,President and CEO of Rekor.

"The first quarter was highlighted by strength and continuing growth in our top line. We improved our balance sheet and feel confident we can continue to increase market share in the public safety, customer experience and smart cities markets. The solid performance in our Technology Segment translated into a growth in revenue and gross margin—58% and 34%, respectively,”said Eyal Hen, CFO, Rekor.

All of the Company’s operations related to the Professional Services segment have been classified as “held for sale and discontinued operations” and as of April 2, 2020, the Company sold AOC Key Solutions, Inc.

On April 14, 2020, the company received coverage from B. Riley FBR with an initial Buy rating and $6 price target, stating that the Company's technology is under-penetrated and well-positioned for "significant growth.”

First Quarter 2020 Financial Results

Revenues for the first quarter of 2020 and 2019 were $1.6 million and $1.0 million, respectively. The increase in revenue was primarily attributable to the acquisition of OpenALPR in March 2019. During the three months ended March 31, 2020, revenue attributable to OpenALPR was recognized for the full three-month period compared to only half a month of revenue recognized in the corresponding period in 2019.

Gross profit for the first quarter of 2020 was $1.1 million, representing a 69% gross profit margin, compared to $0.5 million or 51% gross profit margin, for the same quarter in 2019. The increase in gross profit was primarily attributable to the inclusion of OpenALPR since its acquisition in March 2019. We realize higher margins from the revenues associated with licensing and subscription since there are less labor costs incurred.

Loss from operations for the first quarter of 2020 increased by 120% to $2.6 million, compared to $1.2 million in the same quarter in 2019. The increase in the operating loss during the year is attributable mainly to the increased operating expenses in connection with our plan to develop and promote our technology products and offerings. As part of this effort, we brought on several new senior officers and other executives of the Company to support our growth plan and build our corporate structure.

Loss per share from continuing operations for the first quarter of 2020 was $0.19, compared to loss per share of $0.15 in the same quarter in 2019. Without non-recurring items, loss per share with Adjusted EBITDA was level at $0.11 and $0.07 for the three months ended March 31, 2020 and 2019, respectively.

Notable Wins and Achievements

Software and Services

During the 1st quarter of 2020, the Company:

• Forged a partnership with a major payment network processor to use Rekor technology to improve drive-thru and curbside pick-up for the quick service restaurant market
• Launched new reseller and partner program created to grow its product and services channels and develop mutually beneficial collaborations
• Completed automation of a new licensing platform enabling frictionless distribution of our high margin SaaS products
• Continued international expansion of its iP360 Parking and citation management solutions
• Increased the issuance of our Watchman software products to the United States Department of Defense

Products and Systems Integration

The Company has recently added over 50 new public safety clients and executed:

• Multi-year contract with the City of Lauderhill, Florida
• Multi-year contract with the City of Mt. Juliet, Tennessee
• Multi-year contract with the City of New Rochelle, New York

EBITDA and Adjusted EBITDA

We calculate EBITDA as net loss before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA as net loss before interest, taxes, depreciation and amortization,adjusted for (i) impairment of intangible assets, (ii) loss on extinguishment of debt, (iii) stock-based compensation, (iv) losses on sales of subsidiaries,and (v) other unusual or non-recurring items. EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted in the U.S. (“U.S. GAAP”) and should not be considered as an alternative to net earnings or cash flow from operating activities as indicators of our operating performance or as a measure of liquidity or any other measures of performance derived in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA are presented because we believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of a company’s ability to service and/or incur debt. However, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do.

The following table sets forth the components of the EBITDA, Adjusted EBITDA and Adjusted loss per share for the periods included (dollars in thousands):

The following table reconciles the loss per share to the Loss per share with Adjusted EBIDTA for the periods included:

(1)Adjusted loss per Share, which is a non-GAAP financial measure, is defined as loss per share adjusted for the financial metrics to calculate Adjustment EBITDA. Management uses Adjusted loss per share to assess total Company operating performance on a consistent basis. We believe that this non-GAAP financial measure, when considered together with our GAAP financial results, provides management and investors with an additional understanding of our business operating results, including underlying trends.