Rekor Systems, Inc. Reports 2020 Financial Results

Highlights:

• 2020 gross revenue increased 69% to $9.2 million as compared to $5.5 million in 2019
• Fourth quarter 2020 gross revenue increased 88% to $2.8 million as compared to $1.5 million in the fourth quarter of 2019
• Raised $70.1 million in net cash proceeds during February 2021, with a public offering

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Rekor Systems, Inc, (NASDAQ:REKR) ("Rekor"), a provider of real-time roadway, customer and public safety intelligence to enable AI-driven decisions, today announced its financial results for the year-ended December 31, 2020.

"Our results for the year ended 2020 have demonstrated a remarkably high level of growth on a year-over-year basis," said Eyal Hen, Chief Financial Officer, Rekor. "We believe this is a testament to the strategic realignment of the Company as it has intensified its focus on the longer-term drivers of demand from our commercial and government sectors. During 2020, we strengthened our balance sheet by retiring our long-term, high interest, debt with a combination of cash payments and issuance of our common stock. In the current year, we have positioned ourselves as a 100% technology-focused organization with our eCommerce platform and partners program as key channels to generate revenue. We have great confidence in our go-to-market strategy of providing a global customer base with frictionless transactions and recently finalized a secondary offering of $70.1 million in net cash proceeds, providing us the ability to expand that strategy and look for M&A opportunities."

"We are pleased with our results for 2020, which demonstrate substantial, ongoing, year-over-year improvement despite unprecedented global challenges," said Robert A. Berman, President and CEO of Rekor. "The past year we laid the foundation to accelerate the growth of our commercial and government sectors."

During 2020, Rekor was selected by multiple resellers and formed partnerships with various companies, including Mastercard® and White Castle®, to use an array of AI-based technologies in retail, public safety, and parking operations. The Company has used intensive machine learning for over three years in developing its current suite of differentiated product and service offerings and has recently filed for six patents based on these products and services.

Full-Year 2020 and Fourth Quarter 2020 Financial Results

Revenues

Revenue for the three months ended December 31, 2020, increased to $2,835,000, compared to $1,507,000 for the three months ended December 31, 2019. This increase was a result of additional products the Company offered during the period as it continued expanding its technology offerings. Revenues earned from the eCommerce platform organically increased $85,000 or 53% to $244,000 for the three months ended December 31, 2020. This is an overall increase from $159,000 for the three months ended December 31, 2019.

Revenue for the year ended December 31, 2020, increased to $9,234,000, compared to $5,469,000 for the year ended December 31, 2019. This increase was primarily attributable to the expanded technology offerings and large contracts, as well as the fact that operational results from our OpenALPR acquisition have only been included in our operations since March 2019. During the year ended December 31, 2020, revenue attributable to OpenALPR was recognized for the full year compared to only a nine and half month's period in the corresponding period in 2019. Additionally, part of the growth in revenue for the year ended December 31, 2020, was attributable to revenues earned through our eCommerce platform which organically increased, $426,000 or 97%, to $865,000 from $439,000 for the year ended December 31, 2019.

Cost of Revenue, Gross Profit and Gross Margin

Gross profit for the three months ended December 31, 2020, increased to $2,055,000 with a gross margin of 72%, compared to $1,007,000 with a gross margin of 67% for the three months ended December 31, 2019. The increase in gross profit was primarily attributable to an increase in revenue for the corresponding period. The higher margin in the fourth quarter is a result of an increase in software revenue, which has a higher margin.

Gross profit for the year ended December 31, 2020, increased to $5,701,000 with a gross margin of 62%, compared to $3,817,000 with a gross margin of 70% for the year ended December 31, 2019. The increase in gross profit was primarily attributable to an increase in revenue for the corresponding period.

The decline in the gross margin percentage was attributable to building infrastructure in connection with large software and hardware contracts. These contracts included construction and assembly of fixtures for our vehicle recognition cameras and the infrastructure necessary to support database and communications operations on a shared basis with other municipalities. In this early stage, the cost of building the network is higher and the initial margins for such projects are consequently lower than expected than for future operations that will be able to use the same infrastructure.

Loss from Operations

Operating loss for the three months ended December 31, 2020, increased to $3,099,000, compared to $2,247,000 in the same period in 2019, and operating loss for the year ended December 31, 2020, increased to $11,848,000, compared to $7,534,000 in the same period in 2019. The increase in the operating loss throughout the year is attributable mainly to the increased headcount to support the Company's growth plan and solidify the corporate structure. In addition, we increased our R&D expenses to continue the development of new solutions to remain ahead of the curve with our technology.

Performance Obligations

As of December 31, 2020, we had approximately $16,705,000 in contracts that were closed prior to December 31, 2020, but which have a contractual period beyond December 31, 2020. These contracts generally cover a term of one to five years, in which we will recognize revenue ratably over the contract term. We currently expect to recognize approximately 30% of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following five years. On occasion our customers will prepay the full contract or a substantial portion of the contract. Amounts related to the prepayment of the contract for a service period that is not yet met are recorded as part of our contract liabilities balance.

The table below reflects the 65% growth in the remaining value in contracts from December 31, 2019 through December 31, 2020 (dollars in thousands):

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 or gains 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 and Adjusted EBITDA for the periods included (dollars in thousands):

Rekor has scheduled a conference call to discuss the 2020 fourth quarter and full year results on Wednesday, March 10, 2021, at 4:45 P.M. (Eastern).

All interested parties may listen to a live webcast of the call at:

Online: https://www.webcaster4.com/Webcast/Page/2523/40273

By phone: Toll Free: 877-407-8033 or International: 201-689-8033

An archived webcast will also be available to replay this conference call directly from the Company's website under Investors, Events & Presentations. Slides that accompany the conference call will be available on the Company's website.