Rekor Systems, Inc. Reports Second Quarter 2021 Financial Results

Highlights:

• Second quarter 2021 gross revenue increased 60% to $4.3 million as compared to $2.7 million in the second quarter of 2020
• First half 2021 gross revenue increased 99% to $8.5 million as compared to $4.3 million in the prior year
• Second quarter 2021 gross margin was 66%, up from 52% in the second quarter of 2020
• Signed a definitive agreement to acquire Waycare Technologies, Ltd., expanding our global footprint, capabilities, and product offerings

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Rekor Systems, Inc, (NASDAQ:REKR) ("Rekor" or the "Company"), a global AI technology company with a mission to provide intelligent infrastructure and insights that build safer, smarter and more efficient cities around the world, announced today its unaudited financial results for the second quarter of 2021.

"We have posted another quarter of strong revenue growth with our top line rising 60 percent year-over-year," said Eyal Hen, Chief Financial Officer, Rekor. "For the first six months of the fiscal year, we generated nearly $8.5 million in revenues, just about doubling our revenues compared to the same period last year. Revenue growth was widely diversified, with the eCommerce platform, the UVED Program and partners' sales being the main drivers. We've also seen an increase in operating expenses as we continue to expand our teams and service offerings to capitalize on market opportunities we see ahead."

"While we are content with our second quarter 2021 results, we believe that we are in a unique position to drive meaningful and sustainable long-term revenue growth by continuously strengthening our product portfolio," added Robert A. Berman, President and CEO, Rekor. "To that end, we have announced the acquisition of Waycare, a cloud-based platform for proactive traffic management. Waycare's solutions, which use artificial intelligence algorithms to produce actionable insights and predictions for traffic safety and congestion management, complement our offerings. This acquisition supplements our portfolio of solutions and expands our global footprint. It's a logical step as we pursue our strategy to become a key enabler of the emerging market of intelligent infrastructure.

"We understand that great products need to be sold," Mr. Berman continued. "We recently hired Mike Dunbar as our new Chief Revenue Officer to bring in fresh ideas to refine our go-to-market strategy. This initiative, in combination with input from the talented Waycare team we are welcoming into our organization, should further strengthen our remarkable growth. We continuously assess conventional, as well as disruptive strategies, to increase our footprint. We have the hardware, we have the software, and now, we are focusing intently on growing our geographic footprint."

Second Quarter Financial Results

Revenues

Revenue for the three months ended June 30, 2021, increased $1,597,000 or 60% to $4,274,000, compared to $2,677,000 for the three months ended June 30, 2020. Revenue for the six months ended June 30, 2021, increased $4,218,000 or 99% to $8,491,000, compared to $4,273,000 for the comparable period in 2020. The increase in revenue for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020, was a result of additional products and programs we offered, increases in our direct sales and the continuing development of our Partners Program.

In 2021, we initiated services for the state of Oklahoma's Uninsured Vehicle Enforcement Diversion (UVED) Program, which has generated revenue of $387,000 and $635,000 for the Company during the three and six months ended June 30, 2021, respectively. We also had significant growth in our eCommerce revenue, which is defined as revenue recognized through our eCommerce platform as well as our solutions in the tolling industry. For the three months ended June 30, 2021, and 2020, we recognized eCommerce revenues of $405,000 and $197,000, respectively. For the six months ended June 30, 2021 and 2020, we recognized eCommerce revenues of $848,000 and $373,000, respectively.

Cost of Revenue, Gross Profit and Gross Margin

Gross profit for the three months ended June 30, 2021, increased to $2,842,000 with a gross margin of 66%, compared to $1,401,000 and a gross margin of 52% for the three months ended June 30, 2020. The increase in gross profit was attributable to the sale of software. The margin on the sale of software is typically higher than our hardware products due to the reduced material and labor hours associated with the issuance of a license.

For the six months ended June 30, 2021, the Company generated gross profits of $5,097,000 with a gross margin of 60%. This compares to gross profits of $2,503,000 and a gross margin of 59% for the year-ago comparable period.

Loss from Operations

Operating loss for the three months ended June 30, 2021, increased to $4,685,000, compared to $2,779,000 for the three months ended June 30, 2020. For the six months ended June 30, 2021, and 2020, the Company generated an operating loss of $9,991,000 and $5,382,000, respectively. The Company continued to increase headcount to support its growth initiatives and saw an increase in professional fees mainly associated with merger and acquisition initiatives. The Company also increased its marketing efforts to promote its products and services including digital marketing and other sales efforts. In addition, research and development expenses increased in the three and six months ended June 30, 2021, primarily due to the development of new products and additional software capabilities.

Loss per Share

Loss per share for the three months ended June 30, 2021, increased to $(0.12), compared to $(0.04) for the three months ended June 30, 2020. For the six months ended June 30, 2021 and 2020, loss per share was $(0.27) and $(0.23), respectively. The increase in net loss per share is due to the increase in our net loss from continuing operations and was partially offset by an increase in weighted average shares outstanding.

Performance Obligations

On June 30, 2021, the Company had approximately $15,174,000 of remaining performance obligations not yet satisfied or partially satisfied. The Company expects to recognize approximately 34% of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized over the next two to four years thereafter.

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, (v) losses associated with equity method investments, (vi) merger and acquisition transaction costs, and (vii) 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 2021 second quarter results on Monday, August 16, 2021, at 4:30 P.M. (Eastern).

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

Online: https://www.webcaster4.com/Webcast/Page/2523/42014

By phone: Toll Free: 877-545-0320 or International: 973-528-0016; passcode: 765912

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.