[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q%20Filing%20Information) This section details the company's Form 10-Q filing, including registrant information, filer status, and common stock outstanding [Registrant Information](index=1&type=section&id=Registrant%20Information) Rekor Systems, Inc. filed its Quarterly Report on Form 10-Q for the period ended March 31, 2025, identifying as a non-accelerated and smaller reporting company with 118,075,944 common shares outstanding Registrant Information | Indicator | Value | | :--- | :--- | | Filing Type | Quarterly Report (10-Q) | | Period Ended | March 31, 2025 | | Registrant | Rekor Systems, Inc. | | Commission File Number | 001-38338 | | Filer Status | Non-accelerated filer, Smaller reporting company | | Common Stock Trading Symbol | REKR | | Common Stock Outstanding (May 13, 2025) | 118,075,944 shares | [SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS](index=3&type=section&id=SPECIAL%20NOTE%20ON%20FORWARD-LOOKING%20STATEMENTS) This section cautions readers about forward-looking statements, highlighting inherent risks that may cause actual results to differ [Forward-Looking Statements Disclaimer](index=3&type=section&id=Forward-Looking%20Statements%20Disclaimer) This section cautions readers about the inherent risks and uncertainties in forward-looking statements, advising against undue reliance and recommending a review of detailed risk factors - The report contains forward-looking statements subject to substantial risks and uncertainties, which may cause actual results to differ materially[7](index=7&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements and are urged to review risk factors in the Annual Report on Form 10-K[7](index=7&type=chunk) [PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents Rekor Systems, Inc.'s unaudited condensed consolidated financial statements, encompassing balance sheets, operations, equity, cash flows, and detailed notes [UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS](index=4&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) This section presents the company's unaudited condensed consolidated balance sheets as of March 31, 2025, and December 31, 2024, detailing assets, liabilities, and stockholders' equity Unaudited Condensed Consolidated Balance Sheets | Metric (in thousands) | March 31, 2025 | December 31, 2024 | | :-------------------- | :--------------- | :---------------- | | Total Assets | $79,802 | $82,475 | | Total Liabilities | $46,443 | $48,334 | | Total Stockholders' Equity | $33,359 | $34,141 | | Cash and cash equivalents | $3,851 | $5,013 | | Accounts receivable, net | $7,582 | $7,232 | | Total current assets | $19,953 | $19,930 | [UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS](index=5&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) This section presents the unaudited condensed consolidated statements of operations for the three months ended March 31, 2025, and 2024, detailing revenue, expenses, and net loss Unaudited Condensed Consolidated Statements of Operations | Metric (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $9,198 | $9,778 | | Cost of revenue | $4,761 | $5,285 | | Total operating expenses | $14,576 | $17,409 | | Loss from operations | $(10,139) | $(12,916) | | Net loss | $(10,874) | $(18,614) | | Loss per common share | $(0.10) | $(0.24) | [UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY](index=6&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS'%20EQUITY) This section presents the unaudited condensed consolidated statements of stockholders' equity, detailing changes in common stock, additional paid-in capital, and accumulated deficit Unaudited Condensed Consolidated Statements of Stockholders' Equity | Metric (in thousands) | March 31, 2025 | January 1, 2025 | | :-------------------- | :--------------- | :-------------- | | Common Stock (shares) | 110,912,209 | 104,541,073 | | Common Stock (value) | $11 | $10 | | Additional Paid-In Capital | $305,119 | $294,935 | | Accumulated Deficit | $(270,967) | $(260,093) | | Total Stockholders' Equity | $33,359 | $34,141 | - Stock-based compensation for the three months ended March 31, 2025, was **$1,370,000**[13](index=13&type=chunk) - Issuance of common stock pursuant to the 2025 Sales Agreement contributed **$7,659,000** to equity[13](index=13&type=chunk) [UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS](index=7&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This section presents the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2025, and 2024, detailing operating, investing, and financing activities Unaudited Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(8,079) | $(7,886) | | Net cash used in investing activities | $(337) | $(9,130) | | Net cash provided by financing activities | $7,396 | $13,570 | | Net decrease in cash, cash equivalents and restricted cash | $(1,020) | $(3,446) | | Cash, cash equivalents and restricted cash at end of period | $4,309 | $12,267 | [NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS](index=10&type=section&id=NOTES%20TO%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed notes to the unaudited condensed consolidated financial statements, covering accounting policies, acquisitions, leases, debt, and disclosures [NOTE 1 – GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=10&type=section&id=NOTE%201%20%E2%80%93%20GENERAL,%20BASIS%20OF%20PRESENTATION,%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines Rekor Systems, Inc.'s business, financial statement basis, significant accounting policies, and addresses liquidity concerns, including insufficient cash for the next twelve months - Rekor Systems, Inc. operates in the roadway intelligence sector, aiming to revolutionize public safety, urban mobility, and transportation management through AI-powered solutions[22](index=22&type=chunk) - The Company's existing cash is insufficient to fund its current level of operations for the next twelve months, raising substantial doubt about its ability to continue as a going concern[31](index=31&type=chunk) Revenue by Type | Revenue Type (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Recurring revenue | $5,106 | $4,963 | | Product and service revenue | $4,092 | $4,815 | | Total revenue | $9,198 | $9,778 | Revenue by Customer Type | Customer Type Revenue (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Urban Mobility | $5,529 | $5,614 | | Transportation Management | $423 | $665 | | Public Safety | $3,246 | $3,499 | | Total revenue | $9,198 | $9,778 | - Customer A accounted for **11%** of consolidated revenue for the three months ended March 31, 2025[71](index=71&type=chunk) - Customer B accounted for **11%** of accounts receivable as of March 31, 2025[72](index=72&type=chunk) [NOTE 2 – ACQUISITION](index=20&type=section&id=NOTE%202%20%E2%80%93%20ACQUISITION) This note details the January 2, 2024, acquisition of All Traffic Data Services, LLC (ATD), accounted for as a business combination, resulting in recognized goodwill and intangible assets - The Company acquired All Traffic Data Services, LLC (ATD) on January 2, 2024, for approximately **$20,576,000**[79](index=79&type=chunk)[80](index=80&type=chunk) - The acquisition resulted in the recognition of **$3,720,000** in goodwill and **$12,100,000** in intangible assets[82](index=82&type=chunk) [NOTE 3 - LEASES](index=21&type=section&id=NOTE%203%20-%20LEASES) This note details the company's operating and financing leases, including costs, weighted-average terms, discount rates, and a Q1 2025 lease modification Lease Cost | Lease Cost (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Operating lease cost | $710 | $672 | | Finance lease cost | $353 | $221 | | Total lease cost | $1,063 | $893 | Lease Metrics | Lease Metric | March 31, 2025 | December 31, 2024 | | :------------- | :------------- | :---------------- | | Operating leases (weighted-average remaining lease term) | 7.05 years | 7.56 years | | Financing leases (weighted-average remaining lease term) | 2.51 years | 2.19 years | | Operating leases (weighted-average discount rate) | 12.0% | 9.2% | | Financing leases (weighted-average discount rate) | 9.0% | 9.0% | - A lease amendment in Q1 2025 decreased both operating lease liability and the corresponding right-of-use asset by **$1,344,000**[84](index=84&type=chunk) [NOTE 4 – SUPPLEMENTAL NON CASH DISCLOSURES OF CASH FLOW INFORMATION](index=21&type=section&id=NOTE%204%20%E2%80%93%20SUPPLEMENTAL%20NON%20CASH%20DISCLOSURES%20OF%20CASH%20FLOW%20INFORMATION) This note provides supplemental disclosures of non-cash activities, including cash paid for interest and taxes, and significant non-cash financing events like ATD Holdback Shares settlement Non-Cash Financing Activities | Non-Cash Financing Activities (in thousands) | 2025 | 2024 | | :------------------------------------------- | :--- | :--- | | Settlement of ATD Holdback Shares with common stock | $(1,156) | - | | Fair value of shares issued in connection with the acquisition of ATD | - | $8,893 | | Fair value of ATD Holdback Shares at the acquisition date | - | $1,635 | | 2023 Promissory Note redemption premium settled in shares | - | $1,875 | [NOTE 5 – INTANGIBLE ASSETS AND GOODWILL](index=23&type=section&id=NOTE%205%20%E2%80%93%20INTANGIBLE%20ASSETS%20AND%20GOODWILL) This note details the company's intangible assets and goodwill, including the ATD acquisition purchase price allocation, identifiable asset breakdown, net values, and amortization expenses - Goodwill of **$3,720,000** was recognized from the ATD acquisition[88](index=88&type=chunk) Identifiable Intangible Assets | Identifiable Intangible Assets (in thousands) | March 31, 2025 | December 31, 2024 | | :------------------------------------------ | :--------------- | :---------------- | | Customer relationships | $15,300 | $15,300 | | Marketing related | $900 | $900 | | Internally capitalized software | $247 | $247 | | Total | $16,447 | $16,447 | | Less: accumulated amortization | $(2,297) | $(1,997) | | Identifiable intangible assets, net | $14,150 | $14,450 | - Amortization expense for intangible assets was **$300,000** for the three months ended March 31, 2025, a decrease from **$1,172,000** in the prior year[89](index=89&type=chunk) [NOTE 6 – DEBT](index=24&type=section&id=NOTE%206%20%E2%80%93%20DEBT) This note outlines the company's debt obligations, including STS Notes and Series A Prime Revenue Sharing Notes, detailing principal, interest rates, maturities, and associated expenses - The aggregate balance of STS Notes payable was **$1,000,000** as of March 31, 2025, maturing on June 17, 2025[92](index=92&type=chunk) - Series A Prime Revenue Sharing Notes totaling **$15,000,000** were issued on December 15, 2023, with a fixed annual interest rate of **13.25%** and a maturity date of December 15, 2026[94](index=94&type=chunk) Interest Expense | Interest Expense (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Contractual interest expense | $565 | $794 | | Amortization of debt issuance costs | $49 | $399 | | Total interest expense | $614 | $1,193 | | Less: interest income | $(24) | $(139) | | Total interest expense, net | $590 | $1,054 | Principal Amounts Due | Principal Amounts Due (in thousands) | 2025 (remaining) | 2026 | 2027 | 2028 | Total | | :----------------------------------- | :--------------- | :--- | :--- | :--- | :---- | | Long-term notes payable | $1,060 | $15,083 | $86 | $25 | $16,254 | [NOTE 7 – INCOME TAXES](index=26&type=section&id=NOTE%207%20%E2%80%93%20INCOME%20TAXES) This note explains the company's income tax position, including a full valuation allowance against net deferred taxes due to historical losses, resulting in no recorded tax expense or benefit - The Company maintains a full valuation allowance against its net deferred taxes due to the unlikelihood of realizing future benefits from these assets[101](index=101&type=chunk) - No income tax expense or benefit was recorded for the three months ended March 31, 2025, and 2024[103](index=103&type=chunk) [NOTE 8 – COMMITMENTS AND CONTINGENCIES](index=27&type=section&id=NOTE%208%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) This note details legal commitments and contingencies, including a breach of contract lawsuit and an OSHA claim, which the company intends to vigorously defend - H.C. Wainwright & Co., LLC filed a breach of contract lawsuit seeking damages of at least **$825,000** cash and warrants for **481,100** shares, plus an additional **$2,156,000** and warrants for **805,000** shares related to the 2024 Public Offering[108](index=108&type=chunk)[109](index=109&type=chunk) - An OSHA claim, initially dismissed, was appealed by claimants; a liability hearing was held, and a damages hearing was cancelled pending the court's findings on liability[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) [NOTE 9 – STOCKHOLDERS' EQUITY](index=29&type=section&id=NOTE%209%20%E2%80%93%20STOCKHOLDERS'%20EQUITY) This note outlines significant changes in stockholders' equity, including authorized common stock, At Market Issuance Sales Agreement, ATD holdback shares, 2024 Public Offering, and 2023 Promissory Note redemption - Authorized common stock increased from **100,000,000** to **300,000,000** shares on April 22, 2024[115](index=115&type=chunk) - Under the At Market Issuance Sales Agreement, the Company issued **5,148,600** shares for net cash proceeds of **$7,659,000** as of March 31, 2025[117](index=117&type=chunk) - On January 2, 2025, **664,329** holdback shares were issued to ATD's former owners, completing the ATD Acquisition purchase price[118](index=118&type=chunk) - The 2024 Public Offering generated approximately **$26,362,000** in net proceeds from the sale of **11,500,000** shares[120](index=120&type=chunk) - The redemption of 2023 Promissory Notes resulted in a **$4,693,000** loss on extinguishment of debt, including a **$1,875,000** redemption payment settled with **750,000** common shares[126](index=126&type=chunk) [NOTE 10 – EQUITY INCENTIVE PLAN](index=31&type=section&id=NOTE%2010%20%E2%80%93%20EQUITY%20INCENTIVE%20PLAN) This note describes the 2017 Equity Award Plan, detailing equity grants like stock options and RSUs, including compensation expense and activity, aimed at attracting and retaining personnel - An additional **7,912,216** shares were registered for issuance under the 2017 Equity Award Plan on April 29, 2024[130](index=130&type=chunk) - No stock compensation expense was recognized for stock options for the three months ended March 31, 2025 and 2024[132](index=132&type=chunk) - Stock compensation expense related to RSUs was **$1,370,000** for the three months ended March 31, 2025, an increase from **$1,167,000** in the prior year[135](index=135&type=chunk) RSU Activity | RSU Activity (shares) | Outstanding Jan 1, 2025 | Granted | Vested | Forfeited | Outstanding Mar 31, 2025 | | :-------------------- | :---------------------- | :------ | :----- | :-------- | :----------------------- | | Number of Shares | 5,776,426 | 46,300 | (622,434) | (783,367) | 4,416,925 | [NOTE 11 – LOSS PER SHARE](index=33&type=section&id=NOTE%2011%20%E2%80%93%20LOSS%20PER%20SHARE) This note presents the calculation of basic and diluted loss per common share, excluding potentially dilutive securities due to their anti-dilutive effect resulting from the net loss Loss Per Share | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----- | :-------------------------------- | :-------------------------------- | | Net loss attributable to shareholders | $(10,874) | $(18,614) | | Weighted average common shares outstanding - basic and diluted | 106,815,912 | 78,894,017 | | Basic and diluted loss per share | $(0.10) | $(0.24) | - **9,234,891** potentially dilutive securities (warrants, options, RSUs) were excluded from diluted loss per share for Q1 2025 due to their anti-dilutive effect[139](index=139&type=chunk) [NOTE 12 – SUBSEQUENT EVENTS](index=33&type=section&id=NOTE%2012%20%E2%80%93%20SUBSEQUENT%20EVENTS) This note discloses subsequent events after the reporting period, specifically additional common stock issuances under the At Market Issuance Sales Agreement - From March 31, 2025, to May 13, 2025, the Company issued **5,716,600** shares of common stock for net cash of **$4,995,000** under the Sales Agreement[141](index=141&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=34&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's discussion and analysis of Q1 2025 financial condition and operating results, including business overview, opportunities, trends, and liquidity [Cautionary Note Regarding Forward-Looking Statements](index=34&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section outlines specific factors that could cause actual results to differ from forward-looking statements, including operating, reputational, and financial market risks - Specific factors that might cause actual results to differ from expectations include operating risks, reputational risks, financial market conditions, acquisition integration, capital access, political/legal/economic conditions, litigation, competition, product development, strategic plan execution, profitability, personnel retention, cybersecurity, and intellectual property claims[144](index=144&type=chunk)[153](index=153&type=chunk) [General](index=35&type=section&id=General) This section provides a general overview of Rekor's business, its vision for roadway intelligence, and its approach to transforming infrastructure [Overview](index=35&type=section&id=Overview) Rekor leads in roadway intelligence, leveraging AI to modernize public safety, urban mobility, and transportation management, aiming for safer, smarter, and more sustainable roadways - Rekor is at the forefront of modernizing public safety, urban mobility, and transportation management with AI-powered solutions[147](index=147&type=chunk) - The company's vision is to improve lives by enabling safer, smarter, and more sustainable roadways and communities through actionable mobility data[148](index=148&type=chunk) [A New Operating System for Roadways](index=35&type=section&id=A%20New%20Operating%20System%20for%20Roadways) Rekor is deploying AI solutions to transform transportation infrastructure into a new digital operating system for roadways, aiming for enhanced safety, optimized traffic flow, and cost savings - Rekor is building a new digital infrastructure operating system for roadways through public-private collaborations, deploying AI solutions since 2018[151](index=151&type=chunk)[152](index=152&type=chunk) - Key benefits include enhanced roadway safety, optimized traffic flow, cost savings & efficiency, improved data accuracy & insights, border & freight management, and uninsured driver reduction[154](index=154&type=chunk) [Roadway Intelligence](index=37&type=section&id=Roadway%20Intelligence) Rekor leads in roadway intelligence, using its Rekor One® engine to transform vast mobility data from IoT devices, sensors, and cameras into real-time, actionable insights - Rekor One® roadway intelligence engine aggregates and analyzes trillions of data points from IoT devices, roadway sensors, cameras, and partner networks[160](index=160&type=chunk) - Solutions support various use cases including traffic analysis, operations & management, enhanced roadway safety, border & freight management, and insurance compliance & public safety[161](index=161&type=chunk)[162](index=162&type=chunk) [Opportunities, Trends and Uncertainties](index=38&type=section&id=Opportunities,%20Trends%20and%20Uncertainties) This section identifies key opportunities like the smart city market and AI for infrastructure, alongside challenges such as market adaptability, profitability, and cybersecurity risks - Opportunities include the growing Smart City Market, AI for Infrastructure, new and expanded uses for vehicle recognition systems, connected vehicle data, GPU improvements, edge processing, accelerated business development, and benefits from the IIJA and BIL[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) - Challenges include the adaptability of the market, difficulties in executing corporate strategy, inability to achieve profitability, retaining qualified personnel, competing effectively, cybersecurity risks, and intellectual property claims[164](index=164&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) [Components of Operating Results](index=41&type=section&id=Components%20of%20Operating%20Results) This section defines the components of operating results, including revenues from roadway data and traffic management, direct costs, various operating expenses, other income/expense, and income tax provisions - Revenues are primarily derived from licensing and sale of roadway data and traffic management products/services, recognized upon transfer of control[169](index=169&type=chunk) - Operating expenses consist of general and administrative, sales and marketing, research and development, and depreciation and amortization, with personnel costs being the most significant component[171](index=171&type=chunk) - Other income (expense) includes legal settlements, interest income/expense, debt extinguishment costs, and gains/losses on asset sales or fair value changes[177](index=177&type=chunk) - The company maintains a full valuation allowance against deferred tax assets due to a history of losses[179](index=179&type=chunk) [Critical Accounting Estimates and Assumptions](index=43&type=section&id=Critical%20Accounting%20Estimates%20and%20Assumptions) This section refers to the Annual Report on Form 10-K for a comprehensive discussion of the company's critical accounting estimates and assumptions - A comprehensive discussion of critical accounting estimates and assumptions is included in the Annual Report on Form 10-K for the year ended December 31, 2024[180](index=180&type=chunk) [New Accounting Pronouncements](index=43&type=section&id=New%20Accounting%20Pronouncements) This section directs readers to Note 1 of the unaudited condensed consolidated financial statements for information on new accounting pronouncements - Information regarding new accounting pronouncements is provided in Note 1 to the unaudited condensed consolidated financial statements[181](index=181&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) This section analyzes the company's operating results for Q1 2025 compared to the prior year, detailing revenue, expenses, and net loss [Comparison of the Three Months Ended March 31, 2025 and the Three Months Ended March 31, 2024](index=44&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20March%2031,%202025%20and%20the%20Three%20Months%20Ended%20March%2031,%202024) The company saw a **6% revenue decrease** and **16% operating expense reduction** in Q1 2025, improving net loss due to cost containment and no prior debt extinguishment loss Comparison of Operating Results | Metric (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :--- | :--- | :--------- | :--------- | | Revenue | $9,198 | $9,778 | $(580) | -6% | | Cost of revenue | $4,761 | $5,285 | $(524) | -10% | | General and administrative expenses | $7,286 | $7,662 | $(376) | -5% | | Selling and marketing expenses | $1,757 | $2,414 | $(657) | -27% | | Research and development expenses | $3,977 | $5,001 | $(1,024) | -20% | | Depreciation and amortization | $1,556 | $2,332 | $(776) | -33% | | Total operating expenses | $14,576 | $17,409 | $(2,833) | -16% | | Net loss | $(10,874) | $(18,614) | $7,740 | 42% | - The decrease in revenue was primarily attributable to adverse weather conditions and a slowdown in project activity, partially driven by ongoing uncertainty within the government sector[184](index=184&type=chunk) - The decrease in operating expenses was primarily due to cost containment efforts, including reduced professional services and payroll-related costs, and a prior impairment affecting depreciation and amortization[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) - The significant improvement in other income (expense) was mainly due to the absence of a **$4,693,000** loss on extinguishment of debt recorded in the prior year[191](index=191&type=chunk)[192](index=192&type=chunk) [Non-GAAP Measures](index=45&type=section&id=Non-GAAP%20Measures) This section defines and reconciles non-GAAP financial measures like EBITDA, Adjusted EBITDA, Adjusted Gross Profit, and Adjusted Gross Margin [EBITDA and Adjusted EBITDA](index=45&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) This section defines and reconciles EBITDA and Adjusted EBITDA, non-GAAP measures used to assess debt servicing ability, both showing improvement for Q1 2025 - EBITDA is calculated as net loss before interest, taxes, depreciation, and amortization[193](index=193&type=chunk) - Adjusted EBITDA further adjusts for impairment, debt extinguishment loss, stock-based compensation, and other unusual items[193](index=193&type=chunk) EBITDA and Adjusted EBITDA | Metric (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(10,874) | $(18,614) | | Interest | $590 | $1,054 | | Depreciation and amortization | $1,556 | $2,332 | | EBITDA | $(8,728) | $(15,228) | | Share-based compensation | $1,370 | $1,167 | | Loss on extinguishment of debt | - | $4,693 | | Adjusted EBITDA | $(7,358) | $(9,368) | [Adjusted Gross Profit and Adjusted Gross Margin](index=45&type=section&id=Adjusted%20Gross%20Profit%20and%20Adjusted%20Gross%20Margin) Adjusted Gross Margin increased to **48.2%** in Q1 2025 from **46.0%** in Q1 2024, driven by a higher mix of software sales - Adjusted Gross Profit is revenue less cost of revenue, excluding depreciation and amortization[195](index=195&type=chunk) - Adjusted Gross Margin is Adjusted Gross Profit divided by revenue[195](index=195&type=chunk) Adjusted Gross Profit and Adjusted Gross Margin | Metric (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $9,198 | $9,778 | | Cost of revenue, excluding depreciation and amortization | $4,761 | $5,285 | | Adjusted Gross Profit | $4,437 | $4,493 | | Adjusted Gross Margin | 48.2% | 46.0% | - The increase in Adjusted Gross Margin is typically correlated to a higher mix of software sales versus service-type work[197](index=197&type=chunk) [Key Performance Indicators](index=47&type=section&id=Key%20Performance%20Indicators) This section discusses key performance indicators, including recurring revenue growth and remaining performance obligations, offering insights into operational efficiency and future revenue [Recurring Revenue Growth](index=47&type=section&id=Recurring%20Revenue%20Growth) The company prioritizes recurring revenue for predictability, achieving **3% growth** in Q1 2025, and plans continued focus on long-term contracts for future expansion - Recurring revenue increased by **3%** to **$5,106,000** for the three months ended March 31, 2025, from **$4,963,000** in the prior year[199](index=199&type=chunk) - The company expects to continue focusing on long-term contracts with recurring revenue to drive future growth[199](index=199&type=chunk) [Performance Obligations](index=47&type=section&id=Performance%20Obligations) Total remaining performance obligations as of March 31, 2025, were approximately **$14,485,000**, an increase of **0.2%** from December 31, 2024 - Total remaining performance obligations as of March 31, 2025, were approximately **$14,485,000**, an increase of **0.2%** from December 31, 2024[200](index=200&type=chunk) - Approximately **89%** of this amount is expected to be recognized as revenue over the succeeding twelve months, with the remainder over the following four years[200](index=200&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's liquidity and capital resources, including cash flow activities and its going concern assessment [Cash Flow Summary](index=48&type=section&id=Cash%20Flow%20Summary) Net cash used in operating activities slightly increased, while investing activities significantly decreased due to the prior ATD acquisition, and financing activities saw a reduction from lower equity offering proceeds Cash Flow Summary | Cash Flow Activity (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | :--------- | | Net cash used in operating activities | $(8,079) | $(7,886) | $(193) | -2% | | Net cash used in investing activities | $(337) | $(9,130) | $8,793 | 96% | | Net cash provided by financing activities | $7,396 | $13,570 | $(6,174) | -45% | | Net decrease in cash, cash equivalents and restricted cash | $(1,020) | $(3,446) | $2,426 | -70% | - The decrease in net cash used in investing activities was primarily due to the **$8,969,000** net cash outflow related to the ATD acquisition in the prior period[203](index=203&type=chunk) - Net cash provided by financing activities decreased due to lower proceeds from the 2025 Sales Agreement (**$7,659,000**) compared to the 2024 Public Offering (**$26,362,000**) in the prior year[204](index=204&type=chunk) [Liquidity](index=49&type=section&id=Liquidity) The company's liquidity assessment indicates insufficient cash for the next twelve months, raising substantial doubt about its going concern ability, prompting active exploration of external financing and expense reduction plans - As of March 31, 2025, the company had working capital of **$3,073,000** and a net loss of **$10,874,000**[207](index=207&type=chunk) - Existing cash is insufficient to fund current operations for the next twelve months, leading to substantial doubt about the company's ability to continue as a going concern[211](index=211&type=chunk) - The company is actively reviewing and exploring external financing options and has contingency plans to reduce or defer expenses[32](index=32&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=50&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) As a smaller reporting company, Rekor Systems, Inc. is exempt from providing quantitative and qualitative disclosures regarding market risk - Rekor Systems, Inc. is not required to provide quantitative and qualitative disclosures about market risk as a 'smaller reporting company'[214](index=214&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=50&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section reports on the effectiveness of disclosure controls and procedures, concluding they were effective as of March 31, 2025, with no material changes to internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=50&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025 - Management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[215](index=215&type=chunk)[217](index=217&type=chunk) [Changes to Internal Control over Financial Reporting](index=50&type=section&id=Changes%20to%20Internal%20Control%20over%20Financial%20Reporting) There were no material changes in internal control over financial reporting during the most recent fiscal quarter - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[218](index=218&type=chunk) [PART II – OTHER INFORMATION](index=51&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This part provides additional information, including legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, and other corporate details [ITEM 1. LEGAL PROCEEDINGS](index=51&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section details ongoing legal proceedings, including a breach of contract lawsuit and an OSHA claim, which the company believes are without merit and intends to vigorously defend - H.C. Wainwright & Co., LLC filed a breach of contract lawsuit seeking compensatory and consequential damages, including cash fees and warrants, related to capital raises and the 2024 Public Offering[222](index=222&type=chunk)[224](index=224&type=chunk)[225](index=225&type=chunk) - An OSHA claim, initially dismissed, was appealed; a liability hearing was held, and a damages hearing was cancelled pending the court's findings on liability[227](index=227&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) - The Company believes these claims are without merit and intends to vigorously defend itself[226](index=226&type=chunk)[230](index=230&type=chunk) [ITEM 1A. RISK FACTORS](index=53&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section introduces a new risk factor regarding tariffs and trade policy changes, which could adversely impact the company's supply chain and financial performance, and refers to the Annual Report on Form 10-K for comprehensive risks - A new risk factor highlights that tariffs and trade policy changes could significantly increase hardware component costs, potentially reducing gross margins and adversely affecting financial performance[231](index=231&type=chunk) - Investors are encouraged to review the risk factors disclosed in the Annual Report on Form 10-K, supplemented by this Form 10-Q[232](index=232&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=53&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company reported no unregistered sales of equity securities or use of proceeds during the reporting period - There were no unregistered sales of equity securities or use of proceeds to report[233](index=233&type=chunk)[234](index=234&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=54&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reported no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[235](index=235&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=54&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item regarding mine safety disclosures is not applicable to the company - Mine safety disclosures are not applicable to the company[236](index=236&type=chunk) [ITEM 5. OTHER INFORMATION](index=54&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The company reported no adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers during Q1 2025 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during the quarter ended March 31, 2025[237](index=237&type=chunk) [ITEM 6. EXHIBITS](index=54&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Form 10-Q, including amendments to corporate documents, various certifications, and XBRL documents - Exhibits include amendments to the Certificate of Incorporation, Amended and Restated Bylaws, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and Inline XBRL documents[238](index=238&type=chunk) [SIGNATURES](index=56&type=section&id=SIGNATURES) This section contains the official signatures of the company's executive officers, certifying the report's accuracy and completeness [Report Signatures](index=56&type=section&id=Report%20Signatures) The report was signed by Robert A. Berman, Interim President Chief Executive Officer and Chairman of the Board, and Eyal Hen, Chief Financial Officer, on May 14, 2025 - The report was signed by Robert A. Berman, Interim President Chief Executive Officer and Chairman of the Board, and Eyal Hen, Chief Financial Officer, on May 14, 2025[243](index=243&type=chunk)

[Company Overview and Q1 2025 Highlights](index=1&type=section&id=Company%20Overview%20and%20Q1%202025%20Highlights) Rekor Systems' Q1 2025 saw a slight revenue decline but significant improvement in adjusted EBITDA loss, alongside a strategic shift to a GM structure for scalable growth [Q1 2025 Business and Financial Highlights](index=1&type=section&id=Q1%202025%20Business%20and%20Financial%20Highlights) Rekor Systems' Q1 2025 revenue slightly decreased, but operational efficiency significantly improved, narrowing adjusted EBITDA loss, and a new GM structure was implemented for predictable, scalable growth - Company revenue slightly decreased to **$9.2 million**, but operational efficiency significantly improved, with adjusted EBITDA loss narrowing from **$9.4 million** in Q1 2024 to **$7.4 million** in Q1 2025[3](index=3&type=chunk)[7](index=7&type=chunk) - The company is undergoing a strategic transformation by implementing a General Manager (GM) structure, clarifying P&L responsibilities for business units to enhance operational agility, accelerate innovation, and scale markets more effectively[4](index=4&type=chunk) [About Rekor Systems, Inc.](index=3&type=section&id=About%20Rekor%20Systems%2C%20Inc.) Rekor Systems leads in road intelligence, leveraging AI-driven computer vision and machine learning through its Rekor One® engine to collect, connect, and organize global mobility data, providing actionable insights for safer, greener, and more efficient road systems for governments and enterprises - Rekor Systems is a leader in developing and implementing advanced road intelligence systems using AI-driven computer vision and machine learning technologies[14](index=14&type=chunk) - The company's core technology is the Rekor One® road intelligence engine, which transforms vast amounts of data into intelligence, powering platforms and applications[14](index=14&type=chunk) - Rekor's solutions aim to provide governments and enterprises with a comprehensive road view and collaborative environment to drive a safer, greener, and more efficient world[14](index=14&type=chunk) [First Quarter 2025 Financial Performance](index=1&type=section&id=First%20Quarter%202025%20Financial%20Performance) Rekor Systems' Q1 2025 financial performance reflects a revenue decline, improved gross margin, and significantly reduced operating and net losses, driven by cost control and operational efficiency [Revenue and Cost of Revenue Analysis](index=1&type=section&id=Revenue%20and%20Cost%20of%20Revenue%20Analysis) In Q1 2025, Rekor Systems' revenue decreased 6% year-over-year to $9.2 million, primarily due to adverse weather and slower government project activity, yet cost of revenue declined 10%, boosting adjusted gross margin by 2.2 percentage points to 48.2% Revenue and Cost of Revenue (Excluding Depreciation and Amortization) | Metric | Three Months Ended March 31, 2025 (thousand USD) | Three Months Ended March 31, 2024 (thousand USD) | Change ($) | Change (%) | | :--------------------------------- | :---------------------------------- | :---------------------------------- | :------- | :------- | | Revenue | 9,198 | 9,778 | (580) | -6% | | Cost of Revenue (excluding D&A) | 4,761 | 5,285 | (524) | -10% | | Adjusted Gross Profit | 4,437 | 4,493 | (56) | -1% | | Adjusted Gross Margin | 48.2% | 46.0% | 2.2% | 4.8% | - Revenue decline is primarily attributed to adverse weather conditions and slower engineering activity due to ongoing uncertainty in the government sector[8](index=8&type=chunk) - The decrease in cost of revenue is mainly due to reduced direct costs such as personnel and hardware, correlating with the revenue decline[9](index=9&type=chunk) [Operating Expenses and Loss from Operations](index=2&type=section&id=Operating%20Expenses%20and%20Loss%20from%20Operations) In Q1 2025, Rekor Systems' operating loss significantly narrowed by 22% year-over-year to $10.1 million, primarily driven by reduced salaries and related costs due to cost control measures Loss from Operations | Metric | Three Months Ended March 31, 2025 (thousand USD) | Three Months Ended March 31, 2024 (thousand USD) | Change ($) | Change (%) | | :--------------- | :---------------------------------- | :---------------------------------- | :------- | :------- | | Loss from Operations | (10,139) | (12,916) | 2,777 | 22% | - The reduction in operating loss is primarily due to lower salaries and related costs resulting from cost control measures[10](index=10&type=chunk) [EBITDA and Adjusted EBITDA Reconciliation](index=2&type=section&id=EBITDA%20and%20Adjusted%20EBITDA%20Reconciliation) Rekor Systems significantly improved its EBITDA and Adjusted EBITDA in Q1 2025, with Adjusted EBITDA loss narrowing from $9.37 million in the prior year to $7.36 million, reflecting enhanced operational efficiency - EBITDA and Adjusted EBITDA are non-GAAP financial measures used to assess the company's ability to service debt, but calculation methods may vary across companies[11](index=11&type=chunk) EBITDA and Adjusted EBITDA Reconciliation Table | Metric | Three Months Ended March 31, 2025 (thousand USD) | Three Months Ended March 31, 2024 (thousand USD) | | :----------------------- | :---------------------------------- | :---------------------------------- | | Net Loss | (10,874) | (18,614) | | Interest | 590 | 1,054 | | Depreciation and Amortization | 1,556 | 2,332 | | **EBITDA** | **(8,728)** | **(15,228)** | | Stock-based Compensation | 1,370 | 1,167 | | Loss on Debt Extinguishment | - | 4,693 | | **Adjusted EBITDA** | **(7,358)** | **(9,368)** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) In Q1 2025, Rekor Systems' net loss significantly narrowed year-over-year from $18.61 million to $10.87 million, with loss per share decreasing from $0.24 to $0.10, primarily due to reduced operating loss and the elimination of debt extinguishment losses Condensed Consolidated Statements of Operations (Excerpt) | Metric | Three Months Ended March 31, 2025 (thousand USD) | Three Months Ended March 31, 2024 (thousand USD) | | :--------------------------------- | :---------------------------------- | :---------------------------------- | | Revenue | 9,198 | 9,778 | | Cost of Revenue (excluding D&A) | 4,761 | 5,285 | | Total Operating Expenses | 14,576 | 17,409 | | Loss from Operations | (10,139) | (12,916) | | Loss on Debt Extinguishment | - | (4,693) | | Interest Expense, Net | (590) | (1,054) | | Other (Expense) Income | (145) | 49 | | Total Other Expenses | (735) | (5,698) | | **Net Loss** | **(10,874)** | **(18,614)** | | **Loss Per Common Share** | **(0.10)** | **(0.24)** | | Weighted Average Shares Outstanding (Basic and Diluted) | 106,815,912 | 78,894,017 | [Financial Position](index=5&type=section&id=Financial%20Position) As of March 31, 2025, Rekor Systems' total assets and liabilities slightly decreased, while shareholder equity also saw a minor reduction, with shifts in cash, receivables, and contract liabilities [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2025, Rekor Systems' total assets slightly decreased to $79.80 million, total liabilities reduced to $46.44 million, and shareholder equity also slightly decreased to $33.36 million, with a decrease in cash and cash equivalents but an increase in accounts receivable and contract liabilities Condensed Consolidated Balance Sheets (Excerpt) | Metric | March 31, 2025 (thousand USD) | December 31, 2024 (thousand USD) | | :--------------------------------- | :---------------------------------- | :---------------------------------- | | **Assets** | | | | Cash and Cash Equivalents | 3,851 | 5,013 | | Restricted Cash | 458 | 316 | | Accounts Receivable, Net | 7,582 | 7,232 | | Inventory | 4,196 | 4,297 | | Other Current Assets | 3,526 | 2,732 | | **Total Current Assets** | **19,953** | **19,930** | | Total Long-Term Assets | 59,849 | 62,545 | | **Total Assets** | **79,802** | **82,475** | | **Liabilities and Stockholders' Equity** | | | | Accounts Payable and Accrued Expenses | 4,545 | 4,330 | | Contract Liabilities | 4,574 | 3,439 | | Other Current Liabilities | 4,900 | 5,129 | | **Total Current Liabilities** | **16,880** | **18,223** | | Total Long-Term Liabilities | 29,563 | 30,111 | | **Total Liabilities** | **46,443** | **48,334** | | Common Stock | 11 | 10 | | Additional Paid-in Capital | 305,119 | 294,935 | | Accumulated Deficit | (270,967) | (260,093) | | **Total Stockholders' Equity** | **33,359** | **34,141** | | **Total Liabilities and Stockholders' Equity** | **79,802** | **82,475** | [Supplementary Information](index=3&type=section&id=Supplementary%20Information) This section provides details on the Q1 2025 earnings call, forward-looking statements, and company contact information for investors and media [Conference Call and Webcast Information](index=3&type=section&id=Conference%20Call%20and%20Webcast%20Information) Rekor Systems scheduled a conference call for March 15, 2025, to discuss Q1 2025 results, with call replay and webcast archive available - The Q1 2025 earnings conference call is scheduled for **March 15, 2025, at 4:30 PM ET**[12](index=12&type=chunk) - North American and international dial-in numbers, along with webcast links and replay information, are provided[13](index=13&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This press release contains forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, regarding Rekor Systems' future expectations, plans, and prospects, cautioning investors about risks and uncertainties that could cause actual results to differ materially - Statements in this press release constitute "forward-looking statements" as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934, protected by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995[15](index=15&type=chunk) - Forward-looking statements involve future expectations, plans, and prospects, but are subject to various risks and uncertainties, and actual results may differ materially from projections[15](index=15&type=chunk) - The company undertakes no obligation to publicly update any forward-looking statements[15](index=15&type=chunk) [Company and Investor Contacts](index=4&type=section&id=Company%20and%20Investor%20Contacts) Contact information for Rekor Systems' Chief Financial Officer, Eyal Hen, and the Media and Investor Relations department is provided - Company Contact: Eyal Hen, Chief Financial Officer, Phone: **+1 (443) 545-7260**, Email: **ehen@rekor.ai**[16](index=16&type=chunk) - Media and Investor Relations Contact: Charles Degliomini, Email: **ir@rekor.ai**[16](index=16&type=chunk)

Core Insights - Rekor Systems, Inc. reported a first quarter revenue of $9.2 million, a 6% decrease from $9.8 million in the same period last year, attributed to adverse weather conditions and a slowdown in project activity [2][6][20] - The company narrowed its Adjusted EBITDA loss from $9.4 million in Q1 2024 to $7.4 million in Q1 2025, indicating improved operational efficiency [2][6] - A new General Manager structure has been implemented to enhance accountability and focus on customer needs, allowing for greater agility and innovation [3] Financial Performance - Revenue for the three months ended March 31, 2025, was $9,198 thousand, down from $9,778 thousand in 2024, reflecting a decrease of $580 thousand [5][20] - Cost of revenue, excluding depreciation and amortization, decreased from $5,285 thousand in 2024 to $4,761 thousand in 2025, a reduction of $524 thousand [5][20] - Adjusted Gross Profit was $4,437 thousand, slightly down from $4,493 thousand, with an Adjusted Gross Margin improvement from 46.0% to 48.2% [5][20] Operational Changes - The loss from operations decreased from $12,916 thousand in Q1 2024 to $10,139 thousand in Q1 2025, a reduction of $2,777 thousand, primarily due to cost containment efforts [8][20] - Total operating expenses decreased from $17,409 thousand in 2024 to $14,576 thousand in 2025, reflecting a focus on operational efficiency [20] - The company is building on a solid financial foundation with a commitment to enhancing its technological capabilities and operational efficiency [3] Future Outlook - The management emphasizes a strategic focus aimed at driving stronger, more predictable, and scalable growth moving forward [3] - The company is confident in its ability to deliver near-term results on its growth plans, supported by a comprehensive evaluation of operations and a new organizational structure [3]

Core Viewpoint - Rekor Systems, Inc. will release its financial results for Q1 2025 on May 14, 2025, after market close, followed by an earnings conference call at 4:30 p.m. Eastern Time [1] Group 1: Financial Results Announcement - The financial results for the first quarter of 2025 will be announced on May 14, 2025 [1] - An earnings conference call will take place on the same day at 4:30 p.m. Eastern Time to discuss the financial and operating results [1] Group 2: Conference Call Information - Participants can join the call by dialing in approximately 10 minutes before it starts, with specific numbers provided for North America [2] - A replay of the call will be available online approximately two hours after the live event for two weeks [2] Group 3: Company Overview - Rekor Systems, Inc. specializes in roadway intelligence systems utilizing AI-enabled computer vision and machine learning [3] - The company aggregates and transforms vast amounts of mobility data into actionable insights, aiming to enhance roadway safety, efficiency, and environmental sustainability [3]

Core Viewpoint - SoundThinking has integrated PlateRanger into its SafetySmart platform, enhancing public safety capabilities and enabling law enforcement agencies to improve investigative workflows and outcomes [2][4]. Integration and Technology - The integration of PlateRanger, an advanced license plate recognition solution, with ShotSpotter and CrimeTracer allows law enforcement to combine real-time gunshot detection data with vehicle identification and cross-jurisdictional insights [3][5]. - The Rekor Public Safety Network (RPSN) facilitates secure data sharing across jurisdictions, enhancing investigative speed and interoperability while respecting data ownership [6][7]. Benefits to Law Enforcement - The integration provides enhanced investigations by linking gunfire events with suspect vehicle data, allowing for more comprehensive follow-up [5]. - Multi-agency collaboration is improved through integrated systems that enable data sharing, helping to uncover connections between incidents [7]. - The commitment to open standards allows for seamless integration with existing systems, differentiating SoundThinking in the market [7]. Market Impact - SoundThinking serves over 175 ShotSpotter customers and approximately 2,100 CrimeTracer agencies, providing access to more than 1 billion records, thus expanding its market footprint [8].

Core Insights - SoundThinking, Inc. has integrated PlateRanger™ powered by Rekor® into its SafetySmart™ platform, enhancing public safety technology and law enforcement capabilities [1][5] - The integration allows for a unified workflow combining real-time gunshot detection, vehicle identification, and cross-jurisdictional investigative insights [2][4] - The platform aims to improve investigations, accelerate case resolutions, and enhance public safety outcomes through seamless data integration [3][4] Company Overview - SoundThinking, Inc. is a leading public safety technology provider, serving over 300 customers and approximately 2,100 agencies [8] - The SafetySmart™ platform includes various solutions such as ShotSpotter®, CrimeTracer™, and now PlateRanger™, focusing on AI-driven public safety outcomes [8] - Rekor Systems, Inc. specializes in AI-enabled roadway intelligence systems, providing actionable insights through advanced data analytics [9] Integration Benefits - Enhanced investigations by linking gunfire events with suspect vehicle data, allowing for rapid follow-up [4][6] - Expanded investigative reach through the Rekor Public Safety Network (RPSN), providing a wider pool of data for identifying connections [7] - Multi-agency collaboration facilitated by integrated systems, enabling cross-agency data sharing to uncover links between incidents [7] Market Differentiation - SoundThinking's commitment to open standards allows for seamless integration with existing systems, distinguishing it from competitors with closed ecosystems [7]

Financial Data and Key Metrics Changes - The company reported fourth quarter 2024 revenue of $13.3 million, surpassing consensus estimates by 3% and marking a year-over-year growth rate above 20% [25] - For the full year 2024, revenue reached $46 million, a robust increase of 32% compared to $34.9 million in 2023 [27] - Adjusted gross margin rebounded to 52% in Q4 2024, up from 44% in Q3 2024, while the full year adjusted gross margin slightly decreased to 49.3% from 52.8% in 2023 [28] - Adjusted EBITDA loss reduced to approximately $4.7 million in Q4 2024, significantly improved from $9.2 million in Q3 2024 [29] Business Line Data and Key Metrics Changes - The Urban Mobility segment drove growth, primarily due to demand for the new roadway data aggregation solution [25] - Public safety, the second largest revenue source, achieved solid mid-teens growth, bolstered by strategic licensing partnerships [26] - Product and services revenue grew significantly to $23.4 million, up 65% year-over-year [27] Market Data and Key Metrics Changes - The company gained traction in states like Texas, Florida, Georgia, Maryland, and New Mexico, demonstrating the value of AI-driven platforms [11] - In Florida, the company achieved inclusion on the state's approved product list, allowing broader rollout of solutions [11] Company Strategy and Development Direction - The Board decided to shift strategy away from relying on traditional government contracting timelines, focusing instead on a more predictable revenue base [12][13] - The company aims to operate at a level with a clear path to breakeven, with any upside from large government contracts being additive rather than essential [14] - Partnerships with global technology leaders like Amazon Web Services and NVIDIA were deepened, enhancing the company's channel presence [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the robust government contracting pipeline, stating it is a matter of when, not if, orders will come through [12] - The new administration's focus on addressing inefficiencies in government technology is seen as an opportunity for the company [15] - Management emphasized the importance of aligning the company's cost structure with controllable factors rather than waiting on uncertain government timelines [15] Other Important Information - The company repaid the remaining balance of a $15 million prepaid advance agreement ahead of schedule, enhancing its balance sheet [22] - The former CEO David Desharnais resigned, and the Board is in the process of identifying a new CEO [23][24] Q&A Session Summary Question: Comparison with Flock Safety's license plate reader cameras - Management stated that comparing Flock and Rekor is not fair due to different market focuses and funding levels, emphasizing Rekor's strong vehicle recognition software [36] Question: Timeline for free cash flow breakeven - Management anticipates reaching free cash flow breakeven by the end of the year [39] Question: Progress of partnership with SoundThinking - Management indicated that SoundThinking is making progress and conducting pilots, which is expected to pay off in 2025 [41] Question: Rollout progress in Florida for the contract involving over 1,000 cameras - Management noted that government contracting processes take time, but they are optimistic about ongoing procurements in Florida and other states [44][45] Question: Organic growth expectations for the year - Management refrained from providing specific growth numbers but expressed confidence in the adoption of new products and technologies [52] Question: Cost-cutting measures and their effectiveness - Management confirmed that cost-cutting measures were implemented to focus on immediate needs while remaining flexible for future scaling [56] Question: Liquidity and share count - Management discussed the importance of revenue sharing notes for improving liquidity and reducing dilutive funding [61] Question: Camera deployment in Florida and potential contracts in other states - Management stated they cannot disclose specific deployment numbers but expressed confidence in ongoing relationships and potential contracts in various states [72][75]

Financial Data and Key Metrics Changes - The company reported fourth quarter 2024 revenue of $13.3 million, surpassing consensus estimates by 3% and marking a year-over-year growth rate above 20% [25] - For the full year 2024, revenue reached $46 million, a robust increase of 32% compared to $34.9 million in 2023 [27] - Adjusted EBITDA loss was reduced to approximately $4.7 million in Q4 2024, significantly improved from $9.2 million in Q3 2024 [29] - Full year 2024 adjusted EBITDA loss remained relatively flat year-over-year at $29.1 million [30] Business Line Data and Key Metrics Changes - The Urban Mobility segment contributed significantly to overall growth, driven by demand for the new roadway data aggregation solution [25] - Public safety, the second largest revenue source, achieved solid mid-teens growth, bolstered by strategic licensing partnerships [26] - Recurring revenue for Q4 totaled $5.8 million, reflecting a modest 2% decline year-over-year, attributed to timing differences [26] Market Data and Key Metrics Changes - The company gained traction in states like Texas, Florida, Georgia, Maryland, and New Mexico, demonstrating the value of AI-driven platforms [11] - In Florida, the company achieved inclusion on the state's approved product list, allowing broader rollout of solutions [11] Company Strategy and Development Direction - The Board decided to shift strategy away from relying on traditional government contracting timelines, focusing instead on a more predictable revenue base [12][14] - The company aims to operate at a level with a clear path to breakeven, with any upside from large government contracts being additive rather than essential [14] - Partnerships with global technology leaders like Amazon Web Services and NVIDIA were deepened, recognizing the potential of AI-driven transportation platforms [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the robust government contracting pipeline, stating it is a matter of when, not if, orders will come through [12] - The new administration's focus on addressing inefficiencies in government technology is seen as advantageous for the company [16] - Management emphasized the importance of aligning the company's cost structure with controllable factors rather than waiting on uncertain government timelines [15] Other Important Information - The company repaid the remaining balance of a $15 million prepaid advance agreement ahead of schedule, enhancing its balance sheet [22] - The former CEO, David Desharnais, resigned, and the Board is in the process of identifying a new CEO [23] Q&A Session Summary Question: Comparison with Flock Safety's license plate reader cameras - Management stated that comparing Flock and Rekor is not fair as they target different markets, with Rekor focusing on commercial rather than law enforcement [36] Question: Timeline for free cash flow breakeven - Management anticipates reaching free cash flow breakeven by the end of the year [39] Question: Progress of partnership with SoundThinking - Management indicated that SoundThinking is making progress and conducting pilots, which is expected to pay off in 2025 [41] Question: Rollout progress in Florida involving over 1,000 cameras - Management noted that government contracting processes take time, but they are optimistic about ongoing procurements in Florida and other states [44][45] Question: Organic growth expectations for the year - Management refrained from providing specific growth numbers but expressed confidence in the adoption of new products and technologies [52] Question: Cost-cutting measures and savings - Management confirmed that cost-cutting measures were implemented effectively, with expectations for substantial savings this year [55] Question: Liquidity and share count - Management discussed the importance of revenue sharing notes for improving liquidity without dilutive funding [61] Question: Camera deployment in Florida and potential contracts - Management could not disclose specific deployment numbers but confirmed good relationships and ongoing work with Florida [72][74]

Employee and Company Structure - Rekor had 323 employees as of March 18, 2025, with 319 full-time and 4 part-time[18]. - As of March 18, 2025, Rekor employed 323 individuals, with a focus on attracting and retaining highly qualified technical personnel[96]. Infrastructure and Market Context - The American Society of Civil Engineers (ASCE) graded U.S. infrastructure a C- in 2021, with roads rated D, indicating that over 40% of roadways are in poor or mediocre condition[20]. - The 2025 ASCE report showed a slight improvement in overall infrastructure to a grade of C, with roads improving to D+ and 39% still in poor or mediocre condition[20]. - The annual funding gap for U.S. roadways is estimated at $684 billion, contributing to over 40,000 roadway deaths in 2023[20]. - The Infrastructure Investment and Jobs Act (IIJA) is expected to provide over $150 billion in new spending on roadway infrastructure, which the company aims to leverage for growth opportunities[199]. Revenue and Financial Performance - Revenue for the year ended December 31, 2024, was $46,028,000, representing a 32% increase from $34,933,000 in 2023, primarily driven by the Urban Mobility product line[213]. - Cost of revenue, excluding depreciation and amortization, increased to $23,344,000 in 2024 from $16,499,000 in 2023, a rise of 41%, mainly due to increased personnel and direct costs related to revenue growth[214]. - General and administrative expenses for 2024 were $30,676,000, up from $27,038,000 in 2023, reflecting ongoing costs associated with growth and compliance as a public company[212]. - Total operating expenses rose to $77,007,000 in 2024 from $60,550,000 in 2023, with significant contributions from impairment of intangible assets amounting to $10,214,000[212]. - The net loss for 2024 was $61,410,000, compared to a net loss of $45,685,000 in 2023, indicating a worsening financial position[212]. - The company is currently not profitable and may continue to experience operating losses, which could impact its ability to fund operations and achieve its business plan[103]. Technology and Product Offerings - Rekor's revenue streams are driven by innovative software and data services, with a focus on the Software-as-a-Service (SaaS) model for future revenue growth[36]. - The Rekor One® platform aggregates and analyzes trillions of data points from IoT devices and roadway sensors, enhancing mobility and operational efficiency[29]. - Rekor Command® serves as a comprehensive platform for traffic management, enabling proactive incident detection and resource allocation[41]. - Rekor's AI-driven solutions are designed to optimize traffic flow, reduce congestion, and improve public safety through real-time data insights[23]. - Rekor Discover® platform automates roadway analytics, providing real-time and historical insights on vehicle movement, including vehicle volumes, classifications, and greenhouse gas emissions[47]. - The Count, Class and Speed (CCS) application automates FHWA reporting requirements for 13-bin vehicle classification, enabling agencies to access real-time data through cloud-based dashboards[48]. - Vehicle Insite application analyzes real-time video to provide metrics on vehicle characteristics and electric vehicle statistics, enhancing customer understanding of traffic patterns[49]. - Rekor Scout® platform automates license plate and vehicle recognition, connecting law enforcement agencies to NCIC lists and generating alerts for vehicles on hotlists[50]. - The AutoNotice application issues compliance notices for non-compliant vehicles, scanning millions of plates and delivering thousands of notices, including a program for uninsured motorists in Oklahoma[53]. - Rekor's hardware products optimize software value and enable real-time data capture with reduced bandwidth requirements, facilitating deployment in various locations[55]. - The Edge Max™ system captures high-resolution roadway data at speeds up to 120 mph, processing vehicle data on-device for efficient delivery[56]. - Rekor's AI-driven traffic studies enhance data collection accuracy and efficiency, minimizing risks for road workers and improving traffic management[65]. - Rekor's technology achieves superior accuracy in vehicle recognition and classification, supporting multiple missions and enhancing public safety initiatives[68]. - Rekor's focus is on innovative SaaS and pay-for-data offerings, emphasizing recurring annual revenues through a self-service eCommerce model[71]. - The company aims to address significant market opportunities in intelligent transportation systems, smart mobility, and traffic management, among others[72]. - Since the launch of the Rekor One® roadway intelligence engine in 2020, adoption has increased in both government and commercial sectors, indicating strong market demand[73]. - Rekor's subscription-based solutions ensure scalability and long-term growth, with hardware sales acting as an entry point for customer adoption[78]. - The company aims to leverage advancements in AI and big data to address challenges in urban mobility and public safety[192]. Strategic Initiatives and Growth - The company operates in 90 countries, with a diverse customer base including municipalities and law enforcement agencies, indicating significant growth potential[70]. - The company is actively pursuing strategic acquisitions and partnerships to enhance innovation and expand capabilities in the roadway intelligence sector[78]. - Rekor completed the ATD Acquisition on January 2, 2024, as part of its growth strategy[95]. - The company acquired a leading provider of traffic data services, enhancing visibility among national and state-level Departments of Transportation (DOTs) in the U.S.[199]. Risks and Challenges - The company faces competition from established players in the traffic management and public safety markets, which may hinder market acceptance of its products[109]. - The market for the company's solutions is relatively new and unproven, which may limit growth and customer adoption[104]. - The company relies on outsourcing partners primarily located in Europe and Asia for manufacturing, which poses risks related to supply chain disruptions[107]. - The company's investments in new markets and product development may place downward pressure on operating margins in the short term[108]. - Future capital requirements will depend on the company's ability to increase revenue and manage costs effectively[111]. - The company may need to raise additional capital in the future, which may not be available on acceptable terms, potentially leading to dilution for existing shareholders[110]. - The company’s sales cycles for commercial and government clients can be long and unpredictable, affecting revenue recognition[115]. - The company may face challenges in retaining key personnel, which could disrupt business operations and growth[118]. - The company faces potential fines of up to €20 million or 4% of total worldwide annual turnover for non-compliance with GDPR regulations[126]. - The company is susceptible to significant liabilities if its services are used for illegal acts, which could damage its reputation and customer trust[141]. - The company relies on a limited number of third-party data centers, and any disruption at these facilities could adversely affect its operations and revenue[142]. - The company’s ability to expand internationally is challenged by localization needs, regulatory differences, and potential adverse tax consequences[144]. - The software applications used by the company may contain material defects or errors, which could lead to reputational harm and significant costs[148]. - Increased government regulation of the Internet and telecommunications could negatively impact the company's business and operating results[149]. - The company is exposed to risks from cyber threats, including unauthorized access to sensitive information, which could disrupt operations and harm its reputation[132]. - The company must continuously improve its security measures to protect against evolving cyber threats and data breaches[129]. - Natural disasters and public health crises, such as pandemics, could adversely impact the company's operating results and consumer spending[150]. Stock and Ownership - As of March 28, 2025, the company has 110,912,209 shares of common stock outstanding, with 14,479,276 shares (13.1%) owned by officers, directors, and their affiliates[152]. - The company issued 5,148,600 shares under an At Market Issuance Sales Agreement with an aggregate offering price of up to $25,000,000[155]. - The company has never declared or paid cash dividends on its common stock and does not intend to do so in the foreseeable future[156]. - As of March 28, 2025, executive officers, directors, and principal stockholders own approximately 13.1% of the common stock, influencing corporate matters[157]. - The company is classified as a "smaller reporting company," with annual revenues of less than $100 million and public float of less than $700 million, leading to reduced disclosure obligations[160]. - The company anticipates that future sales of substantial amounts of common stock could adversely affect its market price[153]. Legal and Compliance Matters - The company is involved in ongoing legal proceedings, including a breach of contract claim from H.C. Wainwright & Co., seeking damages of not less than $825,000 and warrants for 481,100 shares[174]. - OSHA dismissed a complaint filed by two former employees, concluding there was no reasonable cause to believe a violation occurred[177]. - The company has established robust cybersecurity measures to protect its information systems and data integrity[164]. - The company does not own any real property and considers its leased properties not materially important[170].

Financial Performance - Rekor Systems, Inc. achieved record annual gross revenue of $46.0 million for the fiscal year ended December 31, 2024, representing a 32% increase from $34.9 million in 2023 [5] - The fourth quarter gross revenue reached an all-time high of $13.3 million, marking a 20% increase compared to Q4 2023 [5] - Adjusted EBITDA loss narrowed from $6.7 million in Q4 2023 to $4.7 million in Q4 2024, indicating improved operational efficiency [5] Operational and Strategic Achievements - The company expanded its AI-powered Rekor Command platform to enhance support for traffic and emergency operations centers, introducing features that improve real-time decision-making [2][3] - Rekor's platform, Rekor Scout, received certification for deployment in New Jersey, facilitating further market penetration [6] - A strategic partnership with Soundhound AI was established to develop advanced emergency vehicle technologies, enhancing situational awareness [6] Executive Leadership and Strategic Realignment - An Executive Committee was formed to review company operations and realign resources to accelerate revenue growth and reduce reliance on external financing [4] - Selective workforce reductions were made, and new executive leaders with experience in scaling global infrastructure businesses were appointed [4][8] Revenue Streams and Market Presence - The Urban Mobility revenue stream, which includes roadway data aggregation activities, significantly contributed to the revenue increase, with $10.1 million for the year and $2.7 million for the quarter [10] - Rekor Discover products have gained traction in multiple states, including Georgia, South Carolina, Virginia, New Mexico, Arkansas, and Florida [7]