Rekor Systems, Inc, (REKR) (“Rekor”), a
Maryland-based company providing real-time roadway intelligence
through AI-driven decisions, today reported its unaudited financial
results for the second quarter of 2020.
Commenting on the results, Eyal Hen, Chief Financial Officer of
Rekor, stated: “The second quarter was highlighted by strength and
continuing growth in our top line. The solid performance translated
into a growth in revenue for the three and six months ended June
30, 2020 of 89% and 76%, respectively, compared to the same periods
in 2019. We successfully continued executing on our strategic plan
to grow our revenues, divest our non-core businesses and focus on
our technology segment. On July 15, 2020, we completed a debt
exchange transaction with holders of our 2019 Notes.”
Mr. Hen continued, “During the second quarter of 2020, we
completed the sale of both of our remaining non-core businesses to
their respective management teams at a gain and reached an
agreement to exchange over 77% of our debt for equity and extended
the maturity of the remaining debt to December 2021. The debt
exchange was completed on July 15 and reduced our debt by over 77%.
This will allow us to use more of our increasing revenue for
operations. We expect it to have a major effect on our bottom line
due to lower interest expense as well.”
Since January 2020, Rekor has been selected by various resellers
and formed partnerships with various companies, including Fortune
50 and Fortune 500 companies, to use its AI software in retail,
public safety and parking operations. In June of 2020, Rekor
announced a joint venture with Cygnet-Infotech, a premier product
engineering company (www.cygnet-infotech.com), to launch a smart
permit and parking management startup, named Roker Inc.
(www.rokerinc.com) ("Roker"), in which we have 50% equity interest.
Roker is designed to automate parking enforcement and enable higher
revenue recovery for both public safety institutions and private
businesses alike. In July 2020, the Company made an initial
investment of $45,000 into the joint venture.
Financial Summary
Second Quarter Results
Revenues
The increase in revenue for the three months ended June 30, 2020
compared to the three months ended June 30, 2019, was a result of
additional products the Company offered during the period
corresponding to the Company’s increased focus on expanding its
technology offerings. Additionally, the increase in revenue during
the three months ended June 30, 2020, was attributable to
substantial completion of the implementation phase of large
software and hardware contract in Florida which generated up-front
revenue due to building infrastructure.
The increase in revenue for the six months ended June 30, 2020
compared to the six months ended June 30, 2019 was primarily
attributable to the expanded technology offerings and large
contracts stated above, as well as the fact that operational
results from our OpenALPR acquisition have only been included in
operations since March 2019. During the six months ended June 30,
2020, revenue attributable to OpenALPR was recognized for the full
six-month period compared to only a three and half a month period
in the corresponding period in 2019.
Cost of Revenue, Gross Profit and Gross
Margin
For the three and six months ended June 30, 2020, compared to
the three and six months ended June 30, 2019, the increase in gross
profit was primarily attributable to the increase in revenue for
the corresponding period. For the three and six months ended June
30, 2020 the gross margin decreased to 52% and 59%, respectively,
which was primarily 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. As this early stage of building the
network is more costly, the initial margins for such projects are
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 June 30, 2020
increased to $2.8 million, compared to $1.6 million in the same
period in 2019. Additionally, operating loss for the six months
ended June 30, 2020, increased to $5.4 million, compared to $2.8
million in the same period in 2019. The increase in the operating
loss during the year is attributable mainly to the increased
expenses in connection with the implementation of our go-to-market
plan to develop and promote our technology products and services.
Additionally, the Company brought on additional officers and
executives to support the Company’s growth plan and solidify the
corporate structure.
Performance Obligations
As of June 30, 2020, we had approximately $15,237,000 of
licensing and subscription contracts that were closed prior to June
30, 2020 but have a contractual subscription period beyond June 30,
2020. These subscription contracts generally cover a term of one to
five years, in which the Company will recognize revenue ratably
over the contract term. We currently expect to recognize
approximately 33% of this amount over the succeeding twelve months,
and the remainder is expected to be recognized over the following
four years. On occasion our customers will prepay the full contract
or a substantial portion of the contract. Amounts related to the
prepayment of the subscription contract for a service period that
is not yet met are recorded as part of our contract liabilities
balance.
The table below reflects the 86% quarter by quarter growth in
the unaudited remaining contract value of licensing and
subscription contracts from June 30, 2019 through June 30, 2020
(dollars in thousands):
A photo accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/28b9a0da-76dc-426e-834e-e0858f1830ba
Proforma balance sheet
The following unaudited pro forma combined financial information
gives effect to the Company’s recent debt for equity exchange as if
it was consummated as of June 30, 2020. This unaudited pro forma
financial information is presented for informational purposes only
and is not intended to present actual results that would have been
attained had the transaction been completed as of June 30, 2020 or
to project potential operating results as of any future date or for
any future periods.
|
June 30, 2020 as presented |
|
Impact of NoteExchange |
|
Proforma June 30, 2020 |
Accounts payable and accrued expenses |
$ |
4,182 |
|
|
$ |
(279 |
) |
|
$ |
3,903 |
Total current liabilities |
|
5,670 |
|
|
|
(279 |
) |
|
|
5,391 |
Notes payable subject to exchange for stock |
|
14,636 |
|
|
|
(14,636 |
) |
|
|
- |
Notes payable, long-term |
|
5,367 |
|
|
|
- |
|
|
|
5,367 |
Total liabilities |
|
27,243 |
|
|
|
(14,636 |
) |
|
|
12,607 |
Additional paid-in capital |
|
22,180 |
|
|
|
14,915 |
|
|
|
37,095 |
Total stockholders’ (deficit) equity |
|
(10,862 |
) |
|
|
14,915 |
|
|
|
4,053 |
Total liabilities and stockholders’ (deficit)
equity |
$ |
22,603 |
|
|
$ |
- |
|
|
$ |
22,603 |
|
|
|
|
|
|
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):
|
|
Three Months ended June 30, |
|
Six Months ended June 30, |
|
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
|
Net
loss |
$ |
(419 |
) |
|
$ |
(2,991 |
) |
|
$ |
(4,193 |
) |
|
$ |
(5,509 |
) |
|
Income
taxes |
|
7 |
|
|
|
12 |
|
|
|
13 |
|
|
|
24 |
|
|
Interest |
|
1,086 |
|
|
|
1,334 |
|
|
|
2,250 |
|
|
|
1,543 |
|
|
Depreciation
and amortization |
|
466 |
|
|
|
341 |
|
|
|
889 |
|
|
|
539 |
|
|
EBITDA |
$ |
1,140 |
|
|
$ |
(1,304 |
) |
|
$ |
(1,041 |
) |
|
$ |
(3,403 |
) |
|
|
|
|
|
|
|
|
|
|
Loss on
extinguishment of debt |
$ |
200 |
|
|
$ |
- |
|
|
$ |
200 |
|
|
$ |
1,113 |
|
|
Share-based
compensation |
|
166 |
|
|
|
175 |
|
|
|
337 |
|
|
|
238 |
|
|
Gain on sale
of business |
|
(3,636 |
) |
|
|
- |
|
|
|
(3,636 |
) |
|
|
- |
|
|
Loss on sale
of Secure Education |
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
3 |
|
|
Adjusted
EBITDA |
$ |
(2,130 |
) |
|
$ |
(1,126 |
) |
|
$ |
(4,140 |
) |
|
$ |
(2,049 |
) |
|
|
|
|
|
|
|
|
|
About Rekor Systems, Inc.
Rekor (Nasdaq: REKR) is a Maryland-based company
providing real-time roadway intelligence through AI-driven
decisions. Rekor provides commercial and government customers with
actionable, real-time vehicle recognition data to enable informed
decisions to be made faster and provide better outcomes. Rekor is
transforming industries like Public Safety, Customer Experience and
Smart Cities in more than 70 countries across the globe with
smarter, quicker, cost-competitive vehicle recognition solutions
for security, revenue discovery and recovery, public safety,
electronic toll collection, brand loyalty, parking operations,
logistics, and traffic management. We use the power of artificial
intelligence to analyze video streams and transform them into
AI-driven decisions by our clients. Our machine learning software
can turn most IP cameras into highly accurate and affordable
vehicle recognition devices used to help protect lives, increase
brand loyalty and enhance operations and logistics, without the
need to install expensive new infrastructure. We make what was once
considered impossible, possible. To learn more please visit our
website: https://rekor.ai.
Forward-Looking Statements
This press release includes statements
concerning Rekor Systems, Inc. and its future expectations, plans
and prospects that constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. For this purpose, any statements that are not
statements of historical fact may be deemed to be forward-looking
statements. In some cases, you can identify forward-looking
statements by terms such as "may," "should," "expects," "plans,"
"anticipates," "could," "intends," "target," "projects,"
"contemplates," "believes," "estimates," "predicts," "potential,"
or "continue," by the negative of these terms or by other similar
expressions. You are cautioned that such statements are subject to
many risks and uncertainties that could cause future circumstances,
events, or results to differ materially from those projected in the
forward-looking statements, including the risks that actual
circumstances, events or results may differ materially from those
projected in the forward-looking statements, particularly as a
result of various risks and other factors identified in our filings
with the Securities and Exchange Commission. Important factors that
could have such a result include a decline or weakness in general
economic conditions, an outbreak of hostilities, the ongoing
pandemic and responses thereto related to COVID-19, a decline or
volatility in the securities markets or regulatory changes or other
adverse developments with respect to the markets for the Company’s
products and services or an inability to obtain adequate
financing. All forward-looking statements contained in this
press release speak only as of the date on which they were made and
are based on management's assumptions and estimates as of such
date. We do not undertake any obligation to publicly update any
forward-looking statements, whether as a result of the receipt of
new information, the occurrence of future events, or otherwise.
Company Contact:Rekor Systems, Inc.Eyal
HenChief Financial OfficerPhone: +1 (443) 545-7260ehen@rekor.ai
Investor Relations Contact:Rekor Systems,
Inc. Charles Degliomini ir@rekor.ai
REKOR SYSTEMS, INC.CONDENSED CONSOLIDATED BALANCE
SHEETS(Unaudited)
|
June 30, 2020 |
|
December 31, 2019 |
|
ASSETS |
|
|
|
|
Current Assets |
|
|
|
|
Cash and cash equivalents |
$ |
1,933 |
|
|
$ |
1,075 |
|
|
Restricted cash and cash equivalents |
|
496 |
|
|
|
461 |
|
|
Accounts receivable, net |
|
1,887 |
|
|
|
776 |
|
|
Inventory |
|
677 |
|
|
|
302 |
|
|
Notes receivable, current portion |
|
170 |
|
|
|
- |
|
|
Other current assets, net |
|
311 |
|
|
|
175 |
|
|
Current assets of discontinued operations |
|
4 |
|
|
|
7,441 |
|
|
Total current assets |
|
5,478 |
|
|
|
10,230 |
|
|
Long-term Assets |
|
|
|
|
Property and equipment, net |
|
578 |
|
|
|
442 |
|
|
Right-of-use lease assets, net |
|
330 |
|
|
|
283 |
|
|
Goodwill |
|
6,336 |
|
|
|
6,336 |
|
|
Intangible assets, net |
|
7,751 |
|
|
|
8,244 |
|
|
Notes receivable, long-term |
|
2,130 |
|
|
|
- |
|
|
Long-term assets of discontinued operations |
|
- |
|
|
|
3,457 |
|
|
Total long-term assets |
|
17,125 |
|
|
|
18,762 |
|
|
Total assets |
$ |
22,603 |
|
|
$ |
28,992 |
|
|
LIABILITIES AND SHAREHOLDERS' DEFICIT |
|
|
|
|
Current Liabilities |
|
|
|
|
Accounts payable and accrued expenses |
$ |
4,182 |
|
|
$ |
3,678 |
|
|
Loans payable, current portion |
|
251 |
|
|
|
- |
|
|
Lease liability, short-term |
|
231 |
|
|
|
148 |
|
|
Contract liabilities |
|
902 |
|
|
|
749 |
|
|
Current liabilities of discontinued operations |
|
104 |
|
|
|
5,757 |
|
|
Total current liabilities |
|
5,670 |
|
|
|
10,332 |
|
|
Long-term liabilities |
|
|
|
|
Notes payable to be exchanged for common stock(1) |
|
14,636 |
|
|
|
- |
|
|
Notes payable, long-term |
|
5,367 |
|
|
|
20,409 |
|
|
Loans payable, long-term |
|
623 |
|
|
|
- |
|
|
Lease liability, long-term |
|
114 |
|
|
|
161 |
|
|
Contract liabilities, long-term |
|
802 |
|
|
|
775 |
|
|
Other long-term liabilities |
|
10 |
|
|
|
10 |
|
|
Long term liabilities of discontinued operations |
|
21 |
|
|
|
536 |
|
|
Total long-term liabilities |
|
21,573 |
|
|
|
21,891 |
|
|
Total liabilities |
|
27,243 |
|
|
|
32,223 |
|
|
Series A
Cumulative Convertible Redeemable Preferred stock, $0.0001 par
value, 505,000 shares authorized and 502,327 shares issued and
outstanding as of June 30, 2020 and December 31, 2019,
respectively |
|
6,222 |
|
|
|
5,804 |
|
|
Commitments and Contingencies |
|
|
|
|
Stockholders' Deficit |
|
|
|
|
Common stock, $0.0001 par value, 100,000,000 and 30,000,000 shares
authorized, 22,942,546 and 21,595,653 shares issued and outstanding
as of June 30, 2020 and December 31, 2019, respectively |
|
2 |
|
|
|
2 |
|
|
Preferred stock, $0.0001 par value, 2,000,000 authorized, 505,000
shares designated as Series A and 240,861 shares designated as
Series B as of June 30, 2020 and December 31, 2019,
respectively |
|
- |
|
|
|
- |
|
|
Series B Cumulative Convertible Preferred stock, $0.0001 par value,
240,861 shares authorized, issued and outstanding as of June 30,
2020 and December 31, 2019, respectively |
|
- |
|
|
|
- |
|
|
Additional paid-in capital |
|
22,180 |
|
|
|
19,371 |
|
|
Accumulated deficit |
|
(33,044 |
) |
|
|
(28,408 |
) |
|
Total stockholders’ deficit |
|
(10,862 |
) |
|
|
(9,035 |
) |
|
Total liabilities and stockholders’ deficit |
$ |
22,603 |
|
|
$ |
28,992 |
|
|
(1) As of June 30, 2020, these notes were the subject to an
agreement providing for them to be exchanged for common stock. |
|
REKOR SYSTEMS, INC.CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS(Unaudited)
|
Three Months ended June 30, |
|
Six Months ended June 30, |
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
Revenue |
$ |
2,677 |
|
|
$ |
1,416 |
|
|
$ |
4,273 |
|
|
$ |
2,426 |
|
Cost of
revenue |
|
1,276 |
|
|
|
271 |
|
|
|
1,770 |
|
|
|
761 |
|
Gross profit |
|
1,401 |
|
|
|
1,145 |
|
|
|
2,503 |
|
|
|
1,665 |
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
General and administrative expenses |
|
2,937 |
|
|
|
2,116 |
|
|
|
5,728 |
|
|
|
3,658 |
|
Selling and marketing expenses |
|
424 |
|
|
|
336 |
|
|
|
795 |
|
|
|
495 |
|
Research and development expenses |
|
819 |
|
|
|
302 |
|
|
|
1,362 |
|
|
|
307 |
|
Operating expenses |
|
4,180 |
|
|
|
2,754 |
|
|
|
7,885 |
|
|
|
4,460 |
|
|
|
|
|
|
|
|
|
Loss from
operations |
|
(2,779 |
) |
|
|
(1,609 |
) |
|
|
(5,382 |
) |
|
|
(2,795 |
) |
Other income
(expense): |
|
|
|
|
|
|
|
Loss on extinguishment of debt |
|
(200 |
) |
|
|
- |
|
|
|
(200 |
) |
|
|
(1,113 |
) |
Interest expense |
|
(1,086 |
) |
|
|
(1,334 |
) |
|
|
(2,250 |
) |
|
|
(1,543 |
) |
Other income (expense) |
|
17 |
|
|
|
(36 |
) |
|
|
16 |
|
|
|
(34 |
) |
Gain on sale of business |
|
3,636 |
|
|
|
- |
|
|
|
3,636 |
|
|
|
- |
|
Total other income (expense) |
|
2,367 |
|
|
|
(1,370 |
) |
|
|
1,202 |
|
|
|
(2,690 |
) |
Loss before
income taxes |
|
(412 |
) |
|
|
(2,979 |
) |
|
|
(4,180 |
) |
|
|
(5,485 |
) |
Income tax
provision |
|
(7 |
) |
|
|
(12 |
) |
|
|
(13 |
) |
|
|
(24 |
) |
Net loss
from continuing operations |
$ |
(419 |
) |
|
$ |
(2,991 |
) |
|
$ |
(4,193 |
) |
|
$ |
(5,509 |
) |
Net loss
from discontinued operations |
|
(199 |
) |
|
|
(1,936 |
) |
|
|
(213 |
) |
|
|
(2,293 |
) |
Net
loss |
$ |
(618 |
) |
|
$ |
(4,927 |
) |
|
$ |
(4,406 |
) |
|
$ |
(7,802 |
) |
Loss per
common share from continuing operations - basic and diluted |
$ |
(0.03 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.32 |
) |
Loss per
common share discontinued operations - basic and diluted |
|
(0.01 |
) |
|
|
(0.10 |
) |
|
|
(0.01 |
) |
|
|
(0.12 |
) |
Loss per
common share - basic and diluted |
$ |
(0.04 |
) |
|
$ |
(0.27 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding |
|
|
|
|
|
|
|
Basic and diluted |
|
22,829,084 |
|
|
|
19,369,399 |
|
|
|
22,224,417 |
|
|
|
19,135,176 |
|
|
|
|
|
|
|
|
|
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