Rekor Systems, Inc. Q3 FY2024 earnings call

• Customer activity: Pipeline entering deployment phase across Urban Mobility (Discover), Transportation Management (Command), and Public Safety (Scout) segments. Discover achieved inclusion on Florida's APL and started statewide deployments; New York advanced Discover from proof-of-concept; New Mexico moved to Rekor's AI solutions. Command solution gained ground in Texas. Scout platform saw momentum with partnerships and industry event presence.
• Partnerships: Strong collaborations with AWS and NVIDIA; NVIDIA published a case study on Rekor's integration. David Desharnais inducted to ITS America Board of Directors.
• Cost optimization: Implemented workforce restructure and targeted compensation adjustments to achieve up to $15 million in annualized savings and eliminate $20 million in optional advances with Yorkville.

In Q3 2024, Rekor Systems had revenues of $10.5 million, a 16% increase compared to Q3 2023. For the nine months ended September 30, 2024, revenues were $32.8 million, an increase of $8.9 million or 37% over the same period last year. The Urban Mobility segment, which includes roadway data aggregation, was the main driver of growth. Recurring revenue in Q3 2024 was $5.5 million, a 14% increase year-over-year. For the nine months ended September 30, 2024, recurring revenue totaled $16.8 million, a 13% increase compared to the same period last year. Adjusted gross margin for Q3 2024 was 44%, down from 52.6% in the same period last year. For the nine months ended September 30, 2024, adjusted gross margin was 48.2%, down from 52.6% in the same period last year.

• Expect gross margins to bounce back in coming quarters due to new wins and higher-margin offerings.
• Target to achieve positive cash flow in 2025 through disciplined financial management and cost optimization.
• Potential 40% compound annual growth rate in revenue over the next five years if agencies commit to modernization transition.

• Unpredictable government procurement cycles leading to potential delays in deployments.
• Weather impacts on revenue, such as the effect of hurricanes on recurring revenues.
• Complex state procurement policies presenting unexpected challenges and delays.

Q: Mike Latimore from Northland Capital Markets asked about recurring revenue impacted by hurricanes in Q3 and if it would bounce back in Q4.

A: David Desharnais said recurring revenues were impacted by weather conditions like hurricanes and anticipated recovery in Q4 and forward.

Q: Louie DiPalma from William Blair inquired about the deployment timeline for State X (Florida) and follow-on orders.

A: David Desharnais stated that Florida's deployment is ongoing, with significant opportunity, and they are well-positioned with favorable relationships and momentum for future orders and expansions.