Rekor Systems, Inc. Q1 FY2025 earnings call

• Rekor implemented a new general manager structure starting in Q2 to sharpen focus on customers and accelerate product adoption, with each core business unit led by a dedicated general manager with profit and loss responsibility.
• Hired Mark Phillips, a seasoned roadway technology executive with international experience, to drive global market penetration and strengthen domestic presence. Hired Shobhit Jain as Chief Product and Technology Officer to lead engineering under the new structure.
• Prioritized cost optimization initiatives starting in November 2024, including workforce realignment and voluntary compensation reductions, to improve cash flow and operational efficiencies, leading to lower operating expenses in Q1 2025 compared to without these initiatives.
• Focus on customer centricity with each general manager tasked with staying close to customer bases, responding to feedback, and tailoring offerings to solve specific problems.

Rekor Systems reported revenue of $9.2 million for Q1 2025, a 6% decrease compared to the same quarter last year. Recurring revenue totaled $5.1 million, a modest 3% increase from Q1 2024. Adjusted gross margin was 48.2%, up from 46% in Q1 2024, driven by a higher mix of margin accretive offerings. Adjusted EBITDA loss was $7.4 million, significantly improved from $9.4 million in Q1 2024. Revenue contribution from segments wasn't explicitly broken down beyond the overall figures, but the focus was on the impact of cost optimization and segment-specific efforts like the new GM structure.

• Anticipate continued gross margin expansion supported by growing SaaS-based revenue and pay for data contracts.
• Expect sequential improvement in adjusted EBITDA losses as revenue grows and gross margin improves, with cost optimization efforts ongoing to keep expense growth well below revenue growth.
• Confidence in narrowing adjusted EBITDA losses in upcoming quarters as revenue grows and gross margin expands.

• Seasonal and other factors in Q1 2025 that affected results, though not expected to continue throughout the year.
• Challenges in aligning sales approach and pricing with government procurement processes for adopting new technology.
• Uncertainties in market adoption and potential delays in converting pipeline into revenue due to legacy technology replacement processes.

Q: Could you give some color on the pipeline for Scout and how are the bookings in 1Q for Scout?

A: Robert Berman mentioned Scout has grown by over 700% revenue since 2019, but they dropped the ball with it in 2024. Reorganization is to get back to Scout, focusing more on the commercial side. More activity with Scout expected in 30-60 days.

Q: How much of the $15 million annualized cost savings, expense realignment, have you implemented this year?

A: Eyal Hen stated the $15 million figure is annualized and will be realized throughout the year, with continued reduction in adjusted EBITDA losses as revenue grows and margin expands.

Q: With the new GM structure, are you already selling in international markets and seeing demand?

A: Robert Berman mentioned almost every developed nation uses data collection for planning and traffic operations, Rekor Discover does both, and there's demand internationally. Mark Phillips is in Europe doing a pilot, so there's opportunity there.

Q: On proof of concepts, when can we expect results to come through?

A: Robert Berman said they've adjusted sales approach and pricing to align with government procurement, and results of these changes will be seen very soon as they've figured out the right way to sell and the agencies' buying process.