Rekor Systems, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Financial amounts below are in U.S. dollars.
Business context
Rekor develops AI-based roadway intelligence software, data services, and roadside hardware for transportation management, urban mobility, public safety, and commercial customers. Its strategy centers on Rekor One and recurring SaaS and subscription revenue. The company acquired Southern Traffic Services (STS) in June 2022 and divested its non-core automated traffic safety enforcement (ATSE) business in December 2022; ATSE is presented as discontinued operations.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Continuing-operations revenue | $19.920 million | $11.575 million |
| Recurring revenue | $13.091 million | $4.634 million |
| Adjusted gross profit / margin | $9.030 million / 45.3% | $7.026 million / 60.7% |
| Net loss from continuing operations | $83.454 million | $27.396 million |
| Net loss, including discontinued operations | $83.115 million | $26.782 million |
| Adjusted EBITDA (non-GAAP) | $(37.441) million | $(22.766) million |
| Cash used in continuing operations | $40.070 million | $18.893 million |
Revenue increased 72%, principally reflecting $7.692 million of STS revenue after its acquisition. Recurring revenue grew 182%. The lower adjusted gross margin reflected lower-margin hardware sales and upfront costs for three-to-six-month pilot programs. Management reported $21.962 million in contract value won during 2022, up 146%, and $21.412 million of remaining performance obligations at year-end, of which approximately $12.678 million was expected to be recognized over the following 12 months.
Operating expenses rose to $94.814 million from $38.860 million, including a $34.835 million goodwill impairment following a decline in market capitalization, and increased R&D, sales and marketing, and depreciation and amortization. The company reported a $2.643 million gain on the ATSE sale and $1.608 million of legal judgments, settlements, and estimated losses in 2022.
At December 31, 2022, cash and cash equivalents were $1.924 million, working capital was negative $6.010 million, total assets were $83.840 million, and stockholders’ equity was $49.337 million. Notes and loans payable totaled approximately $4.455 million; operating lease liabilities were $15.306 million. The company had a $40.070 million continuing-operations operating cash outflow and a $24.466 million decrease in continuing-operations cash, cash equivalents, and restricted cash.
Material changes and unusual items
- STS contributed $7.692 million of 2022 revenue; the prior-year comparison includes Waycare only from its August 2021 acquisition date.
- ATSE was sold for approximately $3.390 million, with a reported $2.643 million gain. Its results are classified as discontinued operations.
- The $34.835 million goodwill impairment was a significant non-cash charge. Goodwill fell to $20.593 million at year-end from $53.451 million.
- Revenue mix shifted toward recurring revenue, while adjusted gross margin declined from 60.7% to 45.3%.
- Common shares outstanding increased during the year, including 9.019 million shares sold through an at-the-market program for net proceeds of $22.754 million.
- In January 2023, the company issued $12.5 million of senior secured notes bearing 12% interest, with warrants to purchase 6.25 million shares. In March 2023, it completed a registered direct offering with approximately $10 million in gross proceeds and issued additional shares and warrants.
Outlook, risks, and contingencies
Management provided no specific numerical revenue or earnings guidance. It described a restructuring focused on supporting existing customers and prioritizing growth opportunities with the most immediate value, while continuing to assess external financing. Management expects recurring revenue and contract obligations to support future revenue, but these expectations depend on contract execution, renewals, customer collections, and adoption of its solutions.
Management said year-end cash was insufficient to fund operations for the 12 months following issuance of the financial statements without additional financing or other actions. The auditor’s report includes a going-concern explanatory paragraph stating that substantial doubt exists about the company’s ability to continue as a going concern. The statements were prepared on a going-concern basis and do not include adjustments that could result from the uncertainty.
Key risks include continued losses and cash burn, dependence on future capital, uncertain adoption and long government sales cycles, competition, customer renewals, third-party data and hardware suppliers, cybersecurity and privacy exposure, and integration and execution risks. The company settled its long-running Firestorm litigation in March 2023: it agreed to transfer certain assets and pay $175,000, while the other parties relinquished claims on specified notes and warrants. The filing says the settlement left no litigation pending against the company at that time. A separate Fordham judgment was satisfied for $1.320 million in 2022.
Investor verification priorities
- Confirm current cash, cash burn, financing availability, and progress toward addressing the going-concern uncertainty.
- Review the terms, interest burden, security, covenants, and warrant dilution from the January 2023 notes and March 2023 offering.
- Assess whether recurring revenue, contract wins, and remaining performance obligations convert into recognized revenue and cash collections.
- Track gross-margin recovery and the economics of pilot programs, hardware sales, and the STS business.
- Verify the effects of the ATSE disposal and Firestorm settlement on reported balances and future obligations.