Rekor Systems, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021, compared with 2020. This annual filing reports full-year results; standalone fourth-quarter figures are not clearly provided in the filing text.
Business context
Rekor sells AI-enabled software, data services, and hardware for transportation management, public safety, and commercial vehicle recognition. Its strategy centers on the Rekor One platform and growing subscription and recurring-service revenue. In August 2021, Rekor acquired Waycare, adding traffic-management technology. The company also continued its shift away from professional services, which were classified as discontinued operations.
Financial performance and position
- Revenue: $14.294 million, up 55% from $9.234 million. Recurring revenue was $4.634 million, up 28%; product and service revenue was $9.660 million. Oklahoma’s uninsured-vehicle program contributed $1.282 million, and Waycare contributed $0.925 million after acquisition.
- Profitability: Net loss from continuing operations was $26.777 million versus $13.962 million in 2020; total net loss was $26.782 million. Basic and diluted loss per share was $0.65 versus $0.64. Operating loss widened to $31.215 million from $11.848 million.
- Margins: Adjusted gross profit, a non-GAAP measure, was $8.058 million, and adjusted gross margin was 56.4%, down from 61.9%. Management attributed the decline primarily to a higher mix of hardware sales and lower-margin pilot programs.
- Cash flow: Cash used in operating activities from continuing operations was $18.028 million, versus $11.175 million used in 2020. Investing activities used $47.367 million, including $39.770 million net cash paid for Waycare and $6.272 million of capital expenditures. Financing activities provided $70.992 million, principally from the 2021 public offering.
- Liquidity: Year-end unrestricted cash and cash equivalents were $25.796 million, and working capital was $16.989 million. Management said its forecasts supported a going-concern assessment for at least one year from filing, while noting it may need additional funding if access to funds becomes unavailable.
- Debt and obligations: Notes and loans payable totaled approximately $1.072 million at year-end. Operating lease liabilities were $10.290 million. The company recognized an $0.886 million gain from forgiveness of its PPP loans.
- Contract visibility: Remaining performance obligations were approximately $22.587 million, up 35% from $16.705 million; about 41% was expected to be recognized in the following 12 months. Contracts won in 2021 had stated total contract value of $8.936 million, up 35%.
Material changes versus 2020
- Revenue rose, but operating expenses increased 124% to $39.273 million. General and administrative costs rose 123%, sales and marketing 109%, and research and development 160%, reflecting increased staffing, growth investment, acquisition-related fees, and product development.
- Adjusted gross margin fell 5.5 percentage points, while the continuing-operations net loss nearly doubled.
- Waycare was acquired for $60.171 million in cash and stock consideration. Preliminary purchase accounting recorded $47.115 million of goodwill and $16.897 million of acquired technology; Waycare revenue included in 2021 results was $0.925 million.
- Rekor raised approximately $70.125 million net in a February 2021 public offering, and Series A and B preferred stock converted into common stock. The share count increased materially during the year.
Outlook, risks, contingencies, and unusual items
- Management expects to emphasize SaaS subscriptions, recurring services, product development, sales capacity, partnerships, and expansion of Rekor One. It cited the U.S. Infrastructure Investment and Jobs Act and related public funding as potential market opportunities, but provided no quantified revenue or earnings guidance.
- Management expects research and development and sales and marketing spending to remain elevated; it also said short-term margins may face pressure from investments. Profitability is not assured.
- Key risks include continuing losses and cash burn; possible need for additional capital and shareholder dilution; uncertain adoption and lengthy government sales cycles; customer renewals and concentration; reliance on third-party data, cloud providers, and overseas manufacturing partners; privacy, cybersecurity, regulatory, and technology risks; and economic and COVID-19 impacts.
- Subsequent to year-end, Rekor established a $50 million at-the-market equity program. By March 31, 2022, it had sold 728,452 shares for net proceeds of $3.303 million.
- Material litigation remained unresolved, including the Firestorm-related dispute and a Fordham underwriting-agreement lawsuit. Rekor said it could not assess the likelihood of favorable outcomes. A putative shareholder class action was voluntarily dismissed without prejudice; the OpenALPR/PCS case was dismissed with prejudice.
- The auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an ICFR attestation, as Rekor was a non-accelerated filer.
Most important facts for investors to verify
- Whether recurring revenue, contract obligations, and customer wins convert into collected cash and sustained revenue growth.
- Whether spending growth and the Waycare acquisition produce improved margins and a credible path to profitability, given the larger operating loss and cash burn.
- Cash runway, future financing requirements, ATM share issuance, and resulting dilution.
- Waycare’s post-acquisition performance and the assumptions supporting its goodwill and acquired-technology valuations.
- Developments and potential financial exposure in the Firestorm and Fordham litigation, as well as any changes in customer concentration or major program economics.