Rekor Systems Reports Third Quarter 2024 Financial Results

Highlights

• Q3 2024 gross revenue increased 16% to $10.5 million compared to $9.1 million in Q3 2023
• Q3 recurring revenue increased 14% to $5.5 million compared to $4.8 million
• Rekor Discover™ now on the Florida DOT Approved Product List, and deployments commenced
• Our CEO, David Desharnais, was inducted into the ITS America Board

Rekor Systems, Inc.(NASDAQ: REKR) ("Rekor" or the "Company"), a leader in developing and implementing advanced roadway intelligence technology, today announced its financial results for the quarter ending September 30, 2024.

Rekor Discover™ was recently added to the Florida DOT's Approved Product List and is now beginning implementation across all Florida DOT districts simultaneously. In October, we amended the Pre-Paid advance Agreement with an affiliate of Yorkville Global Advisors, LP and eliminated the option for additional advances to the Company of $20 million. Below are some highlights of the Company's other achievements during the quarter:

• Rekor Highlighted by Texas DOT: The Texas Department of Transportation presented the Rekor Command™ solution to the Texas House Legislature as a model for the future of roadway management. Rekor's deployment and its successful outcomes were also showcased in a recent video featuring testimonials from the department's senior leaders.
• New York Moves to Procurement: The New York State Department of Transportation has advanced Rekor Discover™ from the proof-of- concept stage to the procurement phase. This initial implementation establishes a foundation for Rekor to collaborate with various engineering and construction firms, inviting bids for numerous data collection sites across the state.
• New Mexico Selects Rekor for AI Count Class and Speed: In New Mexico, Rekor Discover™ has been selected to replace the side-firing radars on major roadwork along I-25. This decision highlights Rekor's ability to enhance roadside intelligence and monitor critical infrastructure as part of New Mexico's $200 million improvement initiative.
• Partnership with Goldwings Establishes Hawaiian Presence: Rekor Discover™ is now available to the communities in Hawaii with high demand for roadway intelligence through a new partnership with Goldwings.
• NVIDIA Case Study: NVIDIA recently published a case study highlighting Rekor's integration of its comprehensive accelerated computing platform for roadway intelligence. By leveraging NVIDIA's AI technologies, Rekor is advancing new generative AI applications, including enhanced internal data annotation, streamlined workflows, and more effective calibration and configuration of systems.

"Our third quarter financial results reflect the delays in revenue realization we recently experienced due to the variability we've previously noted in servicing government customers. Consequently, we are aggressively optimizing our cost structure and accelerating our path to achieve positive cash flow in 2025. To stay resilient in this environment, we've taken the necessary steps to adjust to the unpredictability of government procurement timelines and trim our expenses. This expense realignment has been designed to achieve an annual reduction in costs of up to $15 million." said Eyal Hen, CFO of Rekor. "Concurrent with this optimization program, we eliminated the option to tap additional advances of $20 million under our agreement with Yorkville Advisors. This reflects our confidence in our forward outlook, growing operating momentum, and commitment to protecting shareholder value. As our actions have been targeted to support near-term revenue generation, we continue to look forward to delivering strong future growth in the coming quarters."

Our President and CEO, David Desharnais, was recently appointed to the Board of ITS America. "I am truly honored to be inducted into the ITS America Board of Directors and to join forces with visionary leaders from both the public and private sectors to shape the future of transportation," said Mr. Desharnais. "ITS America is leading the way in transforming the movement of people and goods, championing innovation, and advancing intelligent transportation systems to build safer, more resilient, and connected communities. I look forward to contributing to this bold mission and helping to accelerate the adoption of groundbreaking solutions that will shape the future of our transportation infrastructure."

Three and Nine Months Ended September 30, 2024 Financial Results

This section highlights the changes for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023.

Revenues

The increase in revenue for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, was primarily attributable to our Urban Mobility revenue stream which consists of revenue derived from roadway data aggregation activities. During the three and nine months ended September 30, 2024, revenue attributable to ATD was $1,723,000 and $7,428,000, respectively, and is included as part of the Urban Mobility revenue stream.

Cost of Revenue, excluding Depreciation and Amortization

For the three and nine months that ended September 30, 2024, the cost of revenue, excluding depreciation and amortization, increased compared to the corresponding prior periods primarily due to an increase in personnel and other direct costs, such as hardware, that were incurred to support our increase in revenue. Additionally, during the three and nine months ended September 30, 2024, $809,000 and $2,608,000 of the increase was related to our acquisition of ATD.

Loss from Operations

Loss from operations for the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023, increased primarily due to additional costs of ATD including the additional depreciation and amortization of intangible assets associated with the acquisition.

Additional Key Performance Indicators and Non-GAAP Measures

Performance Obligations

As of September 30, 2024, the Company had approximately $23,613,000 in remaining performance obligations not yet satisfied or partially satisfied. This is a decrease of approximately 11%, down from $26,390,000 of remaining performance obligations as of December 31, 2023. Total performance obligations have decreased over time as the contract term of certain of the Company's large long-term contracts begin to near.

Adjusted Gross Profit and Adjusted Gross Margin

Adjusted Gross Margin for the three and nine months ended September 30, 2024, decreased compared to the three and nine months ended September 30, 2023. The fluctuation in Adjusted Gross Margin is typically correlated to the mix of hardware and software sales as well as service-type work. Typically, our software sales carry a higher Adjusted Gross Margin.

EBITDA and Adjusted EBITDA

The Company calculates EBITDA as net loss before interest, taxes, depreciation, and amortization. The Company calculates 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):

Rekor has scheduled a conference call to discuss the third quarter 2024 results on Thursday, November 14, 2024, at 4:30 P.M. (Eastern).

Any person interested in participating in the call should please dial in approximately 10 minutes prior to the start of the call using the following information:

North America: 877-407-8037/ 201-689-8037

International: Click here for participant International Toll-Free access numbers

Webcast: https://event.choruscall.com/mediaframe/webcast.html? webcastid=pzPTSDpm

REPLAY INFORMATION

A replay will be made available online approximately two hours following the live call for a period of two weeks. To access the replay, use the following numbers:

Replay Dial-In: 877-660-6853 / 201-612-7415

Access ID: 13748129

An archived webcast will also be available to replay this conference call directly from the Company's website under Investors, Events & Presentations.

About Rekor Systems, Inc.

Rekor Systems, Inc. (NASDAQ: REKR) is a leader in developing and implementing state-of-the-art roadway intelligence systems using AI- enabled computer vision and machine learning. As a pioneer in the implementation of digital infrastructure, Rekor is collecting, connecting, and organizing the world's mobility data - laying the foundation for a digitally-enabled operating system for the roadway. With our Rekor One® Roadway Intelligence Engine at the core of our technology, we aggregate and transform trillions of data points into intelligence through proprietary computer vision, machine learning, and big data analytics that power our platforms and applications. Our solutions provide actionable insights that give governments and businesses a comprehensive picture of roadways while providing a collaborative environment that drives the world to be safer, greener, and more efficient.

Forward-Looking Statements

This press release and its links and attachments contain 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, including statements regarding the impact of Rekor's core suite of AI-powered technology and the size and shape of the global market for ALPR systems. 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. 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.

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