Rekor Systems, Inc.
For the period ended Dec 31, 2024. Filed Mar 31, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 31, 2025
REKR$0.34+4.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-25.
0001437749-24-009219
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-31.
0001437749-25-010193
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 102 previous paragraphs and 97 current paragraphs.
62 unchanged; 22 reworded; 13 added; 18 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 13 previous and 13 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (13)
Current report
Impairment of Intangible Assets
Current report
As a result of sales performance being below expectation in part due to slower customer adoption, longer sales cycles and market conditions, the Company identified a triggering event and performed an analysis of its intangible assets. As a result of the forementioned factors and their potential future impact, the Company recognized an impairment charge of $10,214,000 as of December 31, 2024.
Current report
Loss on extinguishment of debt was a result of early redemption of the 2023 Promissory Notes. As part of the redemption, we recorded accelerated debt issuance costs of $2,818,000 and a Redemption Payment of $1,875,000 which we settled through the issuance of common stock.
Current report
On August 14, 2024, we entered into a Prepaid Advance Agreement under which funds were advanced to the Company and the lender had the ability to satisfy the advance in exchange for shares in the Company. We incurred issuance costs and original issuance discounts totaling approximately $888,000 associated with the issuance of the Prepaid Advance. Additionally, during the year the Company elected to terminate the Prepaid Advance Agreement. All amounts due were settled and we recorded $900,000 in charges related to the settlement of the Prepaid Advance liability.
Current report
Adjusted Gross Margin for the year ended December 31, 2024 decreased from 52.8% to 49.3% compared to the year ended December 31, 2023. The fluctuation in Adjusted Gross Margin is typically correlated to the mix of software sales versus service type work. Typically our software sales carry a higher Adjusted Gross Margin.
Current report
Net cash used in operating activities for the year ended December 31, 2024, increased by $291,000, which was primarily attributable to an increased loss which was offset by non-cash adjustments during the year, primarily the loss on extinguishment of debt of $4,693,000.
Current report
The increase in net cash used in investing activities was primarily due to the net cash outflow of $9,222,000 related to the acquisition of ATD.
Current report
On February 10, 2025, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with Northland Securities, Inc., pursuant to which the Company may, from time to time, offer and sell shares of the Company’s common stock, par value $0.0001 per share, having an aggregate offering price of up to $25,000,000. See Note 16 to our consolidated financial statements for additional information related to the Sales Agreement.
Current report
We have certain contractual obligations for future payments. See Note 7 to our consolidated financial statements for our required operating and financing lease payments and Note 9 for our required debt payments.
Current report
Valuation of long lived assets
Current report
Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable. Undiscounted cash flow analyses are used to determine if the carrying amount of the asset is recoverable. If impairment is determined to exist, the charge is calculated based on estimated fair value.
Current report
Business Combinations
Current report
We account for business combinations by recognizing the fair value of acquired assets and liabilities. The excess purchase consideration over the fair value of acquired assets and liabilities is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, we make estimates and assumptions, especially with respect to intangible assets such as identified customer relationships and trade names. We generally determine the fair value of acquired customer relationships using the multi-period excess earnings method, a form of the income approach. Estimates in valuing identifiable intangible assets include, but are not limited to, projected revenue growth rates, customer retention rates and an appropriate discount rate. Our estimate of fair value is based upon assumptions we believe to be reasonable, but which are inherently uncertain and, as a result, actual results may differ from estimates. During the measurement period, we may make adjustments to the fair value of assets acquired and liabilities assumed, with offsetting adjustments to goodwill.
Removed paragraphs (18)
Previous report
On June 17, 2022*,* we completed the acquisition of STS by acquiring 100% of the issued and outstanding capital stock of STS. The acquisition included total consideration of $12,799,000 including: cash consideration of $6,500,000, $1,001,000 related to an earnout based on the achievement of certain performance metrics ("STS Earnout") and $1,298,000 contingent on the closing of a future contract ("STS Contingent Consideration"), 798,666 shares of the Company’s common stock, valued at $2,000,000, and a $2,000,000 note.
Previous report
On December 6, 2022, we divested our ATSE business, a non-core business unit, for approximately $3,390,000.
Previous report
Goodwill Impairment
Previous report
During the third quarter of 2022, we experienced a significant decline in our market capitalization, which management deemed a triggering event related to goodwill. As a result, we performed an interim impairment assessment as of September 30, 2022 and determined that as of the reporting date we had an impairment related to goodwill in the amount of $34,835,000.
Previous report
Other expense, net increased in the current period compared to the prior period as a result of legal judgements and settlements that happened during the year ended December 31, 2022. For additional details regarding our legal settlements please see Item 3 of Part I, “Legal Proceedings”.
Previous report
Gain on extinguishment of debt is a result of the settlement agreement in the Firestorm litigation. As part of the settlement, we recorded a reduction to notes payable, the related accrued interest and other assets and liabilities which were part of the Firestorm entities.
Previous report
Income Tax Provision (Benefit)
Previous report
The provision for income taxes for the year ended December 31, 2023, was$32,000, as compared to tax benefit of $987,000 for the year ended December 31, 2022, which is due primarily to the step-up in the basis of intangible assets related to the STS acquisition. We established a valuation allowance against deferred tax assets in the fourth quarter of 2017 and have continued to maintain a full valuation allowance through the year ended December 31, 2023.
Previous report
Adjusted Gross Margin, for the year ended December 31, 2023 increased to 52.8% from 45.3% for the year ended December 31, 2022. As the Company continues to scale and standardize its product offerings it has begun to realize operational efficiencies that have resulted in an improved Adjusted Gross Margin. Additionally, the Company has worked diligently to reduce its software and data costs.
Previous report
Total Contract Value
Previous report
The total contract value of contracts won in the current period also provides us with visibility into our future operating results and cash flows from operations. Total contract value is a non-GAAP measure in which there are certain assumptions that we make when determining the total contract value of an agreement, such as the success rate of renewal periods, cancellations and usage estimates. For the year ended December 31, 2023, we won contracts valued at$49,087,000, compared to$21,962,000 of contracts won for the year ended December 31, 2022. This represents growth of$27,125,000 or 124%, period over period.
Previous report
Net cash used in operating activities for the year ended December 31, 2023, had a net decrease of $7,892,000, which was attributable to the improvement of our Adjusted EBITDA of $8,754,000 which saw a 23% improvement period over period.
Previous report
The net increase in net cash used in investing activities of $8,534,000 was primarily due to a decrease in the outflow of funds related to merger and acquisition activities and capital expenditures. During the year ended December 31, 2023, the Company had net cash outflows of $1,388,000 related to capital expenditures compared to $4,171,000 for the year ended December 31, 2022. Additionally, during the year ended December 31, 2022, the Company had net cash outflows of $6,389,000 related to the acquisition of STS. This outflow was partially offset by $3,051,000 in cash proceeds from the sale of the Company's ATSE business unit.
Previous report
Our cash increased by $13,245,000 for the year ended December 31, 2023 primarily due to net cash provided by financing activities of $45,602,000 which was offset by the net cash used in operating activities of $32,627,000.
Previous report
Revenue Recognition
Previous report
Judgment is required for the estimation of the standalone selling price (“SSP”) and the allocation of the transaction price by relative SSPs. We have arrangements that include multiple performance obligations in which we need to allocate the transaction price using the SSP. Our customer arrangements containing multiple performance obligations typically include the sale and installation of cameras systems, licensing of our software and the performance of maintenance services over a contractual term. In most instances, we have determined these performance obligations qualify as distinct performance obligations, as the customer can benefit from the service on its own or together with other resources that are readily available to the customer, and our promise to transfer the service is separately identifiable from other promises in the contract. For arrangements that contain multiple performance obligations, we exercise judgment in allocating the transaction price based on the relative SSP method by comparing the SSP of each distinct performance obligation to the total value of the contract. We apply judgment in determining the SSP for each distinct performance obligation.
Previous report
Liquidity Analysis
Previous report
Our ability to manage our cash flow is another critical aspect of the analysis. Effective cash flow management ensures that we have sufficient liquidity to cover our operating expenses, debt repayments, and other financial obligations. Our cash flow projections are reviewed to determine whether we can generate enough cash to sustain our operations during the look-forward period. Our estimates over our financial projections play a vital role in our analysis. We utilize various assumptions and factors such as market conditions, customer relationships, our sales pipeline, industry trends, and our strategic initiatives to develop and validate our financial projections.
Reworded paragraphs (22)
Previous wording
The information provided in this discussion and analysis of Rekor’s financial condition, and results of operations covers the years ended December 31, 2023 and 2022. In 2022, we divested our Automated Traffic Safety Enforcement ("ATSE") business, a non-core business unit. As a result of the divestiture, we determined that ATSE met the criteria to be considered discontinued and it was no longer presented with continuing operations. Additionally, in 2022, we completed the acquisition of 100% of the issued and outstanding capital stock of Southern Traffic Services, Inc. ("STS"). This acquisition is included in the presentation of our continuing operations.
Current wording
The information provided in this discussion and analysis of Rekor’s financial condition, and results of operations covers the years ended December 31, 2024 and 2023. In 2024, we completed the acquisition of 100% of the issued and outstanding limited liability company interests of All Traffic Data Systems (“ATD”).
Previous wording
On January 2, 2024, we completed the acquisition of All Traffic Data Services, LLC (“ATD”) for an aggregate purchase price of $19,795,000, consisting of $9,795,000 in cash which included closing adjustments and $10,000,000 of stock consideration.
Current wording
On January 2, 2024, we completed the acquisition of All Traffic Data Services, LLC (“ATD”) for an aggregate purchase price of $20,576,000. See Note 2 to our consolidated financial statements for additional information related to our acquisition of ATD.
Previous wording
Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of intangibles considered to have definite lives, and amortization of capitalized internal-use software costs.
Current wording
Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of intangibles considered to have finite lives, and amortization of capitalized internal-use software costs.
Previous wording
Income tax provision consists primarily of income taxes in certain domestic jurisdictions in which we conduct business. We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses.
Current wording
Income tax provision consists primarily of income taxes in certain domestic jurisdictions in which we conduct business. We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits. We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that those deferred tax assets may not be realized based on our history of losses.
Previous wording
Our historical operating results in dollars are presented below. The analysis of operations is solely related to continuing operations and does not consider the results of discontinued operations. The following selected consolidated financial data should be read in conjunction with the foregoing information contained in this Item 7 and with the consolidated financial statements and the notes thereto in Item 8 of Part II, “Financial Statements and Supplementary Data.” Only historical operating results are presented below. Historical results are not necessarily indicative of future results.
Current wording
Our historical operating results in dollars are presented below. The following selected consolidated financial data should be read in conjunction with the foregoing information contained in this Item 7 and with the consolidated financial statements and the notes thereto in Item 8 of Part II, “Financial Statements and Supplementary Data.” Only historical operating results are presented below. Historical results are not necessarily indicative of future results.
Previous wording
The increase in revenue for the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily attributable to our Urban Mobility product line. During the year ended December 31, 2023, revenue attributable to our Urban Mobility product line was $16,773,000, compared to $7,692,000 compared for the year ended December 31, 2022. Additionally, our contactless compliance revenue increased $1,110,000 for the year ended December 31, 2023 compared to the year ended December 31, 2022. The remaining increase in revenue growth during the year ended December 31, 2023, compared to the year ended December 31, 2022 was primarily attributable to increased sales in sales of the Company's software and hardware products.
Current wording
The increase in revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily attributable to our Urban Mobility product line. During the year ended December 31, 2024, revenue attributable to our Urban Mobility product line was $28,688,000 compared to $16,773,000 for the year ended December 31, 2023. During the year ended December 31, 2024, revenue attributable to our ATD acquisition was $10,125,000 and is included as part of our Urban Mobility revenue stream.
Previous wording
For the year ended December 31, 2023, 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. The costs of revenue increased at a lower rate than our revenue increased as the Company was able to realize efficiencies in its operations and better manage its software costs.
Current wording
For the year ended December 31, 2024, cost of revenue, excluding depreciation and amortization increased compared to prior year primarily due to an increase in personnel and other direct costs such as hardware that were incurred to support our increase in revenue. The costs of revenue increased at a higher rate than our revenue increased as our mix of revenue shifted to more labor intensive activities. As we continue to deploy our technology, we anticipate our margins to improve. Additionally, during the year ended December 31, 2024, $3,672,000 of the increase was related to our acquisition of ATD.
Previous wording
The increase in general and administrative expenses during the year ended December 31, 2023, compared to the year ended December 31, 2022, were primarily due to increases related to our automobile fleet and insurance. These costs were partially offset due to a decrease in our personnel costs related to a reduction of salaries and overall payroll during the year. Additionally, for the year ended December 31, 2022, the Company recognized a $1,001,000 gain related to the remeasurement of the STS Earnout which decreased the Company's general and administrative expenses during the period.
Current wording
For the year ended December 31, 2024, the increase in general and administrative expenses compared to the year ended December 31, 2023, was primarily due to:
Previous wording
The decrease in selling and marketing expenses during the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily due to a $965,000 decrease in stock-based compensation expenses.
Current wording
The increase in selling and marketing expenses during the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to a $610,000 increase as result of the acquisition of ATD.
Previous wording
The decrease in research and development expenses during the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily attributable to a decrease in subcontractor labor expenses as the Company utilized its current workforce to focus on the development of new products and software.
Current wording
Research and development expenses during the year ended December 31, 2024, compared to the year ended December 31, 2023, remained consistent.
Previous wording
The increase in depreciation and amortization during the period is attributable primarily to the increased technology-based intangible assets that were acquired as part of our acquisition of STS.
Current wording
The increase in depreciation and amortization during the year is attributable primarily to the intangible assets that were acquired as part of our acquisition of ATD.
Previous wording
Interest expense increased period over period due to the issuance of the 2023 Promissory Notes.
Current wording
Interest expense decreased period over period due to the early redemption of the 2023 Promissory Notes.
Previous wording
In connection with the sale of ATSE, we recognized a gain on the sale of the business of $2,643,000 during the year ended December 31, 2022.
Current wording
In connection with the sale of Global Public Safety, we recognized a gain on the sale of the business of $1,500,000 during the year ended December 31, 2024.
Previous wording
As we continue to focus on long-term contracts with recurring revenue as part of our business model, we expect recurring revenue growth in future periods to continue to increase as we move to market our suite of products through our Rekor One™ platform. However, procurement requirements for some of our largest customers may result in periods when there is an increase one-time sales as compared to recurring revenues, which may cause the proportion of recurring revenues generated in those periods to fluctuate.
Current wording
We expect to continue efforts to secure long-term contracts with recurring revenue as part of our business model, which is intended to cause recurring revenue growth in future periods to continue to increase. However, procurement requirements for some of our largest customers may result in periods when there is an increase one-time sales as compared to recurring revenues, which may cause the proportion of recurring revenues generated in those periods to fluctuate. In addition, there may be an increase in one time sales as a result of initial installations related to the development of recurring revenue.
Previous wording
While a portion of the total contract value won in a particular period represents revenue earned during the period, the remainder represents future performance obligations that can provide an indication of our future revenues. As of December 31, 2023, we had appro ximately $26,390,000 of performance obligations with respect to contracts that were closed prior to December 31, 2023 but have a contractual period beyond December 31, 2023. This represents growth of $4,978,000 or 23% compared to $21,412,000 of performance obligations as of December 31, 2022. These contracts generally cover a term of one to five years, during which the Company will recognize revenue ratably over the contract term. We currently expect to recognize approximately $18,624,000 of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years. On occasion, our customers will prepay the full contract or a substantial portion of the contract. Amounts related to the prepayment of the contract related to the performance obligation for a service period that is not yet met are recorded as part of our contract liabilities balance.
Current wording
While a portion of the total contract value won in a particular period represents revenue earned during the period, the remainder represents future performance obligations that can provide an indication of our future revenues. As of December 31, 2024, we had appro ximately $14,450,000 of performance obligations with respect to contracts that were closed prior to December 31, 2024 but have a contractual period beyond December 31, 2024. These contracts generally cover a term of one to five years, during which the Company will recognize revenue ratably over the contract term. We currently expect to recognize approximately $12,036,000 of this amount over the succeeding twelve months, and the remainder is expected to be recognized over the following four years. On occasion, our customers will prepay the full contract or a substantial portion of the contract. Amounts related to the prepayment of the contract related to the performance obligation for a service period that is not yet met are recorded as part of our contract liabilities balance.
Previous wording
Net cash provided by financing activities for the year ended December 31, 2023 increased by $21,734,000 from the prior year ended December 31, 2022. During the year ended December 31, 2023, as part of our 2023 Promissory Notes and the 2023 Registered Direct Offering, we received net proceeds of $11,100,000 and $9,159,000, respectively. Additionally, in the third quarter of 2023, we received gross proceeds of $10,996,000 related to the exercise of warrants associated to the 2023 Registered Direct Offering. Lastly, in the fourth quarter of 2023, we raised $14,330,000 related to our Series A Prime Revenue Sharing Notes. In the prior comparable period, through our 2022 Sales Agreement, we received net proceeds, after deducting the underwriting discounts and commissions and offering expenses payable by us, of $22,754,000.
Current wording
Net cash provided by financing activities for the year ended December 31, 2024 decreased by $14,147,000 from the year ended December 31, 2023. During the year ended December 31, 2024, as part of our 2024 Public Offering and Prepaid Advance, we received net proceeds of $26,362,000 and $14,100,000, respectively, these proceeds were partially offset by the repayment of our 2023 Promissory Notes. During the year ended December 31, 2023, as part of our 2023 Promissory Notes and the 2023 Registered Direct Offering, we received net proceeds of $11,100,000 and $9,159,000, respectively. Additionally, in the third quarter of 2023, we received gross proceeds of $10,996,000 related to the exercise of warrants associated to the 2023 Registered Direct Offering. Lastly, in the fourth quarter of 2023, we raised $14,330,000 related to our Series A Prime Revenue Sharing Notes.
Previous wording
For the years ended December 31, 2023 and 2022, we funded our operations primarily through cash from the sale of equity, operating activities from our subsidiaries and the issuance of debt. As of December 31, 2023, we had unrestricted cash and cash equivalents from continuing operations of $15,385,000 and working capital of $8,100,000, as compared to unrestricted cash and cash equivalents of $1,924,000 and a working capital deficit of $6,010,000 as of December 31, 2022.
Current wording
For the years ended December 31, 2024 and 2023, we funded our operations primarily through cash from operating activities, the issuance of debt and the sale of equity. As of December 31, 2024, we had unrestricted cash and cash equivalents of $5,329,000 and working capital of $1,707,000, as compared to unrestricted cash and cash equivalents of $15,713,000 and working capital of $8,100,000 as of December 31, 2023.
Previous wording
The Company has generated losses and negative operating cashflows since its inception and has relied on external sources of financing to support the cash flow from operations. The Company attributes losses to non-capital expenditures related to the scaling of existing products and services, development of new products and services and marketing efforts associated with these existing and new products and services. As of and for the year ended December 31, 2023, the Company had working capital from continuing operations of $8,100,000 and a loss from continuing operations of $45,685,000.
Current wording
The Company has generated losses and negative operating cashflows since its inception and has relied on external sources of financing to support the cash flow from operations. The Company attributes losses to non-capital expenditures related to the scaling of existing products and services, development of new products and services and marketing efforts associated with these existing and new products and services. As of and for the year ended December 31, 2024, the Company had working capital of$1,707,000 and a net loss of $61,410,000.
Previous wording
Balance Sheet Arrangements, Contractual Obligations and Commitments
Current wording
Off-Balance Sheet Arrangements, Contractual Obligations and Commitments
Previous wording
Our liquidity analysis requires a blend of judgment and estimation, relying on both quantitative data and qualitative insights to assess our ability to sustain our operations over the forward-looking period. Management’s analysis involves a comprehensive evaluation of numerous factors to determine whether we can continue our operations during the look-forward period.
Current wording
Our analysis requires a blend of judgment and estimation, relying on both quantitative data and qualitative insights to assess our ability to sustain our operations over the forward-looking period. Management’s analysis involves a comprehensive evaluation of numerous factors to determine whether we can continue our operations during the look-forward period.
Previous wording
We evaluate our recent financial performance, liquidity position, and our ability to meet our financial obligations as they become due. Factors such as financial projections, profitability, cash flow, and debt commitments require estimation and are examined to gauge our financial health.
Current wording
We evaluate our recent financial performance and our ability to meet our projected financial performance. Factors such as financial projections, profitability and cash flow require estimation and are examined to gauge our financial health.
Previous wording
Conducting a liquidity analysis is an exercise in judgment, requiring us to evaluate data points, forecasts, and qualitative insights to arrive at a comprehensive assessment of our ability to remain cash flow positive during the look-forward period. In this process, we must exercise caution, recognizing the inherent uncertainties and limitations of our estimations and financial analysis while striving to provide feasible plan that can successfully mitigate conditions and events that may raise doubt of our ability to continue as a going concern.
Current wording
Conducting a fair value analysis is an exercise in judgment, requiring us to evaluate data points, forecasts, and qualitative insights to arrive at a comprehensive assessment of our ability to derive value from our assets during the look-forward period. In this process, we must exercise caution, recognizing the inherent uncertainties and limitations of our estimations and financial analysis while striving to provide feasible plan.