Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rekor Systems Inc (REKR, Financial) reported record revenue of $12.4 million for Q2 2024, marking a 45% increase from the same period last year.
- The company has secured $15 million in new contracts for its Discover platform, highlighting strong demand for its AI-driven traffic data management solutions.
- Rekor Systems Inc (REKR) has expanded its reach with new contracts in Ohio, Texas, Maryland, and Colorado, demonstrating significant market traction.
- The company has improved its adjusted EBITDA loss by over 19% year-over-year, indicating better operational efficiency.
- Rekor Systems Inc (REKR) has engaged B.C. Ziegler and Company to assist with future issuances of revenue-sharing notes, which should help reduce overall costs and improve marketability.
Negative Points
- The deployment of up to 1,000 Discover and Edge units has been delayed due to interruptions from multiple storms, impacting the expected timeline for revenue realization.
- The government contracting process remains slow and complex, posing challenges for timely deal closures and expansions.
- Despite the revenue growth, the company still reported an adjusted EBITDA loss of $5.8 million for Q2 2024.
- The gross margin for the six months ended June 30, 2024, decreased to 50.2% from 52.5% in the same period last year, primarily due to lower margins experienced earlier in the year.
- The company faces macroeconomic uncertainties and the need for additional capital to support significant upfront installation expenses for larger recurring revenue contracts.
Q & A Highlights
Q: In terms of the large contract you highlighted here, 1,000 units potentially, are those going to go into locations you currently manage, or are there new locations embedded in that? And what's your thought on the timeline to get all these deployed?
A: It's a mixture of existing and new areas. Some areas that would have been done with portable or short-term solutions will move to a more permanent solution. We expect the deployment to take around six months, depending on weather conditions, particularly the hurricane season.
Q: Is the pricing model for the large contract a hardware and maintenance one or a full subscription one?
A: It varies by state, but the one in particular is a mixture of hardware and subscription bundled together, paid upfront as per the state's procurement processes.
Q: Regarding the Texas news, is the deal about maintenance and repair? Do you see an opportunity in Texas similar to the large one discussed?
A: Yes, the Texas opportunity involves evaluating, maintaining, replacing, and repairing existing infrastructure, with the provision to replace with AI. Texas, being the largest roadway network in the US, presents a significant opportunity for both existing maintenance and AI replacement.
Q: How is the acquisition of All Traffic Data (ATD) tracking with your expectations? Have they helped with recent wins?
A: The acquisition is tracking very well. The ATD team has broadened our market reach, and we are integrating our AI technologies into their workflow, leading to new business and successful integration.
Q: As it relates to your new partnership with SoundThinking for PlateRanger, how does your solution stack up versus existing solutions on the market? Will it be priced comparatively?
A: Rekor's license plate recognition and vehicle recognition technology is top-tier. The partnership with SoundThinking combines their ShotSpotter technology with our PlateRanger, providing an end-to-end solution for law enforcement. Pricing will be determined by SoundThinking.
Q: Will PlateRanger utilize solar power?
A: Yes, PlateRanger will utilize solar power, which is a strong differentiator for us.
Q: How do we think about profitability for Rekor when a large contract like the $35 million one comes online?
A: The revenue will be realized linearly over the deployment period. The contract includes both hardware and SaaS components, with hardware revenue recognized upfront and SaaS revenue recognized over time.
Q: How big can the Texas opportunity be compared to the large contract discussed?
A: Texas, with the largest roadway network in the US, presents an enormous opportunity. The potential for sensor deployment and AI replacement is significant, given the current state of infrastructure.
Q: How should we think about gross margin going forward?
A: We anticipate long-term gross margins to be higher as we refresh old technology with our new technology. While it may be choppy in the short term, we expect gross margins to be around 50-55% and eventually above 60-65%.
Q: With your partnership with SoundThinking and the rollout of PlateRanger, will they offer it to their existing customers?
A: Yes, SoundThinking is expected to offer PlateRanger to their existing customer base, complementing their ShotSpotter technology.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
