Executive Summary / Key Takeaways

• Rekor Systems is positioning itself as a leader in AI-driven roadway intelligence, aiming to revolutionize public safety, urban mobility, and transportation management through its integrated technology platforms (Scout, Command, Discover).
• The company is undergoing a significant strategic realignment, pivoting away from sole reliance on large, unpredictable government contracts to focus on revenue execution from its existing, productized technology base and implementing substantial cost optimization targeting $15 million in annualized savings.
• While Q1 2025 revenue saw a modest year-over-year decrease to $9.2 million due to external factors like weather and government uncertainty, the company demonstrated improved operational efficiency, narrowing its Adjusted EBITDA loss to $7.36 million from $9.37 million in Q1 2024.
• Rekor's differentiated AI technology, including its Rekor One engine and Edge Series hardware, offers quantifiable benefits like superior accuracy and efficiency in data collection and analysis, forming a competitive moat against rivals in a fragmented market.
• Despite liquidity concerns and a stated going concern doubt requiring external financing, management is targeting continued sequential improvement in Adjusted EBITDA throughout 2025 and aims to achieve breakeven Adjusted EBITDA and positive cash flow within the year, supported by cost controls and anticipated revenue growth from existing contracts and strategic partnerships.

The Roadway Intelligence Revolution: Rekor's Vision and Strategic Pivot

Rekor Systems, Inc., formed in 2017, is at the forefront of a transformative shift in how the world's roadways are monitored, managed, and made safer. The company's vision is ambitious: to create a new digital infrastructure operating system for roadways by collecting, connecting, and organizing mobility data. This data, powered by cutting-edge artificial intelligence, is intended to provide real-time insights and predictive analytics for public safety, urban mobility, and transportation management globally.

The industry Rekor operates within is ripe for disruption. For decades, transportation agencies have relied on legacy technologies and manual processes for traffic data collection and management. This has resulted in inefficiencies, safety hazards, and a lack of dynamic, real-time situational awareness. Rekor's core strategy has been to develop and deploy AI-enabled computer vision and machine learning solutions designed to replace this outdated infrastructure with intelligent, connected systems.

Rekor's journey has involved strategic acquisitions to build out its capabilities and market presence. The acquisition of Southern Traffic Services (STS) around June 2022 bolstered its traffic data collection services, while the acquisition of All Traffic Data Services (ATD) in January 2024, for approximately $20.58 million in cash and stock, significantly enhanced its advanced traffic data collection capabilities and increased visibility among national and state-level Departments of Transportation (DOTs). These acquisitions, coupled with internal R&D, have formed the foundation of Rekor's integrated platform approach.

However, the path to revolutionizing a legacy industry, particularly one heavily reliant on government procurement, has presented challenges. The unpredictable nature and often protracted timelines of securing large government contracts have historically led Rekor to fund scale in anticipation of orders, risking shareholder dilution. Recognizing this, the company has recently undertaken a significant strategic realignment. As stated by management, the Board determined that continuing to wait on traditional government contracting timelines was "no longer in the best interest of our shareholders." The company is now shifting to a strategy "grounded in the company’s current, healthy and more predictable revenue base," with the goal to "operate the company at this level with a clear path to breakeven." Any upside from new large government contracts is now considered "additive but no longer essential to our baseline strategy." This pivot represents a move to take control of its future by aligning the cost structure and strategic direction with what the company can control.

The AI Moat: Technology as a Competitive Differentiator

At the heart of Rekor's strategy is its differentiated AI technology. The company's Rekor One roadway intelligence engine aggregates vast and diverse multi-modal datasets from IoT devices, roadway sensors, cameras, and a partner network. This engine is powered by proprietary computer vision, machine learning, and big data analytics, transforming raw data into actionable intelligence.

Rekor's core technology platforms – Rekor Scout (Public Safety), Rekor Command (Transportation Management), and Rekor Discover (Urban Mobility) – leverage this AI foundation. Quantifiable benefits cited by the company include:

• Superior Accuracy and Efficiency: Based on published benchmarks, Rekor's vehicle recognition software is stated to outperform competitors. Its AI-driven systems enable comprehensive traffic reports, including FHWA-mandated vehicle classification, count, and speed analytics, as well as analytics on micro-mobility modes.
• Edge Processing Advantages: Rekor's Edge Series systems utilize advanced GPUs and efficient AI algorithms to process local HD video streams at the source, converting raw video to text data. This dramatically reduces the volume of data transferred through the network, addressing scalability, latency, and bandwidth limitations experienced by systems that stream raw video to the cloud for processing. This capability is a key differentiator in deploying large-scale networks.
• Real-Time Incident Response: The AI-powered Traffic Incident Priority Ranking feature in Rekor Command, unveiled at TRB 2025, aims to help traffic and emergency operation centers respond faster. Early test results showed reductions of up to 60% in the time from incident detection to resource allocation.
• Non-Intrusive Data Collection: Rekor's solutions enable data collection without requiring personnel to work in hazardous roadway conditions or closing lanes, enhancing safety and efficiency for customers.

The company is actively engaged in R&D to enhance its offerings. This includes developing the next generation of Scout, focusing on licensing its SDK through third-party platforms, and integrating with partners like SoundHound AI (SOUND) to combine voice/conversational AI with Scout for emergency vehicle technology. Rekor's deep technical collaborations with industry giants like AWS and NVIDIA (NVDA) further validate its technological standing and provide access to advanced computing platforms and market channels. AWS recognized Scout with the well-architected stamp of approval and included it in the AWS Marketplace, while NVIDIA published a case study on Rekor's integration with their platform.

This technological differentiation forms a competitive moat. While competitors like Verra Mobility (VRRM), Conduent (CNDT), and Iteris (ITI) operate in overlapping markets, Rekor positions itself with a focus on AI-driven performance and a comprehensive roadway intelligence ecosystem. Based on competitive analysis, Rekor's AI processing is cited as faster (e.g., 20-30% faster vehicle recognition) and its technology enables greater efficiency in data analytics (e.g., 10-15% lower operating costs per unit) compared to some rivals. However, larger competitors like VRRM benefit from more established market share (15-20% vs. Rekor's estimated 5-10% in shared segments) and more stable profitability and cash flow generation. CNDT and ITI, while having established government presence, may lag in AI adoption speed compared to Rekor. Rekor's strategic focus on open platforms and partnerships also differentiates its go-to-market approach in fragmented markets like Public Safety.

Financial Performance and Operational Realignment

Rekor's recent financial performance reflects both the challenges of its market and the early impacts of its strategic realignment. For the first quarter of 2025, the company reported revenue of $9.20 million, a 6% decrease compared to $9.78 million in Q1 2024. This decrease was primarily attributed to adverse weather conditions in the Southeast and a slowdown in project activity, partially influenced by uncertainty within the government sector.

Despite the top-line dip, operational efficiency showed improvement. Cost of revenue (excluding depreciation and amortization) decreased by 10% to $4.76 million in Q1 2025 from $5.29 million in Q1 2024, contributing to an increase in Adjusted Gross Margin to 48.2% from 46.0%. This margin expansion was driven by a higher mix of margin-accretive offerings. Operating expenses also saw a significant reduction, falling by 16% to $14.58 million in Q1 2025 from $17.41 million in Q1 2024. This decrease was a direct result of cost containment efforts initiated in late 2024, impacting general and administrative (-5%), selling and marketing (-27%), and research and development (-20%) expenses, primarily through reduced personnel and related costs.

The impact of these operational improvements is visible in the Adjusted EBITDA loss, which narrowed to $7.36 million in Q1 2025 from $9.37 million in the prior-year quarter. This $2 million improvement demonstrates tangible progress from the cost optimization initiatives.

Looking back at 2024 provides further context. Full year 2024 revenue grew robustly by 32% to $46.03 million from $34.93 million in 2023, driven by the Urban Mobility and Public Safety segments. Q4 2024 revenue reached $13.3 million, showing a reacceleration in growth. Full year 2024 Adjusted Gross Margin was 49.3%, slightly down from 52.8% in 2023, reflecting the mix of business, but Q4 2024 saw a strong rebound to 52%. Full year 2024 Adjusted EBITDA loss remained relatively flat at $29.1 million, as the cost optimization effects were concentrated towards the end of the year, leading to a significant reduction in the Q4 2024 Adjusted EBITDA loss to $4.7 million from $9.2 million in Q3 2024.

Recurring revenue, a key performance indicator, showed stability in Q1 2025 at $5.1 million, a modest 3% increase year-over-year. While Q4 2024 recurring revenue saw a slight dip, the company's focus on long-term contracts with recurring revenue is intended to provide a more predictable revenue stream. As of March 31, 2025, the unsatisfied portion of remaining performance obligations stood at approximately $14.48 million, with about 89% expected to be recognized over the next twelve months, providing some visibility into near-term revenue.

Liquidity and the Path to Profitability

Rekor's financial health remains a critical focus area, particularly concerning liquidity. As of March 31, 2025, the company had cash and cash equivalents and restricted cash totaling $4.31 million, with working capital of $3.07 million. Management's assessment indicates that existing cash is insufficient to fund current operations for the next twelve months, raising "substantial doubt regarding the Companys ability to continue as a going concern." This underscores the ongoing reliance on external financing.

Historically, Rekor has funded operations through cash on hand, debt, and equity sales. Recent financing activities include the full satisfaction of the $15 million Prepaid Advance agreement by December 31, 2024, and the utilization of an At Market Issuance Sales Agreement established in February 2025, under which the company issued 5.15 million shares for $7.66 million in net cash by March 31, 2025, and an additional 5.72 million shares for $5.00 million net cash between March 31 and May 13, 2025.

For future funding, particularly for significant upfront installation expenses related to larger recurring revenue contracts, management plans to prioritize non-dilutive options, such as issuing additional series to its Series A Prime Revenue Sharing Notes. These notes, issued in December 2023, rank senior to other debt with respect to a secured revenue pool and include requirements for an interest reserve and potentially a sinking fund, though the latter has not been triggered. The company has engaged B.C. Ziegler and Company to act as placement agent for future issuances, aiming to rate the notes to reduce costs and improve marketability. This structure allows Rekor to potentially draw funding based on the value of new pay-for-data contracts.

The strategic realignment, including the targeted $15 million in annualized cost savings compared to 2024, is central to the company's path to profitability and improved liquidity. Management expects these savings, combined with anticipated revenue growth and expanding gross margins, to drive continued sequential improvement in Adjusted EBITDA throughout 2025. The stated goal is to exit 2025 on significantly stronger financial footing and to achieve breakeven Adjusted EBITDA and positive cash flow within the foreseeable future, with management expressing personal belief that profitability is "around the corner."

Market Traction and Strategic Growth Pillars

Despite the challenges and strategic pivot, Rekor continues to demonstrate market traction across its three core growth pillars: Public Safety (Scout), Transportation Management (Command), and Urban Mobility (Discover).

In Public Safety, Rekor Scout, known for its AI-based vehicle recognition, is gaining momentum. It recently achieved New Jersey's certification for the $13 million NJ SNAP ALPR program. Partnerships, such as the one with SoundThinking (SSTI) for PlateRanger, leverage existing channels to expand reach into the law enforcement market, while the focus is also shifting back to the commercial side where the majority of Scout's recurring revenue is generated. A partnership with SoundHound AI aims to integrate voice AI for emergency vehicles.

For Transportation Management, the Rekor Command platform is seeing adoption by DOTs. Texas DOT, Austin, and CTRMA have implemented Command for incident detection and management, reporting quantifiable improvements like a 29% reduction in secondary crashes and 44 minutes faster incident resolution. Command has also seen initial adoption in Oklahoma, Kansas, and Oregon (Umatilla County), often entering states at a regional level as a faster path to market.

In Urban Mobility, the Rekor Discover platform is central to modernizing legacy traffic data collection. Rekor was awarded over $15 million in new contracts in Q2 2024 for Discover, including statewide contracts in Ohio and Texas (covering maintenance, repair, replacement, and transition to AI). A $1.5 million contract with Maryland DOT focuses on corridor management and environmental analytics, while expansion into Colorado's Pitkin County includes air quality monitoring. The partnership with MS2 is expected to expand Discover's reach to numerous new state DOTs and local governments. New Mexico DOT has also expanded its use of Discover through a pay-for-data model.

These wins and partnerships illustrate Rekor's "land and expand" strategy, penetrating states with one platform and expanding to others, layering on value-added services. They also highlight the growing adoption of AI-based solutions over legacy systems, driven by the need for better data, improved safety, and operational efficiency.

Risks and Challenges

While Rekor's strategic pivot and technological advantages present opportunities, significant risks and challenges remain. The most pressing is the going concern doubt, stemming from historical losses and negative cash flow, requiring successful execution of financing plans and achievement of profitability targets. The unpredictability of government procurement, although addressed by the strategic shift, still impacts the timing of potential large contracts that could accelerate growth.

Litigation, such as the ongoing lawsuit with H.C. Wainwright Co., LLC regarding fees and warrants, poses a financial and operational risk. An OSHA claim by a former employee is also proceeding to a hearing. Supply chain risks related to international component sourcing and potential impacts from tariffs could affect costs and margins. Integrating acquired companies and achieving planned efficiencies also carries inherent risks. The highly competitive nature of the market, with larger, more financially stable players like VRRM, CNDT, and ITI, could pressure pricing and market share. Cyber security threats and potential intellectual property claims also remain concerns. Adverse weather conditions, as seen impacting Q1 2025 deployments, can disrupt operations and revenue timing.

Conclusion

Rekor Systems is navigating a critical juncture, transitioning from a focus on building foundational technology and anticipating large government contracts to a strategy centered on revenue execution, cost control, and achieving profitability from its existing product portfolio. The company's AI-driven roadway intelligence platforms represent a compelling technological advantage in an industry poised for modernization.

While Q1 2025 results reflected external headwinds, the improvement in Adjusted EBITDA loss signals early success in cost optimization efforts. The strategic pivot, coupled with the new GM structure, aims to create a more agile, customer-focused organization capable of driving predictable, scalable growth.

However, the path forward is not without significant challenges, most notably the need to secure sufficient funding to bridge the gap to profitability and navigate the inherent uncertainties of the market and ongoing litigation. Investors should closely monitor the company's execution on its cost reduction targets, the success of its new go-to-market strategy under the GM structure, the conversion of its pipeline into revenue, and its ability to manage liquidity and access capital, particularly through non-dilutive means like the revenue sharing notes. Rekor's ability to leverage its technological moat and strategic partnerships to capture market share and achieve its stated goal of positive cash flow in 2025 will be key determinants of its long-term success.