Highlights:
• 2021 gross revenue increased 55% to $14.3 million as compared to $9.2 million in 2020
• Raised $70.1 million in net cash proceeds during February 2021 with a public offering
• Acquired Waycare in August 2021, expanding global footprint, product offering and customer base
• Recurring revenue increased 28% to $4.6 million in 2021 as compared to $3.6 million in 2020
• Performance obligations increased 35% to $22.6 million in 2021 as compared to $16.7 million in 2020
• Strengthened leadership team with addition of David Desharnais as President
Rekor Systems, Inc, (NASDAQ: REKR) (“Rekor” or the “Company”), a global AI technology company with a mission to provide insights that build safer, smarter and more efficient cities around the world through intelligent infrastructure, today announced its financial results for the year-ended December 31, 2021.
“Our results for the year ended 2021 have demonstrated another year of growth on a year-over-year basis,” said Eyal Hen, Chief Financial Officer, Rekor. “In 2021, we heightened our focus on sales initiatives, worked to evolve our go-to-market strategy, and were successful in increasing recurring revenues.
Hen added, “2021 was a pivotal year for us with significant transactions like a secondary offering of $70.1 million in net cash proceeds and completion of the acquisition and integration of Waycare Technologies Ltd, in support of our strategy to become the leader in big data for intelligent infrastructure.”
“We’re pleased to be reporting strong annual results highlighted by an increase in new customers across our key vertical markets. The launch of our Rekor One platform in 2021, gave continuing momentum with our go-to-market strategy,” said Robert A. Berman, Chairman and Chief Executive Officer, Rekor. “Looking ahead to 2022, we plan to continue focusing on the opportunities we see to leverage our AI traffic solutions across our target markets. We believe we’ve entered the new year well-positioned and highly motivated to extend our leadership position in the rapidly growing market for AI-based intelligent infrastructure. While we’re seeing strong organic growth, we remain opportunistic when it comes to exploring additional accretive M&A prospects.”
As part of its expansion strategy, Rekor strengthened its leadership team with the addition of David Desharnais, previously at Amazon, American Express and IDEMIA, who joined as President in January 2022.
Full-Year 2021 Financial Results
Revenues
Gross revenue for the year ended December 31, 2021, increased $5,060,000 or 55% to $14,294,000, compared to $9,234,000 for the year ended December 31, 2020. The increase in revenue for the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily the result of additional products and programs the Company offered and increases in direct sales and Partner Program sales. During the year ended December 31, 2021, $925,000 of revenue was attributed to Waycare.
Recurring revenue for the year ended December 31, 2021, which includes SaaS, eCommerce, and customer support revenue, increased $1,018,000 or 28% to $4,634,000, compared to $3,616,000 for the year ended December 31, 2020. During 2021, recurring revenue included subscriptions to combined hardware and software packages.
Product and service revenue for the year ended December 31, 2021, which includes hardware and perpetual license sales, as well as our implementation of contactless compliance and other program revenues, increased $4,042,000 or 72% to $9,660,000, compared to $5,618,000 for the year ended December 31, 2020. In 2021, the Company initiated services for the State of Oklahoma’s Uninsured Vehicle Enforcement Diversion (UVED) Program, which generated revenue of $1,282,000 during the year ended December 31, 2021.
The Company saw an increase, during the year ended December 31, 2021, in hardware sales and sales of perpetual software licenses to larger customers. Revenue relating to the delivery of hardware and perpetual licenses was recognized as point in time revenue, while revenue relating to the associated software subscriptions and future maintenance services will be recognized as recurring revenue over the remaining life of the sales or licensing agreements.
Operating Expenses
Operating expenses for the year ended December 31, 2021, increased to $39,273,000, compared to $17,564,000 for the year ended December 31, 2020. The Company continued to increase headcount to support its growth initiatives and saw an increase in professional fees mainly associated with merger and acquisition initiatives.
The Company also increased its research and development expenses in the year ended December 31, 2021, primarily due to the development of new products and additional software capabilities. The increase in research and development expenses is mainly attributable to an increase in headcount and hours associated with research and development activities. Furthermore, marketing expenses increased due to a ramp up in marketing efforts to promote the Company’s products and services including digital marketing and other lead generation efforts. In addition, there was an increase in the sales force to support execution of Rekor’s land-and-expand strategy. The Company expects to continue to add to headcount and expand the sales force.
Additional Key Performance Indicators
Performance Obligations
As of December 31, 2021, the Company had approximately $22,587,000 in remaining performance obligations not yet satisfied or partially satisfied. This is an increase of approximately 35%, up from $16,705,000 of remaining performance obligations as of December 31, 2020. The Company expects to recognize approximately 41% of this amount as revenue over the succeeding twelve months, and the remainder is expected to be recognized over the next two to four years.
Total Contract Value
The total contract value of contracts won in a given period provides visibility into the Company’s future operating results and cash flows from operations. There are certain assumptions embedded in the total contract value of an agreement, such as: the success rate of renewal periods, cancellations, and usage estimates. During the year ended December 31, 2021, the Company won contracts valued at $8,936,000, compared to $6,613,000 for the value of contracts won during the year ended December 31, 2020. This growth represents $2,323,000 or 35% growth year-over-year.
Non-GAAP Measures
Adjusted Gross Profit and Adjusted Gross Margin
Adjusted Gross Profit for the year ended December 31, 2021, increased to $8,058,000 with an Adjusted Gross Margin of 56%, compared to Adjusted Gross Profit of $5,716,000 and an Adjusted Gross Margin of 62% for the year ended December 31, 2020. The increase in Adjusted Gross Profit was attributable to the strong growth in our product and services revenue. However, overall Adjusted Gross Margin declined from the prior fiscal year. As a reminder, the sale of products generating recurring revenues initially lower Adjusted Gross Margin, as the Company needs to make low-margin investments in setting up sensors and building the necessary infrastructure to support higher-margin operations in future. As a result, Adjusted Gross Margin is expected to improve meaningfully over time as incremental revenue can be generated using the same hardware and other infrastructure.
EBITDA and Adjusted EBITDA
The Company calculates EBITDA as net loss before interest, taxes, depreciation, and amortization. We calculate 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.