Third quarter 2020 gross revenue increased 40% to $2.1 million as compared to $1.5 million in the third quarter of 2019
Year-to-date revenue increased 60% to $6.4 million as compared to $4.0 million in the prior year
Retired the remaining balance of the Company's high interest debt obligations
Raised $29.9 million in cash as part the Company's At-the-Market Sales Agreement year-to-date
Rekor Systems, Inc, (NASDAQ:REKR) ("Rekor"), a Maryland-based company providing real-time roadway intelligence through AI-driven decisions, today reported its unaudited financial results for the third quarter of 2020.
"Our results in the third quarter have demonstrated a remarkably high level of growth on a year-over-year basis," said Eyal Hen, Chief Financial Officer, Rekor. "We believe this is a testament to the strategic realignment of the Company as it has intensified its focus on the longer-term drivers of demand from our commercial and government segments. Our sale of non-core assets in previous quarters positions us as a 100% technology focused organization with our eCommerce platform as a key channel. Rekor's go-to-market strategy intends to reach a global customer base with frictionless transactions and gives us great confidence moving forward."
"We are pleased with our results for the third quarter, which demonstrate substantial ongoing year-over-year improvement across our markets, and margin expansion for each of our product and service areas," said Robert A. Berman, President and CEO, Rekor. "These results are further validated by the announcement earlier today that the State of Oklahoma will integrate the Company's Rekor One™ platform across the state to provide vehicle information associated with uninsured motorists as part of the state's Uninsured Vehicle Enforcement Diversion (UVED) Program. Our unique ability to address this important concern is a direct result of years of farsighted engineering and the strength of our commitment to provide customers with cost effective solutions that make intelligent use of the most advanced technologies available."
Since January 2020, Rekor has been selected by various resellers and formed partnerships with various companies, including Mastercard® and White Castle®, to use an array of AI based technologies in retail, public safety, and parking operations. The Company has used intensive machine learning for over three years in developing its current suite of differentiated product and service offerings and has recently filed for six patents based on these products and services.
In July of 2020, the Company completed an exchange offer for 77% of its 2019 Promissory Notes and paid off the remainder of this debt with cash in September of 2020, relieving the company of any significant debt obligations.
In November of 2020, Rekor and Vigilant Solutions, LLC agreed to resolve the district court litigation and intellectual property rights action between the parties pursuant to a confidential settlement agreement. Rekor will have no material effect from its obligations under the agreement.
Third Quarter Results
Revenue for the three months ended September 30, 2020 increased to $2.1 million, compared to $1.5 million for the three months ended September 30, 2019. This increase was a result of additional products the Company offered during the period as it continued expanding its technology offerings. The increase was also attributable in part to substantial completion of the implementation phase building infrastructure in connection with a large software and hardware contract in Florida, which generated up-front revenue, and to revenues earned through our eCommerce platform. Revenues earned from the eCommerce platform organically increased, $68,000 or 41%, to $235,000 from $167,000 for the three months ended September 30, 2019.
Revenue for the nine months ended September 30, 2020 increased to $6.4 million, compared to $4.0 million for the nine months ended September 30, 2019. This increase was primarily attributable to the expanded technology offerings and large contracts stated above, as well as the fact that operational results from our OpenALPR acquisition have only been included in our operations since March 2019. During the nine months ended September 30, 2020, revenue attributable to OpenALPR was recognized for the full nine-month period compared to only a six and half a month period in the corresponding period in 2019. Additionally, part of the growth in revenue for the nine months ended September 30, 2020 was attributable to revenues earned through our eCommerce platform which organically increased, $341,000 or 122%, to $621,000 from $280,000 for the nine months ended September 30, 2019.
Cost of Revenue, Gross Profit and Gross Margin
Gross profit for the three months ended September 30, 2020 and 2019 remained consistent at $1.1 million. The consistent gross profit was primarily attributable to building infrastructure in connection with large software and hardware contracts for the corresponding period.
Gross profit for the nine months ended September 30, 2020 increased to $3.6 million, compared to $2.8 million the nine months ended September 30, 2019. The increase in gross profit was primarily attributable to the increase in revenue for the corresponding period.
For the three and nine months ended September 30, 2020 the gross margin decreased to 54% and 57%, respectively, which was primarily attributable to building infrastructure in connection with large software and hardware contracts. These contracts included construction and assembly of fixtures for our vehicle recognition cameras and the infrastructure necessary to support database and communications operations on a shared basis with other municipalities. As this early stage, the cost of building the network is more costly than during later stages, and the initial margins for such early stage projects are lower than expected than for future operations that will be able to use the same infrastructure.
Loss from Operations
Operating loss for the three months ended September 30, 2020 increased to $3.4 million, compared to $2.5 million in the same period in 2019 and operating loss for the nine months ended September 30, 2020, increased to $8.7 million, compared to $5.3 million in the same period in 2019. The increase in the operating loss throughout the year is attributable mainly to the increased expenses in connection with the implementation of our go-to-market plan to develop and promote our technology products and services. Additionally, during the last nine months the Company brought on additional executives to support the Company's growth plan and solidify the corporate structure.
As of September 30, 2020, we had approximately $16,459,000 of licensing and subscription contracts that were closed prior to September 30, 2020 but have a contractual subscription period beyond September 30, 2020. These subscription contracts generally cover a term of one to five years, in which the Company will recognize revenue ratably over the contract term. We currently expect to recognize approximately 27% 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 subscription contract for a service period that is not yet met are recorded as part of our contract liabilities balance.
The table below reflects the 69% growth in the unaudited remaining contract value of licensing and subscription contracts from September 30, 2019 through September 30, 2020 (dollars in thousands):
EBITDA and Adjusted EBITDA
We calculate 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.
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 results on Monday, November 9, 2020 at 4:00 P.M. (Eastern).
All interested parties may listen to a live webcast of the call at:
By phone: Toll Free: 877-407-8033 or International: 201-689-8033
An archived webcast will also be available to replay this conference call directly from the Company's website under Investors, Events & Presentations. Slides that accompany the conference call will be available on the Company's website.