Rekor Systems Is Driving Automation Using Video, Recently Shorts Created A Value Opportunity
Aug. 06, 2021 9:36 AM ETRekor Systems, Inc. (REKR)1 Comment
Summary
Rekor Systems (NASDAQ: REKR) is a young company. Yet it is one of the more exciting value propositions.
Rekor Systems is leading the automation of commercial and governmental functions while delivering improved services and customer experiences.
Rekor has been rapidly adopted by governments and commercial entities for a wide variety of solutions in a very short period of time.
Rekor technology is proven to work. It is in the field, operational, and delivering value for a range of services.
A recent short attack has created an unusual value proposition.
technology
Background
Headquartered in Columbia, Maryland, Rekor delivers advanced vehicle recognition technology systems. This technology is perfect for law enforcement, security services, contactless toll collection (without a transponder), touchless parking management, verification services, management of logistics, monitoring and management of traffic, retail sales, consumer loyalty programs, and safety programs (e.g. school bus stop-arm enforcement, red light enforcement, speed monitoring). As primarily software based technology, Rekor's solutions are extremely flexible and scalable. Rekor sees itself as a data company.
The confluence of three themes drives the demand of Rekor Services: management of personnel costs, need for transformation, and the need to automate.
Management of Personnel Costs
Many business services are still delivered by personnel. Personnel are expensive and labor rates are escalating. Budgets for service delivery are ever tightening while expectations are increasing.
Need for Transformation
Many services designed decades ago, have evolved some, but have not been significant transformed to respond to the potential of modern technologies. Delivery of these services hasn't changed in decades.
Need to Automate
One of the few levers to solve modern problems is technology. One of the newer levers is video. The uses of video are rapidly expanding for a wide range of functions with the smart application of machine learning and artificial intelligence which translates a video stream into actionable information.
Rekor Systems leverages video (which can come from existing cameras) with thoughtful artificial intelligence to deliver smarter automated services. The results are brilliant: better service at lower cost.
Investment Thesis
In recent years, Rekor transformed its business and focused on data and video analytics for smart transportation and commerce. Rekor has the artificial intelligence and machine learning to identify vehicles and license plates, but more importantly, Rekor thought smartly about how to connect that technology securely and smartly with value-added services. Their entry points were thoughtfully considered to position for future opportunities. Services currently being delivered are in several verticals:
Commercial
Smart Parking Management
November 2019 ParkSmart selected Rekor
February 2020 SecurePark selected Rekor
June 2020 Rekor and Cygnet partnered to create ROKER to manage smart permitting and parking solutions
July 2021 Roker acquired SecurePark
Restaurant Drive Through Transformation
September 2020 Mastercard selected Rekor's technology to transform the drive through to be piloted with White Castle restaurants. AI drive through pilot with White Castle opening in Orlando and Chicago in early May. Everyone wins with faster drive throughs. Affordable automation helps control costs while improving service. It is important to consider that Mastercard studies the industry intensely before selecting Rekor.
Governmental
Public Safety and Compliance
Mt. Juliet Tennessee's Guardian Shield program utilizes Rekor ALPR at multiple locations. This program has been very effective in its first year with recovery of 55 stolen vehicles, 28 stolen license plates, and 22 wanted persons. Further, crime rates went down: vehicle theft decreased 36% and burglaries were down 48%.
Guardian Shield Logo
Uninsured Vehicle Enforcement Diversion - the state of Oklahoma has an alarming 26% uninsured vehicle rate. The state passed legislation and contracted with Rekor to create a program to fairly and efficiently reduce the number of uninsured vehicles.
Management
State park management - North Dakota Parks and Recreation choose Rekor technology to understand use patterns and plan park management.
Value Proposition
Rekor delivers high value at low cost. This is only possible through the effective application of the smart technology. SAAS is cost effective. It allows one existing camera to do multiple things. Effective integration of this technology saves labor. It also helps control costs and increase revenue. Yet the benefit expands beyond tight budgets, technology can consistently deliver more effective solutions.
Company Value
Rekor currently has a market capitalization of $306 million. This is down from $800-900 million several months ago, due to a short attack. Shorts pounced on a delay of getting UVED legislation through other states, but it is my experience that it can take more than one cycle to get legislation through.
Rekor is a leader in the space and the value of Rekor technology is difficult to precisely quantify due to the youngness of the company. Yet we see a promising outlook.
Near Term
We expect Rekor to continue to organically grow revenue in multiple verticals while seeing new opportunities in parallel. The Federal Infrastructure bill is likely to hold multiple opportunities to apply smart technologies such as Rekor's. Mastercard's AI drive through is scheduled for 2021 rollout. We await an update on the school bus arm safety initiative with Verra Mobility. We presume Rekor will reintroduction UVED legislation in TN, TX, FL, and NY. We also expect Rekor to introduce new UVED legislation in other states. In Oklahoma (where the uninsured vehicle program is operational), state officials could seek expanding use of the technology for other purposes, such as checking car registrations. We expect both the number of Resellers and their volume sold to continue to grow.
We expect 2021 to solidify Rekor's position as the leader in this space. This would make the firm worth a multiple of the current price and open up new opportunities.
Opportunities
The US federal infrastructure bill should be a huge opportunity. The scope will be for more than roads and bridges, it will likely include the current themes of smarter and more sustainable. Rekor is well-positioned to help deliver the smarter. This could span road utilization statistics to operational technologies (weight & tonnage, tolling, congestion pricing, or other novel structure for various vehicles such as electric or hybrid which Rekor can identify in real time at speed)
Tennessee has indicated that it will study the uninsured motor vehicle program over the summer. It is my experience that legislated studies often lead to state action.
Cameras have become ubiquitous on the entrances and exits of military bases, campuses to countries. Adding video analytics and data services can provide insights and intelligence without the expense of having personnel monitor the video. Further, advanced alerts can provide valuable time. Effective utilization allows real time answers to important questions.
Autonomous vehicles won't have drivers to swipe a credit card or press a button. Automated and affordable visual confirmation of the make, model, license, direction, and speed of such vehicles could be important in the future.
Rekor has over $80 million in cash from a recent offering. This allows Rekor the flexibility to target potential acquisitions and opportunities.
Risks
There are various risks to consider with any firm. Rekor is not immune from risks. One risk Rekor has stepped away from is debt, Rekor is effectively debt free.
Risks to this opinion include increasing competition in the spaces that Rekor is targeting. Note from RFP responses, the major competition appears to be from legacy technology companies.
Public perception is a risk. ALPR can elicit privacy concerns. States are passing legislation to ensure appropriate data usage and limits on data retention. Rekor's system is flexible to response as needed. Yet we also observe more and more cameras are being set up around the world.
Rekor's diversification of opportunities has multiple chances to put points on the board. Yet this does run the risk of spreading a young company thin, but Resellers can help scale.
Conclusion
Rekor has identified new markets, delivered the technology for needed solutions and is positioned to scale across the planet- this has tremendous value. This can deliver years of growth. This is not a stock to trade, but one to buy and hold.
I look forward to a safer and more secure future where we can drive up to a restaurant, pharmacy, grocery pickup, home store, or gas station and friendly AI systems know to complete a transaction after Rekor technology sees my car.
