Is Rekor Systems (REKR) a Buy Ahead of a Turnaround in AI-Powered Roadway Intelligence?

Rekor Systems (REKR) has long been a controversial name in the AI-powered roadway intelligence sector, oscillating between innovation and financial instability. As the company enters the second half of 2025, the question of whether it is a buy hinges on a delicate balance: Can its operational improvements and strategic contracts offset persistent revenue and EBITDA challenges? Let's dissect the data, industry dynamics, and management's roadmap to determine if REKR is poised for a rebound.

Operational Improvements: A Foundation for Turnaround

Rekor's Q2 2025 results revealed a 17% year-over-year reduction in operating expenses, a critical step toward stabilizing its financials. This cost discipline narrowed the Adjusted EBITDA loss by $2.4 million compared to the prior quarter, despite a 6.93% revenue shortfall against forecasts. While the adjusted gross margin dipped to 49.5% from 53.5%, the company's focus on SaaS and data-as-a-service (DaaS) models is shifting its revenue mix toward higher-margin recurring streams (48% of total revenue in Q2).

Technologically, Rekor's advancements are hard to ignore. The deployment of Rekor Command® in Austin and its expansion to additional Texas Department of Transportation (TxDOT) districts demonstrate the platform's value. Early results include a 324% increase in incident detection and an 11-minute reduction in response times for the Central Texas Regional Mobility Authority (CTRMA). Meanwhile, the Rekor Discover® DaaS platform is gaining traction in seven states, offering non-intrusive, FHWA-compliant traffic data that reduces infrastructure costs for clients.

Strategic Contracts: A Catalyst for Growth

Rekor's recent contract wins underscore its competitive positioning. A $1.2 million agreement to deploy 150 Discover systems in a Sun Belt state and a $1.4 million, five-year extension with CTRMA highlight its ability to secure long-term, high-impact deals. The TxDOT statewide blanket purchase order for Rekor Command® is particularly significant, as it positions the company to scale its AI-driven traffic management solutions across Texas—a market with $2.85 billion in smart roads funding in 2024 alone.

These contracts align with broader industry tailwinds. The U.S. Smart Roads market is projected to grow at a 10.2% CAGR through 2033, driven by AI-driven analytics, IoT sensors, and 5G connectivity. Rekor's focus on predictive maintenance, V2I communication, and real-time traffic optimization places it at the forefront of this transformation.

Industry Tailwinds: A Booming Market with Structural Challenges

The AI-powered roadway intelligence sector is expanding rapidly, fueled by government investments in infrastructure modernization and environmental sustainability. For instance, the Federal Highway Administration's (FHWA) emphasis on performance-based planning and climate resilience creates a regulatory environment conducive to Rekor's solutions. However, challenges persist: high upfront costs, interoperability issues, and regulatory complexity remain barriers to adoption.

Rekor's ability to navigate these hurdles will determine its success. Its RoadView platform, designed for smaller municipalities lacking 24/7 traffic operations centers, addresses a critical gap in the market. By offering real-time alerts without requiring significant infrastructure overhauls, Rekor is democratizing access to smart traffic management—a strategy that could unlock growth in underserved regions.

Financial Challenges: A Path to Breakeven?

Despite operational gains, Rekor's financials remain a concern. Q2 2025 revenue of $12.4 million was flat year-over-year and below the $13.28 million forecast. The Adjusted EBITDA loss of $5.8 million, while improved sequentially, remains a drag on investor sentiment. Management's goal of breakeven Adjusted EBITDA by year-end is ambitious but plausible if the company can scale its SaaS model and convert its strong sales pipeline into revenue.

The key question is whether Rekor can sustain its cost discipline while investing in growth. CFO Eyal Hen's emphasis on “disciplined execution” and CEO Robert Berman's GM-led structure suggest a focus on accountability and agility. However, the company's reliance on government contracts introduces execution risk—delays or budget shifts could disrupt cash flow.

Management Guidance: A Roadmap for H2 2025

Rekor's leadership has outlined a clear H2 2025 strategy:
1. Expand Command and Discover deployments in Texas and Sun Belt states.
2. Optimize the GM structure to accelerate innovation and customer focus.
3. Leverage recurring revenue to stabilize margins and fund growth.

While no specific revenue or EBITDA targets were provided, the emphasis on sequential growth in Command, Discover, and Scout platforms signals confidence. The company's participation in industry events like the ITS World Congress also reinforces its positioning as a thought leader in AI-powered infrastructure.

Investment Thesis: A Cautious Buy?

Rekor's combination of operational efficiency, strategic contracts, and favorable industry trends creates a compelling case for a cautious buy. The company's AI-driven solutions are well-aligned with the $6 billion smart roads market by 2033, and its recurring revenue model offers long-term margin potential. However, investors must weigh these positives against the risks of revenue volatility, regulatory uncertainty, and execution challenges.

For those with a medium-term horizon, Rekor's stock could rebound if it meets its breakeven EBITDA target and secures additional contracts in H2 2025. A closer watch on its Q3 and Q4 results, particularly the conversion of TxDOT and CTRMA deals into revenue, will be critical.

In conclusion, Rekor Systems is at a pivotal juncture. Its operational improvements and industry positioning suggest a potential turnaround, but the path to profitability remains fraught with challenges. For investors willing to tolerate short-term volatility, REKR could offer a high-risk, high-reward opportunity in the AI-powered transportation revolution.