What happened

Shares of Rekor Systems (REKR -1.25%) were down more than 34% late Tuesday morning following the traffic monitoring and analytics company's quarterly earnings report. Rekor's results came in well below expectations, and investors headed for the exit ramp as a result.

So what

On Monday evening, Rekor reported a third-quarter loss of $0.23 per share on revenue of $2.6 million. That's well below the $0.12 per share loss on revenue of $5.01 million that Wall Street had expected.

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Revenue was up 23% year over year but down 39% from the previous quarter of 2021. Chief financial officer Eyal Hen issued a statement saying that the drop was the result of "our work to evolve our go-to-market strategy and focus our sales initiatives on increasing recurring revenue."

Basically, Rekor is trying to transition to a subscription-based model that it believes will generate more revenue over time, but will mean less cash up front than what it used to get in a direct-sales approach.

Now what

Hen said he expects revenue to continue to trend down in the fourth quarter and the first half of 2022 while the adjustment to the subscription model continues to work through the system. "We expect the long-term benefits of our focus on recurring, subscription-based revenues to more than offset any short-term growing pains we may experience," Hen said.

There is sound logic to the shift. Under this new model, Rekor will retain ownership of the sensors it installs, along with the data that comes with it, in time creating potential opportunities to monetize the data.

But in the meantime, this is a company valued by the market at about $280 million despite having generated just $2.6 million in sales over the past three months. Even if the potential is there, it is going to take time for it to materialize. Investors on Tuesday were in no mood to hang around and wait.