On Thursday, Rekor Systems (NASDAQ:REKR) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Rekor Systems, Inc. reported a revenue increase to $12.7 million in Q2 2026, up 2% from the same period in 2025, with recurring revenue growing 14% to $6.7 million for the quarter.

The company improved its adjusted EBITDA loss by 79% year-over-year to $1.2 million, driven by revenue growth, margin expansion, and significant cost reductions.

Strategic initiatives include the launch of GoSecure video and audio, aimed at ensuring media authenticity, and the expansion in the transportation business with a shift towards non-intrusive, AI-driven systems.

Rekor Systems is addressing privacy issues in the ALPR market, emphasizing its commitment to responsible data use, which it believes will position it favorably as regulatory scrutiny increases.

The company expects to reach profitability on an adjusted EBITDA basis in the latter half of 2026, supported by continued revenue growth, cost discipline, and capital management.

Full Transcript

Melissa, Operator

Good afternoon, ladies and gentlemen, and welcome to today's Rekor Systems, Inc. conference call. My name is Melissa and I will be your coordinator for today. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star-0 on your telephone keypad. As a reminder, this conference is being recorded for replay purposes.

Before we start, I must remind you that statements made in this conference call concerning future revenues, results of operations, financial position, markets, economic conditions, products and product releases, partnerships, and any other statement that is made to be construed as a prediction of future performance or events are forward-looking statements. Such statements can involve known and unknown risks, uncertainties, and other factors which may cause actual results to differ materially from those expressed or implied by such statements.

We ask that you refer to the full disclaimers in our earnings release. You should also review a description of the risk factors contained in our annual and quarterly filings with the SEC. Non-GAAP results will also be discussed on the call. The company believes that the presentation of non-GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes only. I now would like to turn the presentation over to Rekor CEO Mr. Robert Berman.

Robert Berman, CEO

Thank you and good afternoon, everyone. I'll keep this brief. Q2 shows the impact of the actions we said we were taking in 2H26. Revenue grew, gross margins expanded, and our adjusted EBITDA loss narrowed sharply year over year to approximately $1.2 million. Joe will walk you through the details. The key point is that this is not a one-quarter effect. We're nearing the end of a judicious cost reduction program and have absorbed many of the one-time costs associated with that.

So the savings are showing up in the run rate now and we continue to expect additional cost efficiencies and further expansion of our recurring revenue base in 2H26. Our focus now is on continued execution, recurring growth, and reaching profitability. On growth I would like to start with GoSecure. We launched GoSecure video in June to cryptographically sign video at capture and prove, frame by frame, whether it has been altered. This is not a probability score, it's a determination.

We've now extended the same approach to recorded audio, addressing splicing, deletion, and synthetic replacement under one authenticity framework. In a world of inexpensive voice cloning, altered clips, and disputed evidence, we believe the need to prove that both video and audio are real will only grow. We're now in active discussions with prospective launch partners and we're being deliberate about commercial terms because we believe GoSecure can extend beyond the initial launch markets and it has the potential to become an important media authenticity standard.

Based on where those discussions stand today, our objective is to finalize initial launch partner commercial terms during the third quarter with definitive agreements to follow as appropriate. While we see great potential in GoSecure, demand remains meaningful in our core transportation business as reflected in recent procurement trends. Agencies are moving away from in-road sensors towards non-intrusive, AI-driven systems. Discover and our data-as-a-service model have positioned us well for that shift and our recurring revenue continues to grow in that area.

I also want to address ALPR. This environment is more challenging, with increased public scrutiny, new rules around retention, sharing and access, and a more active litigation environment around data practices that has affected sales cycles across the industry. But over time we believe the scrutiny favors companies like ours that have taken privacy, responsible use, customer control, auditability seriously—and Rekor has been deliberate across these issues for years.

When agencies and oversight bodies demand demonstrable compliance rather than after-the-fact assurance that the problems will be addressed in the future, we believe vendors whose offerings have been designed to address these issues from the start will be better positioned. To summarize: the efficiency work is showing through the numbers. We remain confident in achieving our goals in the back half of ’26 and see meaningful opportunities in GoSecure, recurring roadway data revenue, and responsible vehicle recognition.

And with that I'll now turn it over to Judd.

Judd

Thanks, Robert, and good afternoon, everyone. I'm going to walk you through the second quarter and first half of 2026, then close with cash and our outlook. Second quarter revenue was $12.7 million, up 2% from $12.4 million in the second quarter of 2025. For the first six months, revenue was $22.9 million, up 6% year over year. An important indicator for us is recurring revenue. Compared with the respective prior-year periods, recurring revenue grew 14% in the quarter to $6.7 million and increased 21% for the first six months of the year to $13.3 million.

That growth rate is running ahead of total revenue, indicating the mix of business is shifting towards the type of revenue we've been focused on growing—contracted, repeatable, and higher margin. The improvement in revenue this quarter did not depend on a large non-recurring software transaction. It reflects the ongoing economics of the business as it is structured today. Turning now to adjusted gross profit, adjusted gross profit increased for both the three- and six-month periods.

Adjusted gross margin expanded to 56% in the second quarter from 50% in the second quarter of 2025. For the first half of 2026, adjusted gross margin rose to 55% from 49%. Two things primarily drove that improvement. First, revenue growth allowed us to operate more efficiently across deployments and second, the improvement in our product mix. Adjusted gross margin in our business is largely a function of how much higher-margin software and recurring revenue we carry relative to service-related work, and that mix has been moving in our favor.

Shifting to operating expenses, this is where the work from the first half of the year becomes visible. Across all major areas—general and administrative, selling and marketing, and research and development—expenses decreased by $4 million in the quarter and $4.3 million for the first six months ended June 30, 2026 compared to the prior-year periods. That reduction comes from the actions we've discussed over the past few quarters. We reduced headcount during the first half of the year and worked towards optimizing our engineering operations, but we've also identified further efficiencies unrelated to workforce that we expect to produce several million dollars worth of additional annualized savings. We expect to execute on these in the third quarter with a noticeable impact in the fourth quarter of 2026 and into 2027. The quarter also included a one-time gain of $2.8 million associated with the remeasurement of one of our lease liabilities. This was an expected non-cash item that was tied to our continued operational realignment. As a result, the company recorded income from operations in the second quarter.

This was driven by the one-time gain related to the remeasurement along with revenue growth, higher adjusted gross profit, and the organizational efficiency measures we took at the beginning of the year now flowing through the numbers. Adjusted EBITDA loss for the quarter was $1.2 million, a 79% improvement from the second quarter of 2025. Lower payroll and payroll-related costs drove most of that improvement, with revenue growth and margin expansion contributing as well.

Turning to cash, we ended Q2 2026 with a healthy amount of cash, slightly exceeding $10 million, while our operating cash burn for the quarter was reduced to $2.4 million. For the six months ended June 30, 2026, compared to 2025, our cash used from operations improved by $9.6 million, or 61%. This highlights the improvement in our cash consumption and reinforces our belief that the underlying business is moving in the right direction. We are actively evaluating options to refinance our existing Prime revenue sharing notes.

We believe our growing contract portfolio and the impact of our recent win in South Carolina should help support the refinancing. We will provide additional information when there is something definitive to report. Looking to the back half of the year, three things give us confidence. First, the full-period benefit of the majority of the cost reductions. Many of these actions were taken during the first half, so the third and fourth quarter should reflect a cleaner expense base than the first half of the year did.

Second, continued revenue growth in our recurring revenue. Third, continued discipline around capital management. Taken together, we expect to reach profitability on an adjusted EBITDA basis during the second half of 2026, assuming continued execution and cost discipline. Thank you for your time and your continued support. With that, I will turn it back to the operator for questions.

Melissa, Operator

Thank you. If you'd like to ask a question, please press Star-1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star-2 if you'd like to remove your question from the queue. If you're using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Mike Lattimore with Northland Capital Markets. Please proceed with your question.

Vijay Devar, Analyst at Northland Capital Markets

This is Vijay Devar for Mike Lattimore. A couple of questions. So how does the new South Carolina contract expand your opportunity versus the prior contract?

Robert Berman, CEO

Joe, you want to handle it?

Joe

Yeah, thanks for the question. The South Carolina contract will expand our current footprint in South Carolina. It will also give us the ability, similar to Georgia, to go out and get additional work in South Carolina and really expand our footprint in that market.

Vijay Devar, Analyst at Northland Capital Markets

Understood. How is the pipeline for Command? Do you expect new wins this calendar year?

Robert Berman, CEO

Joe, you want to handle that?

Joe

Yeah, the pipeline for Command—we continue to monitor it. I do believe that there is the potential for new wins. You know, I think one of the things I continually mention is working with government; it's sometimes difficult to predict when they'll put pen to paper. But we do have a pipeline and we're in communication with multiple different DOTs in different jurisdictions.

Vijay Devar, Analyst at Northland Capital Markets

Got it. Thank you.

Joe

You're welcome.

Melissa, Operator

Thank you. Once again, if you'd like to join the question queue, please press Star-1 on your telephone keypad. Our next question comes from the line of Matt Soko, Private Investor. Please proceed with your question.

Matt Soko, Private Investor

Yeah, hi everyone. Thank you for the time. I'm just trying to get a little bit more understanding regarding the privacy issues that your competitors are, you know, facing, and what your sales team is doing to hopefully, you know, alleviate some of those concerns and possibly get more wins in the future.

Robert Berman, CEO

Thank you. Mike, are you—this is Robert. Are you referring to the privacy issues around ALPR?

Matt Soko, Private Investor

Yeah, ALPR.

Robert Berman, CEO

Look, sure, as we said, the industry is in quite a flux. There's been a massive amount of press over the last even several months—six months, a year—but it's becoming more every day. And I think we're headed in a world where people are trying to figure out how you deploy technology, especially when you have AI, and you do this to help public safety, at the same time not create a surveillance state. And Rekor has always been about privacy. If you look at some of the patents we filed, you know, half a decade ago, they were always around how the data is used.

So I think, as I said, you know, in the call, that the industry is—the law enforcement agencies, government, city councils and all—are kind of pausing things. You know, some of our competitors are losing contracts. That doesn't mean they're turning around and hiring another vendor to replace them. They're trying to sort this all. And we think that the way we've positioned ourselves and we've stood fast for the last, you know, number of years on how we'll allow our data to be used and how our systems work to protect privacy—and I think that'll work in our favor, you know, in the months to come as, you know, the government sort it out.

Melissa, Operator

Thank you once again. As a final reminder, if you'd like to ask a question, please press Star-1 on your telephone keypad. We'll pause a moment to allow for any other questions. Mr. Berman, it seems there are no other questions at this time. I'll turn the floor back to you for final comments.

Robert Berman, CEO

Okay, well, listen, thanks everyone, and stay tuned because in the back half of the year, we're going to deliver the same way we did in the first six months of the year. So appreciate all your support and look forward to talking to you again soon. Be well.

Melissa, Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.