Cloudastructure (NASDAQ:CSAI) released second-quarter financial results and hosted an earnings call on Monday. Read the complete transcript below.
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Summary
Cloudastructure, Inc. reported a 13% year-over-year revenue increase in Q2 2026, with recurring subscription revenue rising 164% to $764,000, now representing 62% of total revenue.
The company executed a strategic shift towards recurring revenue, evidenced by a 51% increase in gross profit and a gross margin expansion of 13 percentage points to nearly 50%.
Notable operational highlights include the deployment of AI-powered surveillance replacing on-site security in a Southern California office portfolio and a new multifamily development project in Baltimore.
The company appointed Niall Coates as Chief Revenue Officer to accelerate conversion of opportunities into deployments and recurring revenue.
The future outlook focuses on strengthening the sales organization, expanding within existing customer portfolios, entering new verticals, and achieving higher revenue growth in the second half of 2026.
Full Transcript
OPERATOR
Good day. Welcome to Cloudastructure, Inc. Second Quarter 2026 Business Update Conference Call. At this time, all participants are in 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 zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Rob Kelly, Vice President of Investor Relations at KCSA.
Rob, you may begin.
Rob Kelly, Vice President of Investor Relations at KCSA
Good afternoon, everyone. Thank you all for participating in today's conference call. On the line with us today are James McCormick, Chief Executive Officer of Cloudastructure, and Greg Smitherman, Chief Financial Officer. Earlier today, the company issued a press release announcing its operating results for the second quarter ended June 30, 2026. The release is available on our website at cloudastructure.com. Also, earlier today, the company filed a Form 12b-25 with the SEC, notifying the Commission that it requires additional time to complete the review of its financial results for the quarter.
Cloudastructure expects to file its Form 10-Q within the five-calendar-day extension period provided under that rule, and the report will be available on our website and at www.sec.gov once filed. Because the review is ongoing, the results discussed on today's call are preliminary and potentially subject to change. Please also note that on July 31, 2026, the company effected a 1-for-30 reverse stock split of all classes of its issued and outstanding common stock.
Unless otherwise noted, share and per-share figures discussed on today's call reflect that adjustment. Before Mr. McCormick reviews the company's operating results for the second quarter ended June 30, 2026, and provides a business update, I want to remind everyone that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding our expected business performance, strategy, market opportunities, customer demand, deployment activity, recurring revenue, operating results, liquidity, and growth plans.
Forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. Important factors that could cause actual results to differ materially are described in today's earnings release and in Cloudastructure's filings with the SEC, including the risk factors discussed in our most recent annual report on Form 10-K and subsequent filings.
Forward-looking statements made on this call speak only as of today, and Cloudastructure undertakes no obligation to update them except as required by law. We may also discuss non-GAAP financial measures on today's call. Reconciliations to the most directly comparable GAAP measures, where applicable, are included in today's earnings release and related materials available on our investor relations website. I would now like to turn the call over to James McCormick, Chief Executive Officer of Cloudastructure.
Greg Smitherman, Chief Financial Officer
Thanks, James. With that context, let me walk you through our financial results for the quarter. Revenue in the second quarter was approximately $1.2 million, as James said, representing 13% growth compared to the same period last year. As James had also said earlier, the composition of our revenue continued to shift during the quarter. Subscription revenue increased 164% year over year to approximately $764,000, driven by continued strength in both our cloud video surveillance business and our remote guarding business, while hardware and installation revenue declined compared to the prior year as customer activity shifted toward higher-value recurring services. As we've discussed in prior periods, our business includes a mix of recurring subscription revenue and deployment-related revenue, and the balance between those revenue streams will vary from quarter to quarter depending upon customer implementation timing, type of deal, etc. Cost of goods sold decreased 9% year over year to approximately $623,000, primarily reflecting lower hardware and installation activity during the quarter, which carry a higher cost of sale than our recurring services.
At the same time, gross profit increased 51% year over year to approximately $610,000, supported by the continued growth in our recurring subscription business. Gross margin expanded to approximately 49% compared to approximately 37% in the prior-year period as recurring revenue represented a larger percentage of total revenue. We believe this continued improvement in revenue mix is an important component of our path forward to improved operating leverage and profitability.
Operating expenses for the quarter totaled approximately $2.7 million compared to approximately $2.3 million in the prior-year period. These increases primarily reflect continued investment in the business, including expanding our sales and marketing organizations, increased operational capacity to support deployment activity and remote guarding, and continued investment in the infrastructure required to support future growth. General and administrative expenses declined approximately 15% year over year, reflecting lower professional services costs.
Loss from operations for the quarter was approximately $2.1 million compared to approximately $1.9 million in the prior-year period. Net loss was approximately $1.8 million compared to approximately $2.2 million in the prior-year period. The improvement reflects stronger gross profits partially offset by higher operating expenses, together with a non-cash gain related to the change in fair value of derivative liabilities. For the quarter, adjusted EBITDA loss was approximately $3.8 million compared to approximately $3.1 million in the prior period.
Stock-based compensation was approximately $376,000 this quarter compared to approximately $542,000 a year ago and remains our largest non-cash expense. From a balance sheet perspective, we ended the quarter with approximately $3.8 million in cash and approximately $4.5 million in working capital. We believe our current cash position, together with available financing under our equity line and at-the-market facility, provides flexibility as we continue investing in the business, although our ability to access additional capital remains subject to market conditions and the terms of those facilities.
On July 31, we completed a 1-for-30 reverse stock split of all classes of our capital stock. Our common stock continues to trade on the Nasdaq Capital Market under the symbol CSAI, and the reverse split supports our efforts to maintain compliance with Nasdaq's minimum bid price requirement. Overall, we are encouraged by the continued growth in recurring revenue, meaningful gross margin expansion, improved profitability, and the progress we are making toward building a stronger, more scalable business.
And with that, I will turn it back over to James.
James McCormick, Chief Executive Officer
Okay, thank you, Greg. Well, we're demonstrating two important paths to growth: expanding within customers that already use the platform and entering new verticals where our technology can replace or modernize traditional security infrastructure. Our priority for the balance of 2026 is converting those opportunities into deployed revenue at a faster and more consistent pace. With Niall joining the organization to lead that effort, a growing recurring revenue base, and an expanding addressable market, we believe we have the right pieces in place to drive the next stage of the business.
And with that, operator, we'll open the line for questions.
OPERATOR
Thank you. At this time we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
And the first question today is coming from Jack van der Aarde from Maxim Group. Jack, your line is live.
Jack van der Aarde, Analyst at Maxim Group
Okay, great. Good morning, good afternoon. Greg and James, great results on the growth engine for the SaaS side of the business. Maybe just a quick housekeeping question. I'm not sure if I missed it. Is the 10-Q—will that be filed in the coming days or today? What to expect?
Greg Smitherman, Chief Financial Officer
That is imminently to be filed, Jack. Yeah.
Jack van der Aarde, Analyst at Maxim Group
Excellent. And so that will have a full financial statement breakout. But there's great detail here in the press release, obviously, and you covered a lot of this. Can we touch on maybe—is anything changing in terms of how you're thinking about the installation and hardware side of the business? Or is it still lumpy, or is there an intentional focus to shift more toward SaaS? Just pure play. Just would like to get—
James McCormick, Chief Executive Officer
Yeah, sure, sure. The answer is sort of a hybrid, right, of a number of things you just posited, Jack. We're not specifically looking at deals—right, takeovers, as we call them—that would essentially boost the recurring revenue piece. Our model's the same, and we said that earlier in our remarks, which is we approach customers: some have existing infrastructure, some don't. For the ones that don't, where a facility is already built or it's new construction, we're happy to provide installation and hardware components.
What we were just seeing in the first half of this year is that a substantial portion of the transactions that we closed on were takeovers, and people understood our differentiation, what we could do better and, you know, accordingly, it was easier for us to take over those cameras, you know, install our cloud video recorder, and get up and running with the customer very quickly. So not really a fundamental change in anything we're doing—just the way that things played out in the first half of this year is how I would put it.
And positive, right. It is a bit lumpy, right, because you just don't know, when we talk to customers, what are their particular needs? And it really does vary.
Jack van der Aarde, Analyst at Maxim Group
Yep. No, it makes sense to me. I was just curious because the mix is definitely noticeable in terms of SaaS for the quarter now. I guess as I look at your operating expenses as well, it looks like you guys have been doing a good job controlling those—I think they dipped down quite a bit this quarter. Is there anything, any takeaways there, especially the G&A line? Is this a new kind of normal base level or is this just a snapshot of this quarter?
Greg Smitherman, Chief Financial Officer
No—you know, I think if we—especially when you're comparing it to last year, where you had just come out of our direct listing and a lot of expenses of switching from a private company to a public company, right—it's not an inexpensive endeavor. And so they were substantially higher last year, and I think we've, as you said, we've got them under control. Everything's smoothing out, and obviously cost control for any business is something to really pay attention to, and it's something we always have our eye on.
Jack van der Aarde, Analyst at Maxim Group
And, you know, another thing—just if I double-click on the gross margins here—I'm not sure if I have a full breakout of every segment revenue, segment stream, but the 49% blended average, it seems like things are picking up again, I guess year over year there. I'm not sure what the breakout is there for hardware and other. But can you talk about maybe kind of the threshold, the range—remind us—for the cloud video and the remote guarding gross margin levels as you continue to gain scale?
Greg Smitherman, Chief Financial Officer
So the—it does vary by quarter for the service side of business. Like any SaaS business, the bigger that gets, the better the margins get because you do have sort of fixed infrastructure costs, and when you can apply more revenue to that same fixed infrastructure, your margins go up—straightforward. Although given the growth that we're seeing, we will be, and actually have already, ordered some additional infrastructure equipment to deal with the continued customer increases, which is great. Our hardware margins are pretty substantial; they're generally north of 50%. It's the installation revenue that's generally pretty small—it's in the 10% range, we'll call it. Again, varies by deal—some a little more, some a little less—but it's a ballpark figure. But the bulk of it is, the more we can continue to build and drive to just be pure SaaS, those margins will continue to move upward.
Jack van der Aarde, Analyst at Maxim Group
Okay, great. And maybe a follow-on for James: the large project that was kind of emphasized here—you put a press release out on it—you know, you're now 38% of this customer's Texas portfolio. I guess once that's installed, and I think it's early 2027, that's on track for—
James McCormick, Chief Executive Officer
Yep, yep. What do you—what do you kind of—
Jack van der Aarde, Analyst at Maxim Group
How does this compare across your entire, I guess, installed base of properties and opportunity? Is this a good—I guess—case study of what to expect? And also, just kind of how much higher can you penetrate a customer like this—whether it's hypothetical, this specific customer?
James McCormick, Chief Executive Officer
Yeah, excellent question. Hard to put definitives around it, right, because we're sort of experiencing some of this in real time. So let's start with the basics, right? So, you know, we've talked for the past year about land and expand, right? And indeed, that is exactly what's happening. So with this Baltimore property, right, we're across 38% of their portfolio. If you're asking for modeling purposes, or just general thinking purposes, is 38% a good number to use for, you know, all the multifamily partners that we have?
I'd say it's too early to assume that. I mean, just think about it. You know, we work with Cushman & Wakefield—38% of their properties, by golly, that'd be a heck of a business, wouldn't it?
Jack van der Aarde, Analyst at Maxim Group
That's what I'm exploring here.
James McCormick, Chief Executive Officer
Exactly. No, I know, I know, I understand. I would put it this way, Jack: each customer—or partner, if you will—that we work with, each one moves at their own pace and their own velocity. I can tell you that for the larger customers that we have, you know, we do have a concerted effort in meeting with those folks and building relationships at the highest levels of their organizations to facilitate that additional expansion. And it's going pretty well.
It's going pretty well. So I think it's just a little too soon for us to start giving some guidance on what we think percentage expansion in a particular customer portfolio might look like. But we think you should see additional expansion opportunities across a broader range of our customer base in the second half of this year.
Jack van der Aarde, Analyst at Maxim Group
Okay, excellent. Maybe just one more follow up and then I'll hop back in the queue. Are you seeing any, is there any bottlenecks that you're working on to unlock an acceleration of growth even further? You're growing very fast. Just curious, with your footprint, your overhead and your remote guards themselves, they have quite a bit of scale. I believe that they can service anything that you're working on that could, you know, speed up installations, or do you need more personnel as well?
I'd just be curious to know. That's a growth driver.
James McCormick, Chief Executive Officer
Yeah. Yep, yep. That indeed, Jack, that is something that we focus on. Right. You know, time to complete installations, number of installations, you know, that we believe as we model things out, we can get to during the course of a month. Right. You know, we announced previously that we brought Ed Burnett on board as our chief security and operations officer, and Ed is heading those efforts from an installation standpoint. Internal personnel, yeah, we constantly look at that, right, to kind of support the installations.
But that's a small handful, right. That's not hundreds of people. Remember, we outsource most of our installations to third party providers, people that we've worked with and we trust. And that's relatively easy to scale as we continue to expand our footprint across the United States. I will also say we are at the front end of conversations with a third party that might give us the opportunity to tap into their complete nationwide installation network, just to kind of further that momentum, if you will.
But we're pretty satisfied with where we're at right now from a monthly installation standpoint. When we have everything hitting on all cylinders, that number is probably something, Jack, like 45 installations a month or so, theoretically. So there's a lot of untapped capacity that, as we bring in new sales opportunities, we should be able to get implemented and the customer up and running.
Jack van der Aarde, Analyst at Maxim Group
Okay. No, that sounds great. I look forward to the next update. And that's it for me. Thanks, guys.
James McCormick, Chief Executive Officer
All right, thanks, Jack.
OPERATOR
Thank you. The next question will be coming from James Kisner from Water Tower Research. James, your line is live.
James Kisner, Analyst at Water Tower Research
Hi. Thanks for taking my questions. And a very nice gross margin here in recurring revenue. Could you just, you know, it's been a month here, I think, since your last call. You talked about the second half being stronger than the first. I'm just kind of wondering if you can maybe update on kind of your confidence, you know, in the last four weeks, you know, how the pipeline may have changed. Just some general commentary on how the second half might be looking versus even a month ago, but obviously versus the first half.
James McCormick, Chief Executive Officer
Well, I could take a shot at that, James. Again, I just want to start by saying, as you well know, we don't provide revenue guidance. Right. We talk about things generically, but I think what we would say is, you know, multifamily as well as the other verticals that we're working to operate in. Right. Commercial properties, construction, etc. None of those are instantaneous. Like you do a site walk, you give a proposal to the customer and boom, you're ready to go.
So we would say the pipeline continues to build. It continues to build as we add senior members to our sales organization. And I'm talking about direct reps. Right, direct rep. All of that. On top of, you know, the new guidance and leadership of Niall Coats all has us feeling very optimistic about the second half of this year. I'm trying to say something, without saying something, James. We believe the second half of the year will equate to substantially more revenue than the first half of the year and the numbers that were reported.
And I think that's as far as I can push it without really getting deeper. But the pipeline continues to build. We continue to add salespeople, we continue to monitor every, you know, active transaction, and we're confident that that will translate to demonstrable growth as we go forward in the future. In the second half.
James Kisner, Analyst at Water Tower Research
That's helpful. So Niall looks like a great addition here. You know, background is a good fit. Anything that is changing perhaps in terms of focus in the go-to-market motion here potentially, or is this kind of more of executing the current playbook better? Like any kind of general thoughts on what that might signify, that hire?
James McCormick, Chief Executive Officer
Yeah, well, I think a few things. I think a few things changed. One, yes, it's taking the playbook and making it better. That's kind of like a coaching change in the NFL, right, where you read that, you know, the quarterback's like, well, geez, you know, I had this system that I played under for six years with a previous coach and I got this new guy with all these crazy ideas and, you know, it takes a while to learn the new playbook. Right. And I think that's part of what Niall brings to the equation as well.
You know, he has his own thoughts and experiences from companies exactly in our space, but generating significantly more revenue. And I believe we all see his guidance and where he wants to take the organization. In a short period of time we can already see demonstrable actions and results, for lack of a better phrase. Right. So I think it's two things. I think it's improving the old playbook, but also adding a bunch of things to it. And honestly, James, when it goes to sales—I'm not undermining anything from the hard efforts that our really great sales team puts in—but at the end of the day it's just good old fashioned hard work.
Right. Understand the product, get in front of customers, be passionate about explaining the value proposition, and be relentless, or as someone said to me recently, professionally persistent. And that's what our team is doing.
James Kisner, Analyst at Water Tower Research
That makes sense. Kind of looking here at your recurring revenue growth, it's pretty substantial year over year. Looks like something like half a million or so. I don't know if there's any way to—how much you look at it this way at all—but, you know, is there a way to look at how much of this is coming from new deployments versus expansion with existing customers? I know you've said there's a pretty massive penetration opportunity with your existing customers, but maybe you could double click and get just some perspective on how much of that is coming from kind of same-store sales, for lack of a better term, versus totally new deployments, new customers.
James McCormick, Chief Executive Officer
Yeah. Craig, do you want to take that one?
Craig
Sure. So we don't break out the numbers exactly that way, but if we look at—let's just talk about our eight of the top 10—if we look at the sites that were deployed year over year since Q2 of last year, we're up 150%, which is spectacular. We continue to build that. And while land and expand is very important to us, especially since we have so many of the top properties, we're not solely focused on that. So we continue to build from all aspects. Any customer is a good customer, put it that way. But yeah, we haven't said, oh, of the incremental revenue, how much is one versus the other? But anecdotally I'd say it's kind of split evenly. Good land and expand, but still new. Good logo growth.
James Kisner, Analyst at Water Tower Research
Actually really good texture. Right.
James McCormick, Chief Executive Officer
And you want both of those. Right. You don't want to limit yourself to any one component. It's a tremendously large market.
James Kisner, Analyst at Water Tower Research
That makes sense. One more sort of different angle on the same question. I'm kind of guessing that multifamily is the vast majority of the revenue here, but you've had some forays into transportation, logistics, and retail. Guessing those are pretty de minimis right now and are mostly on eventual upside. Any kind of update on the verticals—ones that may be kind of already contributing or more likely to contribute sooner than others? Just general thoughts on the kind of the vertical strategy.
James McCormick, Chief Executive Officer
Yeah, yeah, I can take that one. So, already contributing—now again, you know it's all about scale, right. Takes a while, as we mentioned earlier, to get up to speed and really penetrating things from a new vertical standpoint. But already contributing would be critical infrastructure, commercial properties, transportation and logistics, and construction. So now, are the dollars smaller? Yeah, but, you know, like the commercial property deal that we announced about, you know, five open-air shopping malls—that will be—the portfolio of that particular company is pretty large and once they have a little bit of experience under their belt with using our system, we're confident that we will get additional opportunities in that portfolio. Same with transportation and logistics. Right. We're deployed at a few of these higher-end remote truck parking lots and their plan is to grow exponentially throughout the United States, and we are their selected security provider. Right. So it's still a bit nascent, as you said, some of these new verticals, but we're excited at the head of steam we're starting to see with them, all while multifamily keeps cranking away in the background.
James Kisner, Analyst at Water Tower Research
All right, great perspective. Thanks for taking my questions.
James McCormick, Chief Executive Officer
Okay, James,
OPERATOR
Thank you. There were no other questions at this time and this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
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