Rekor Systems, Inc. Q1 FY2026 earnings call

Organizational Restructuring

• Between end-of-2025 and end-of-Q1 2026, management completed a full company-wide review of all operations, headcount, contracts and expenses to prioritize core business strength
• The review resulted in a 16% workforce reduction, cutting approximately 45 positions, and optimization of core engineering activities to right-size cost and organizational structure for current business conditions
• One-time restructuring costs were recognized in Q1 2026, with full cost savings taking effect starting in Q2; restructuring work is now complete, leaving a leaner, more focused organization

Financial Performance

• Overall Q1 2026 revenue grew 12% year-over-year, with all product segments achieving growth
• Adjusted gross margins improved 5 percentage points year-over-year to 53%, driven by operating efficiencies from higher revenue, a favorable shift to higher-margin software, and a larger share of recurring revenue
• Adjusted EBITDA loss improved to $6.5 million in Q1 2026 from a $7.4 million loss in Q1 2025; full year-over-year improvement was partially offset by one-time restructuring charges
• The company ended Q1 2026 with $12.2 million in cash, down sequentially from $16.6 million at end-of-2025 due to expected seasonal Q1 cash patterns and one-time restructuring costs; year-over-year operating cash consumption improved

New Product Development (ReCore Labs)

• ReCore Labs, the company's new technology division focused on public safety and commercial markets, is developing its first product GoSecure, on track for commercial release in Q3 2026
• GoSecure provides mathematical certification of whether video/photo content has been altered, verifies camera of origin, timestamp, GPS location and full file integrity from capture; developed in response to law enforcement demand for authenticated digital evidence for court proceedings amid rising deepfake accessibility
• GoSecure addresses growing demand from law enforcement, insurers and courts for content authentication; the division is chaired by MIT Professor Sanjay Sarma, a former ReCore Systems director, to underscore the product's technical rigor

ReCore Systems reported overall Q1 2026 year-over-year revenue growth of 12%, totaling $1.1 million in incremental revenue across all three product segments:

• Scout: contributed $281,000 to year-over-year revenue growth; 64% of total Q1 revenue was recurring, no individual segment revenue contribution % was provided
• Discover: contributed $682,000 to year-over-year revenue growth
• Command: contributed approximately $102,000 to year-over-year revenue growth All three segments achieved positive year-over-year growth in the quarter.

• Management expects the full impact of Q1 2026 cost restructuring savings to be reflected in Q2 2026 results, with operating expenses dropping sharply from the elevated Q1 level that included one-time charges
• The company reaffirms its target to reach adjusted EBITDA positive by the end of 2026, and expects to be very close to EBITDA neutral by the end of Q2 2026 or early Q3 2026, based on current revenue trajectory and already implemented cost reductions
• Management expects continued year-over-year EBITDA improvement through the remainder of 2026, alongside sustained positive revenue growth
• The company is actively evaluating refinancing options for its existing prime revenue sharing notes to reduce cost of capital, and expects to provide further updates later in 2026

Management did not explicitly discuss material new operational risks or unanticipated operational failures during this call. Forward-looking statements were noted to carry inherent uncertainties that could cause actual results to differ from projections, and investors were directed to existing risk factor disclosures in the company's SEC quarterly and annual filings.

Q: Alex Lattimore asks for an update on the Georgia DOT deployment and expectations for its growth through 2026. / A: Management confirmed the Georgia DOT contract was finalized last fall after a longer than expected negotiation process. The contract is a multi-entity vehicle that allows all state and local public entities in Georgia to purchase services through the existing central contract framework. Management noted multiple counties and large cities are already engaged, and expects total contract value to end up substantially higher than the $60 million base value; existing deployed equipment also received a price increase that will improve margins.

Q: Lattimore asks whether Q1 2026 expense levels will hold for the rest of 2026, or if expenses will change. / A: Management confirmed Q1 2026 was the high end of the expected expense range, due to one-time severance, lease termination and other restructuring charges that were mostly finalized late in the quarter. A stark drop in operating expenses will be seen in Q2 2026, and the lower expense level will hold for the remainder of the year; all restructuring work is complete as of the end of Q1.

Q: Lattimore asks for an update on pipeline for new uninsured vehicle detection programs similar to the Oklahoma UVED program. / A: Management confirmed it is in discussions with several other states about adopting similar programs. The program benefits for states and the insurance industry are clear, but government procurement and adoption processes take significant time; the recent long-term renewal of the Oklahoma program demonstrates the model's value, and management expects additional states to approve programs over time.

Q: Lattimore asks what share of Q1 2026 revenue was recurring revenue. / A: Management confirmed 64% of Q1 2026 revenue was recurring.