Rekor Systems, Inc. Q2 FY2026 earnings call

• Company Strategic Progress

  • The company has nearly completed a targeted cost-reduction program, with most one-time restructuring costs already absorbed and run-rate cost savings now visible in financial results
  • The core business mix is shifting toward higher-margin, contracted recurring revenue, which is growing faster than total revenue, driving expanded gross margins
  • Management's near-term top priorities are consistent operational execution, growing recurring revenue, and achieving adjusted EBITDA profitability

• New Product Development (Go Secure)

  • Go Secure, ReCore's media authenticity product line, launched Go Secure video in June 2026; the product cryptographically signs video at capture to definitively prove whether individual frames have been altered, rather than relying on probabilistic detection
  • The company has extended this cryptographic authenticity framework to recorded audio, addressing splicing, deletion, and synthetic voice cloning threats
  • Management is in active discussions with prospective initial launch partners, and is prioritizing deliberate, favorable commercial terms to position Go Secure as a broadly adopted industry media authenticity standard; the goal is to finalize initial partner commercial terms in Q3 2026

• Core Transportation Business

  • Demand for the company's core transportation solutions remains strong; public sector agencies are shifting away from intrusive in-road sensors to non-intrusive AI-driven systems, and ReCore's Discover product and data-as-a-service model are well-positioned for this industry shift, driving ongoing recurring revenue growth

• ALPR Business

  • The ALPR industry is facing a challenging operating environment, with increased public scrutiny, new regulations around data retention, sharing and access, and a more active litigation landscape around data practices that has lengthened sales cycles across the industry
  • ReCore designed its ALPR solutions with privacy, responsible data use, customer control, and auditability built in from inception, and management believes this positioning will give the company a competitive advantage as government agencies prioritize demonstrable compliance over unfulfilled future assurances

ReCore Systems did not break out separate financial performance metrics for individual product segments in the call. Aggregate company performance is as follows: Q2 2026 total revenue was $12.7 million, a 2% increase from $12.4 million in Q2 2025. First half 2026 total revenue was $22.9 million, up 6% year-over-year. Recurring revenue, the company's higher-margin priority segment, grew 14% year-over-year in Q2 2026 to $6.7 million, representing 52.8% of total Q2 revenue. First half 2026 recurring revenue grew 21% year-over-year to $13.3 million, representing 58.1% of total first half revenue. Adjusted gross margin expanded to 56% in Q2 2026, up from 49% in the prior year period, with first half 2026 adjusted gross margin at 55%. Total operating expenses decreased $4 million year-over-year in Q2 2026 and $4.3 million year-over-year for the first half of 2026. Adjusted EBITDA loss narrowed 79% year-over-year to $1.2 million in Q2 2026. Ending cash as of Q2 2026 was slightly over $10 million, with quarterly operating cash burn of $2.4 million.

• Management expects additional cost efficiencies unrelated to workforce reductions will generate several million dollars in new annualized savings, which will be implemented in Q3 2026 and create noticeable financial impact starting in Q4 2026 and continuing into 2027
• Full run-rate benefits from the majority of completed first half 2026 cost reductions will be reflected in Q3 and Q4 2026, resulting in a cleaner, lower expense base than the first half of the year
• Management expects to achieve profitability on an adjusted EBITDA basis during the second half of 2026, assuming continued operational execution and cost discipline
• The company is actively evaluating options to refinance its existing prime revenue sharing arrangements, and expects its growing contract portfolio and recent South Carolina contract win will support this refinancing; no definitive updates are available yet

• The ALPR industry faces heightened regulatory and public scrutiny, new data privacy rules, and increased litigation related to data practices, which has lengthened sales cycles industry-wide and creates near-term demand uncertainty
• Public sector procurement timelines for transportation and ALPR contracts are inherently unpredictable, which makes it difficult to forecast the timing of new wins
• The company's ability to achieve adjusted EBITDA profitability in the second half of 2026 is contingent on consistent execution and sustained cost discipline, which may not be achieved
• Refinancing of the company's existing prime revenue arrangements is not guaranteed, even with the support of the growing contract portfolio and recent contract win
• Forward-looking statements are inherently subject to known and unknown risks and uncertainties that could cause actual results to differ materially from projected outcomes, as detailed in the company's SEC filings

Q: How does the new South Carolina contract expand ReCore's market opportunity compared to the company's prior contract in the state? / A: The new South Carolina contract expands ReCore's existing footprint within the state. Similar to the company's existing position in Georgia, it also gives ReCore the platform to pursue additional new transportation contracts in South Carolina and grow its overall presence in the market.

Q: What is the status of the pipeline for Command contracts, and does management expect new wins in calendar 2026? / A: ReCore maintains an active pipeline of Command opportunities with multiple state and local departments of transportation across jurisdictions. While government procurement timelines are often difficult to predict, management sees potential for new wins during 2026.

Q: How do industry-wide ALPR privacy issues benefit ReCore, and what is the company doing to capitalize on this environment? / A: The entire ALPR industry is in flux as governments sort out new regulatory and public expectations for responsible data use and privacy, and some competitors are losing existing contracts. ReCore has prioritized and patented privacy-first ALPR design for half a decade, and management believes this pre-built focus on compliance will position the company well to win new business as governments finalize new rules and requirements.