REKR Q3 2026 earnings call transcript, November 12, 2026

We are addressing controllable costs by moving portable traffic data processing onto our own platform, deploying existing paid inventory, and applying greater discipline to pricing. And contract execution. Turning to operating expenses, 2026 has been a year of intense but necessary right-sizing. Judiciously reducing headcount, simplifying our operations, and exiting costly facilities while still supporting customers and pursuing growth requires sustained focus. Across the company. The operational right-sizing is now substantially complete, and we're preparing targeted sales and marketing initiatives for the first quarter of 2027. GAP operating expenses for the third quarter declined 41% to $7.6 million, including the $1.75 million benefit from our last year. lease exits, which I'll discuss in a moment. General and administrative, sales and marketing, and research and development expenses declined by a combined $3.2 million for the quarter and $7.5 million for the first nine months. These reductions are a central part of the more efficient operating foundation we're building for 2027. The quarter also included two one-time items tied to lease exits. As part of our operational realignment, we entered a termination agreement at our Columbia location effective August 31st and exited our Tel Aviv lease in September. Those actions produced $3.9 million of a gain related to the lease. Re-measurement, which was partially offset by a $2.2 million write-off of leasehold improvements and other property and equipment at the Columbia location for a net benefit of about $1.75 million. On the cash side, we made one-time termination payments of approximately $2.6 million during the quarter.

In exchange, we eliminated roughly $9.7 million of lease liabilities and the remaining rent obligations of those locations. As a result, total operating lease liabilities on our balance sheet declined to $0.8 million at September 30th, down from $13.3 million at the prior year end. We expect these lease exits to save more than $2 million annually and plan to move into a more cost-efficient Maryland headquarters in late December. Net loss for the quarter narrowed to $2.9 million, or $0.02 per share, from $4.1 million, or $0.03 per share. Adjusted EBITDA loss for the quarter increased to $2.6 million from $1.5 million, reflecting the absence of the prior year perpetual license sales and higher urban mobility delivery costs. For the first nine months, however, net loss narrowed to $12.8 million from $23.7 million, and adjusted EBITDA loss improved by $4.9 million. $4.2 million, or 29%, to $10.3 million from $14.5 million last year. Net cash use and operating activities declined 49% to $10.6 million. These year-to-date improvements reflect the effect of the cost actions taken throughout 2026. Even as we continue to work on delivery margins and revenue conversions. We ended the quarter with $5.1 million in cash and cash equivalents plus $0.3 million of restricted cash. Addressing our $15 million prime revenue sharing notes maturing December 15th remains a near-term priority. Since those notes were issued in 2023, our contract portfolio has grown meaningfully and our operating results have improved substantially. We believe that combination strengthens our position in these discussions. We are in discussions with multiple lenders and are shortly expecting term sheets. Our objective is a larger

question. Credit facility that reflects our improved operating results and larger contract portfolio. However, no definitive agreement has been reached and there can be no assurance that we will obtain sufficient financing before maturity or on acceptable terms. We will provide an update when appropriate. Before I turn it over to Robert, let me summarize.

I want to put this quarter in the context of what we've been working to accomplish throughout 2026. Growing a business is difficult enough, particularly in a fast-paced environment of technological innovation. Continuing to grow it while judiciously aligning its cost base, reducing headcount, and streamlining operations is even more challenging. That's been the central task for our management team this year. We've made difficult decisions, consolidated facilities, reduced our overhead to sharpen our focus on where we believe RE-COR can quickly. to create the greatest value. And we did this while continuing to serve our customers, develop our technology, and pursue important new business. It hasn't been an easy process, but it wasn't done just to make RE-COR smaller. It was necessary to build a stronger, more efficient company. with the capacity to grow. We are not alone in this regard. Many companies have faced the same challenges in the current business environment. This distinction matters. We now believe the heavy lifting of our operational right sizing is substantially behind us. The foundation we put in place is stronger. Our recurring revenue is growing and we have meaningful commercial opportunities ahead. We enter 2027 with a leaner cost structure and a cleaner plan to turn those opportunities into deployments, recurring revenue, and improved operating performance. But we still have work to do.

Including our capital structure. But our focus is shifting from restructuring the business to executing on the foundation we built. We entered 2026 with a specific objective to reshape REKR's cost structure so that the business could operate profitably at approximately $50 million in annual. That's the operating model we've been working towards, not a claim that we've already achieved profitability or forecast that it will occur at a particular date. Achievement depends on revenue mix, margin, and financing costs. Our headcount reductions, facility exits, and operating changes. have been guided by that goal. Equally important, given the many business opportunities that we still see before us, we've spent several months developing a more focused sales and marketing plan and reviewing suggested retail pricing across our portfolio to improve pricing discipline and match. Maximize potential gross margins. That preparatory work is now complete, and we're moving forward with the planned sales and marketing initiatives that are expected to contribute to improve commercial execution in 2027. There are tangible reasons for confidence in this transition. As indicated, by our continued contract growth this year. South Carolina selected REKR for a seven-year statewide contract with potential value above $22 million, subject to final negotiations. Oregon issued an intent to award a five-year driver alert program with anticipated value of $1.5 million.

$2.4 million, subject to final terms and annual renewals after year two. Although potential contract value shouldn't be treated as revenue already earned or guaranteed, these are important commercial milestones that reflect confidence on the part of our sophisticated customer base. Since quarter year two, we're going to have to take a look at that. We're going to have to take a look at that. On the other end, Florida increased our contract ceiling by 94% to $9.5 million. While actual revenue remains dependent on funding and work orders, that significantly expands our ability to serve an important customer. In addition, our new Southern Nevada RTC contract has a potential value of $1.54 million if both extension options are exercised. Collectively, these developments demonstrate continued customer interest in our solutions and provide opportunities for future deployments. Subject to the relevant contract conditions, although we can't assume- that all contemplated orders will materialize, we've already paid for approximately $2 million in Discover Core Components inventory that can give us a starting point for execution of anticipated 2027 deployments. At the same time, bringing portable traffic data processing in-house is a very important part of the process. Tightening pricing discipline and strengthening sales management have all positioned us to improve project-level economics as deployments scale.

We're also continuing to build our technology portfolio. Born Authentic now supports both video and audio authentication, and we continue to work with launch partners towards a planned launch and a also planned retail e-commerce launch introduction in the first quarter of 2027. Our scout access agent brings recognition and video integrity verification to compatible existing cameras, potentially expanding the addressable installed base without requiring customers to replace every device. These initiatives are promising, but their commercial contribution will depend on successful launches and customer adoption. In public safety, the ALPR industry remains unsettled as public pressure grows on policy makers and customers. to address privacy, retention, and access standards. But we believe that uncertainty has contributed to slower decisions around perpetual license purchases across parts of this market. While this has affected our expected growth in this area, we have not lost a single scout customer. As a result of this privacy debate, we believe we've been responsible in developing our systems with privacy and authenticity in mind and are engaging with House and Senate offices and state policymakers to advocate workable, consistent safeguards. Keeper calls for protection for non-huntless records, warrants for historical searches of protected records, purpose-based limits on retention and verification of video integrity. These are all features we've been designing our systems to accommodate for years. Although the timing and eventual

change. If the actual shape of any standards remain uncertain, we believe that clearer rules should help restore confidence and responsible ALPR deployments and preserve their important role in protecting our communities and marketing them safer. We also recognize the importance of our capital markets obligations. NASDAQ has given us through April and the importance of our capital markets. 26, 2027 to regain minimum bid price compliance and we are evaluating appropriate steps while remaining focused on operating execution. We continue to examine beneficial ownership reporting and trading activity in RECOR shares, including questions raised by market surveillance information. And to share our concerns with the appropriate regulators. Any further action will depend on the evidence and applicable law. Let me close with the point I most want investors to take away. The actions we've taken in 2026 have been difficult, particularly because we needed to make them while continuing. to grow customer relationships and invest in the products that will drive our future. But those decisions were deliberate, and they have left REKR with a more focused organization, a materially leaner cost structure, and a stronger operating foundation for 2027. Our task now- is execution, resolving our near-term debt maturity, translating contract opportunities into funded deployments and revenue, continuing to grow our recurring revenue base, improving delivery margins, and bringing our planned launches to market with spending discipline.

In short, we have done the difficult work of resetting the cost space and preparing the commercial engine. Our objective is straightforward. Convert a larger base of contract opportunities into funded deployments and recurring revenue while maintaining the discipline required to make the business profitable. as it scales. None of that is automatic and we aren't declaring victory. While we believe the foundation is solid, the direction is right, and we are much better positioned to pursue growth in 2027 than we were at the beginning of this year. We thank you for your continued support.

And operator, with that, we can open the call for questions.

Our first question comes from Thomas Grossman with Union Avenue Advisors. Your line is.

You may disconnect your lines at this time. And we thank you for your participation.