Cloudastructure, Inc.

Greetings, and welcome to the Cloud Structure Incorporated second quarter business update conference call. At this time, all participants are in a listen-only mode, and 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. And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Ted Avas of Crescendo Communications. Sir, the floor is yours.

Thanks, Ali. Good morning and thank you for joining Clyde's Structuring Second Quarter 2025 Earnings Conference Call and Business Update. On the call with us today are James McCormick, Chief Executive Officer of Cloud Astructure, and Greg Smitherman, Chief Financial Officer. Earlier today, the company issued a press release announcing its operating results for the three-month end of June 30, 2025. The release is available on our website at www.cloudastructure.com, and our Form 10-Q can be found both there and at the SEC website, www.sec.gov. If you have any questions after today's call, please contact Crescendo Communications at 212-671-1020. Before Mr. McCormick reviews the company's operating results for the quarter ended June 30th, 2025 and provides a business update, I would like to remind everyone that this conference call may contain forward-looking statements. All statements other than statements of historical facts contained in this conference call, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations are forward-looking statements. The words aim, anticipate, believe, could expect, may, plan, project, strategy, will, and the negative of such terms, in other words, in terms of similar expressions, are intended to identify forward-looking statements. These forward-looking statements are based largely on the company's current expectations and projections about future events and trends that it believes may affect its financial condition results of operations, strategies, short-term and long-term business operations, and objectives and financial needs. These forward-looking statements are subject to several risks, uncertainties, and assumptions as described in the company's filings with the SEC, including the company's annual report on Form 10-K for the year ended December 31, 2024. Because of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in the conference call may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not reply upon forward-looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance, or achievements. In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The company disclaims any duty to update any of these forward-looking statements except as required by law. All forward-looking statements attributable to the company are expressly qualified in their entirety by these cautionary statements as well as others made on this conference call. You should evaluate all forward-looking statements made by the company in the context of these risks and uncertainties. I would now like to turn the call over to Mr. James McCormick, Chief Executive Officer of Cloudastructure. James?

Thanks, Ted. Well, good afternoon, everyone, and thank you for joining us today for what is our first earnings call since Cloudastructure's shares began trading on NASDAQ in January of this year. This is an important milestone for our team, our customers, and our shareholders, and we appreciate your interest as we update you on our progress. For those of you who are newer to our story, Cloud Astructure is a leading provider of AI-powered video surveillance and remote guarding solutions. We combine computer vision, AI analytics, and human intervention to detect threats in real time, engage directly with suspects through live audio, and in most cases, stop incidents before they escalate. It has been our experience that this proactive approach stops 98% of threatening activity, transforming security from a cost center into a real competitive advantage for our customers. We operate in a massive and fast-growing space. Cloud Astructure sits right where the worldwide security, public cloud, and the AI markets overlap, and all three are expanding at double-digit rates. According to Gartner, the global AI market is already worth over $430 billion. The public cloud market is on its way to $920 billion, and the security market has exceeded $200 billion a year. With that kind of scale and momentum, we have a tremendous runway for growth opportunities ahead. Q2 was a standout quarter where the investments we've made and the foundation we've built truly paid off, which reinforces our strategy. We have been firing on all cylinders, growth, execution, customer wins, and product innovation all aligned. Revenue surged 267% year over year. We realized our second straight quarter of positive gross margins. And in just the first half of 2025, we signed $2.69 million in new customer contracts for products and services which will be delivered over the next 12 months. This marks a 274% increase over the same period last year. And this six-month value represents a 79% gain over the full year 2024 totals. The momentum we're seeing is being fueled by a major shift in the industry. Property owners and operators are realizing that traditional surveillance systems that simply record video aren't enough. They need solutions that actively prevent problems, reduce liability and protect people in real time. And that's exactly what the cloud structure platform delivers. During the quarter, we made progress across every major vertical that we serve. In affordable housing, we partnered with a respected nonprofit housing authority in Colorado to deploy our AI-powered remote guarding solution at four communities dealing with loitering, illegal dumping, and curfew violations in shared spaces. Our system, which has deterred 98% of threatening activity year to date, brought them real-time threat detection, live intervention capabilities, and a safer environment for residents. For two of the sites, we offered flexible financing so they could upgrade to our platform without heavy upfront costs. In mixed-use developments, we were selected by one of the nation's top-ranked property developers to secure a flagship community that seamlessly combines residential, retail, and commercial spaces. This high-profile property had been contending with serious security challenges from recurring vehicle break-ins and unauthorized access through retail entrances to the trauma of an active shooter incident in the vicinity. After evaluating options, they chose our AI-powered platform for its ability to deliver real-time threat detection proactive intervention, and long-term operational efficiency. This installation gives the company the opportunity to scale across their entire 15-state portfolio, including Washington, D.C., of over 30,000 units and 152 communities. We also entered the construction market with the launch of our Alpha mobile surveillance trailer. developed in partnership with Flex Security. This solar-powered, AI-enabled unit was purpose-built for high-risk job sites, featuring cameras with auto detection, intelligent object tagging, and multiple power options, including solar, battery, and backup generator, to ensure uninterrupted operation, even in remote or challenging environments. Our first sale of this unit went to a national renewable energy contractor that was seeking a faster, more reliable, and more responsive alternative to traditional monitoring services. By combining real-time AI threat detection with proactive remote intervention, Alpha addresses one of the industry's most pressing problems, which is construction site theft. which costs up to $1 billion annually. With strong early interest and proven capabilities, Alpha is already demonstrating its potential as a significant new growth driver for our business. Operationally, July was a record-breaking month where we completed more installations in just 30 days than in any month in our history. A standout project was a major multi-use luxury complex where we deployed more than 100 security cameras across 375,000 square feet while completing the job an entire month ahead of schedule. This achievement reflects not only the efficiency of our team, but also the growing demand for our solutions. And to meet that demand, we've doubled the size of our implementation team and are continuing to expand our certified installer network, ensuring we can deliver faster at scale without compromising quality. From January through June, our platform generated 5.37 million alerts and facilitated approximately 60,000 live audio interventions. By pairing AI-driven threat detection with trained human response, we achieved a 98% deterrence rate, stopping incidents before they escalated. These interventions addressed everything from trespassing and theft attempts to more serious threats. demonstrating the real-world impact and reliability of our technology in protecting people and property. Finally, our leadership in AI was recognized on a global stage when cloud structure received the AI Breakthrough Award for Imaging Processing Solution of the Year. This award highlights how we bring together smart technology and human expertise to create a proactive security solution that delivers real, measurable results. We view this as a clear acknowledgement of the impact we're having for our customers and the innovation driving our success. In short, we're scaling fast and doing it the right way without sacrificing quality. With the strong foundation we've built, we're ready to seize the opportunities ahead and carry this momentum into an even stronger second half of 2025. I would now like to turn the call over to Greg Smitherman, our Chief Financial Officer, who will review the financial results for the quarter ended June 30th, 2025. Greg?

Thanks, James, and good afternoon, everyone. Really appreciate you joining us here. So bear with me as we go through a little bit of numbers, a lot of numbers, very positive from our perspective. For the quarter ended June 30, 2025, revenue totaled $1.1 million, up from $300,000 in the same period last year, a 267% increase. This strong growth was driven by a 58% expansion in our customer base, and solid contributions from every segment of the business. Subscriptions rose 133%, hardware sales surged 863%, and installation and other services grew 167%. If we look at it from a six-month basis, the six months for June 30, 2025, revenue totaled $1.8 million, which is up from $533,000 in the same period last year. a 243% increase. So if we look at it, comparing the six months of 2025 to the full year of 2024, we beat in six months a full year revenue by approximately half a million dollars. So, you know, great start to the year. Getting back to the quarter numbers, cost of goods sold for the quarter totaled $700,000, up from $200,000 in Q2 of 2024. reflecting our significantly higher sales volumes and installation activity. Our costs were partially offset by a 15% reduction in hosting and data center bandwidth costs due to our infrastructure transition and our operational efficiencies. Gross profit was $400,000 compared to $100,000 in Q2 of 2024, up 274% year over year. This marks our second consecutive quarter of positive gross margins fueled by strong revenue growth and continued efficiency gains. G&A expenses rose to $636,000 from $390,000 last year, primarily due to higher personnel costs and increased legal, audit, and tax services. It's the joys of being a public company. Net loss for the quarter was $2 million compared to $1.9 million a quarter year ago. The slight increase was driven by higher operating expenses, including added professional personnel, professional services and our expanded sales and marketing effort, which drove our revenue. This was offset by revenue gains from a significantly larger customer base and growth across all of our major product lines. This concludes our prepared remarks. Operator, please open the line for questions.

Thank you. At this time we will be conducting our question and answer session. If you would 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 would like to remove your question from the queue. And 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. Thank you. Our first question is coming from Jack Vanderaarde with Maxim Group. Your line is live.

Hey, okay, great. I appreciate the 2Q update, gentlemen, and congrats on your debut as a public company. Great to see the strong growth momentum continuing here. You know, I have a couple questions I'd like to get into today. I think at this stage of the business, what would be interesting to hear is just who are your largest customers currently? If we can just get like a high-level overview of just the sense of the scale of those customers, the property management companies, and then also just like what inning are we in, if this is a baseball analogy, or just how quickly are you ramping and expanding and how much opportunity is still there? blue sky, in your opinion, just with the existing customers?

Yeah, I'll start. Thanks, Jack. Appreciate you joining the call and leading us off with the first question. So, you know, as we said in the prepared remarks, we're seeing growth in a number of different verticals. Obviously, the primary one is multifamily properties. And from that perspective, we have landed some of the largest property management companies in the United States. We have five of the top ten largest that are customers. And what's interesting about those, the initial sales take time. But once you're in and you've proven the efficacy of your solutions, the opportunity to expand across those portfolios is just massive. As we mentioned earlier in the remarks, we have one customer operating in 15 states that has 152 properties, and we're in a small subset of those properties today. So will we get them all? Probably not. But is there an opportunity to expand into a great number of additional properties? Yes, there is. And we are starting to see that right now. To use your analogy from a baseball standpoint, I would say top of the second inning, right, is where we're at from that standpoint right now. And then just very quickly, you know, additional verticals, some of which we mentioned, right? We're starting to see some success in the construction market. We've got some very exciting opportunities in transportation and logistics. And we're also looking at some commercial applications as well. So we're very, very excited about where we're positioned right now and our prospects for future growth. And Greg, anything you'd add to that?

I think the only thing I would add is really the huge scope of just one of these segments, not even including all the other ones that we are moving into. But if we just look at multifamily and the customer bases that we've got, we estimate they have over 10,000 property locations, and we're in a pretty small fraction of that. And you know, we hear in conversations like wanting to expand significantly within their portfolio, wanting to consolidate on, you know, small number of vendors. We think the opportunity, that we have just really scratched the surface of penetrating this customer base. And with the market or with the world, you know, in its current environment, security is, remains top of mind for most people, especially security at home. So we think there really are some huge opportunities for us to still go out and tackle.

Okay, great. No, I appreciate that, Kelly. That's helpful. You know, if I'm just looking through, I'm just scanning through your press release right now, and obviously you've put out a ton of press releases, lots of filings over the last, it seems like every day or every week there's a new, you know, I guess, supporting announcement that's either a new catalyst, a new opportunity, something about your sales team ramping up. Just curious if we could touch on, you know, it sounds like demand is a good problem to have. You have a ton of demand, and as an early stage company, it looks like you're really ramping up here to actually satisfy that demand. So, Can we just touch on how you actually install? You talked on one example of how you actually installed a whole property, I believe, a month sooner than you originally estimated. And I know you are growing the sales force as well as your resources, maybe channel partners as well. Can you just touch on that sort of initiative there? Where are we today with the headcount? And then also, what are you focused on in terms of growing and ramping your ability, your resources, your headcount to meet that demand?

Yep, great question. We'll come back to the headcount question. I'll let Greg handle that one. But essentially, Jack, as you would expect, we're looking at all areas of the business from an expansion standpoint, including sales, installations, customer success, engineering organization, and marketing. So we're looking at NG&A in certain instances. So we're looking at all the areas of the business and continuing to make strategic investments in headcount and other resources to make sure that we stay on top of both the quality and the timeliness, I guess you would say, of the installations. of the installations that we have. We are absolutely excited about where things are heading from a sales standpoint. As you mentioned, the sales team is expanding, has expanded, will continue to expand. And it's incumbent on us as the leaders of the company to make sure that we have flawless, continued flawless execution of our installations, which is very, very important to us. And as you referenced, you know, with one large installation we had, we completed it a month ahead of schedule, right? And that's just based on good old-fashioned hard work, internal employees knowing what we're doing and working with our certified installation network. Greg, anything additional?

No, just on the sales side, we still are an early stage company, but we really are growing significantly. We're on track to double the sales organization this year, which is being rewarded with the sales organization really going out there and knocking the ball out of the park. If you look at our historical data, You know, we had some nice growth from 2023 to 2024, but it was measured as we were trying to get some of these really large customers. And now it really feels like, and the data seems to indicate, we've hit that inflection point, that knee in the curve that, you know, every company talks about. And at some point where it just, the trajectory really ramps up. and where, yeah, we had, you know, 50%, 70% growth maybe in the past. You look at all the numbers today, and, you know, they're 200-plus percent year-over-year numbers, 250, 200, you know, 60. So it really feels like we've hit that knee in the curve, and it's an exciting time to be at the company and seeing everyone execute and, you know, build the organization.

Great. So, you know, I'm curious to know, since we are at the early stage here and the revenue, the numbers are jumping off the page here. I mean, they're obviously up triple digit percentage points, pretty much any metric you look at here. Maybe help us help investors understand as you guys gain scale, Just what we can expect from maybe an attach rate or just what are your solutions that are recurring revenue drivers? There's two primary solutions, I would imagine. And then also just maybe talk about just how that's ramping just directionally. I guess just touch on all the revenue components, really, but really focus on the recurring aspect of the business model. and then also what that does for the gross margin or just the margin profile.

Yep. Yep. Greg, do you want to take that one?

Yeah. So if you look at our business, we have four components of revenue that we report on. Hardware sales, installation, which is the front end of the sales cycle, right? When people come on, at a minimum, they need to – purchase a relatively inexpensive cloud video recorder to enable a system we work with most existing cameras so we can we can be a very cost-effective upfront solution but many times companies won't have cameras or they're doing significant upgrades to the property and putting a new cameras and and everything else and we work with those too so there can be some significant hardware purchases and cameras and speakers as they're upgrading their systems, and depending upon their layout, if they need to do cabling or whatever, some larger installations. But that's just the front part, and while it's, you know, there can be some good margins there, the core of our business, the crux of our business is our recurring revenue software as a service business. And there's two components, our basic surveillance business, which is where we take the video from the cameras, we index it using our AI and machine learning tools, just like Google indexes the web, we index people's video and make it searchable and actionable. And so that, and we store it in the cloud, so safe from theft or fire or any calamities that might happen on property. So that is our core functionality there. And then the other part, the other service is a remote guarding, which is our most rapidly growing part on the service side. And that is where we take alerts that the customer sets up. So somebody's walking in a particular area at night, want to make sure that everything's okay. Maybe it's somebody arriving home, parking garage, 2 in the morning, our guards will look in at it and say, yep, normal activity, not a big deal, or they see it's someone walking in with a crowbar, and that's where our guards spring into action and alert the person that they're being videoed and monitored, and 98% of the time they run away. And that's the second part of the business, of our service side. So as we continue to grow, that becomes a larger and larger portion of the business. If you look at our financials, in the latest quarter, that was about 1.1 million on a quarter run rate for the year. So it's already a pretty significant portion of our business, a little less than a third. But as we continue to build that, that part will continue to be an increasing part of the business as is typical with any SaaS business. And the margins on that will continue to increase as our infrastructure gets allocated across a much larger customer base. As I said in my earlier remarks, each one of those segments is growing pretty significantly. Triple digit growth in all of those segments. As we add customers, we will continue to get hardware sales and installation, but it's that recurring revenue that just stays with us and stays with us. If we look over the last In 12 months, we've had greater than a 99% retention rate. So we get great customer service remarks. Our customers are happy. We are proving to them time and time again how our systems are helping protect their property. They really like us. They're staying with us. So we think that's a huge building asset that will continue to support the organization.

Excellent. You know, without, there's plenty of different ways I could take this. Maybe I'll just ask one or two more questions. I think as I look at the opportunity that you guys are targeting, it seems like it's growing and expanding to new verticals pretty much every, every month. I feel like I've seen a new type or a new nuance in the vertical you're going after with success too. And you're going after, I think, with a lot of the same solutions. There's a lot of economies of scope here. Can you just touch on maybe – touch on, like, how are you actually prioritizing and thinking about – maybe just outline your existing verticals, markets right now, and how are you actually prioritizing which opportunities to go after? Is that not a problem right now? Or are you assigning certain people and personnel and specialties or regional managers – to go after these opportunities. Just help us understand how you're actually prioritizing because it sounds like you could get, you know, there's no shortage of projects to go after, but how do you do it the most efficient and I guess the most beneficial to shareholder value in your eyes?

Yeah, that's a great question, Jack. One way to look at it is when we do prioritize things, first and foremost, it's the estimated size of the vertical or the opportunity that we're approaching. And, you know, obviously, let's use construction, for instance. We know, based on our research, that that is a huge potential market for us. So, putting effort and thinking about additional solutions to address that particular vertical is something that we absolutely are going to focus on. So it's much the same way as multifamily. We've had success. We understand how to service the multifamily market. We know that it's going to continue to be a huge opportunity for us, and we don't have to really make any dramatic changes at the moment from a system engineering standpoint to continue to address those opportunities. So, we look at size of opportunities from an overall market standpoint, and then we look at what additional costs might be necessary to adapt our existing solutions for different markets. And, you know, there could be some interesting conversations from a company standpoint when you have competing priorities, if you will. But that's really how we focus it, focus our thinking on, in what we're going to attack next from a sales standpoint, which is size of market opportunities and what incremental costs may or may not be necessary for us to address or modify our solutions to meet the needs of those particular verticals. That's how we look at it. Greg, anything you would add?

No. Perfect answer.

Okay. We're very mindful. We're very mindful of things, Jack, right? I mean, it's, you know, shareholder value, very important to us. Growing revenue, very important. Growing revenue while being cost conscious, incredibly important. So we're, we're, We're doing everything that we think we need to do to be good stewards of the business.

Great. And, you know, just one more kind of final question here in terms of the forward outlook. Help us get in the right frame of mind for how cloud structure thinks that we should be tracking the business and what to be looking for, sort of what to expect going forward at this stage. Should we be expecting hardware updates? and installation revenue to continue at this clip? Is it a leading indicator of future recurring revenues? Just help us understand what should we be looking for to really get a sense of these guys are doing what they said they want to do, and this momentum is really picking up. So we can start to gauge how things are coming to life as the recurring revenue increases. start to scale as the margins pick up even further with those economies of scale as you expand the new verticals. What should we be thinking about, though, in terms of maybe the segments and the revenues and just kind of how that all comes together this year and then over, you know, as we scale up over the next few years? Thank you.

Mm-hmm.

Greg, do you want to? Yeah. tackle that one? That was like eight questions.

The final eight questions, yeah. Thanks, Jack. So yes, as I said earlier, as we sign up new customers, there always is going to be some component, sometimes bigger, sometimes smaller, of hardware and installation. So as we continue to penetrate you know, our existing markets and new markets, absolutely you should expect to continue to see hardware and installation sales. And as we continue to ramp up sales personnel and our sales momentum continues, we would expect that to continue to grow. But what is core to that is continuing to grow. Every time you do that, you're also selling additional services. and those just keep piling up and piling up and recurring and going on month by month and ramping that up and continue to drive the core margin to make that core service more and more profitable. Now, that being said, as our customers continue to expand, we will continue to expand our infrastructure to meet the demands, but that's something that is we're able to manage very carefully and we are continuing to do improvements to gain more and more efficiencies in storage and processing power and how can we be more effective with our AI processing and utilizing the GPUs that we do have. So there are a host of things to try and make ourselves more cost effective to drive margins higher while we're continuing to grow the overall business and drive the top line higher. So Yes, what should you expect? You should, just like we said in this one, where all the markets were up, we would expect that to continue as we continue to ramp up sales. For at least the foreseeable future, in my eyes, and they're all gonna continue to increase, and yes, hardware and installation our leading indicators, with the caveat that those can be lumpy. You can have, you know, as I said, we're talking to a customer right now where they're not happy with their current solution. We're looking at going in and replacing them, and we call that a takeover. So they've already got all the cameras they need. They've already got the installations they need. We've got to go in and upgrade, you know, their system to put in one of our but that's going to be a relatively low hardware installation sale, but it'll be a significant recurring revenue sale. So there can be some lumpiness, but it's still very positive for the business because that's the long-term goal, growing the recurring revenue. That's the goal. That's what makes this repeatable, predictable, and a growth engine.

Excellent. Well, gentlemen, I appreciate the update. I will hop back in the queue, and I look forward to tracking the progress.

All right. Thanks so much, Jack. We really appreciate your participation.

Thank you. As a reminder, ladies and gentlemen, if you have any questions, please press star 1 on your telephone keypad. Our next question is coming from Nick Pincus with Forest Capital. Your line is live.

Hey guys, congrats on an exceptional quarter and you're clearly doing everything that you said you were going to do. It's also very encouraging to hear the strong performance continuing in July. Some of my questions have already been asked and answered, but one more that I thought would be helpful is given our fixed infrastructure costs and the investment that's already gone into the business, I would think that as revenue continues to increase, we would expect to see steady improvement in our operating margins. and overall profitability going forward and would love to get your thoughts.

Yeah, you know, I'll take that one. Absolutely. And thanks for the question. As with any SaaS business, right, you do have some expensive upfront infrastructure. And for an AI business, as you've seen, people spend a lot upfront. We have certainly spent our fair share, although we are We feel very cost-effective in our use of that, and so we're not spending hundreds of millions of dollars like other folks are. We're able to do it on a much, much more cost-effective basis. But there still is infrastructure in servers, in storage, and GPU processing. We have redundant data centers to ensure our service can survive storage. some issues in any one particular location. So we've already made some significant investment there that as we have been ramping up our customer base and our sales, we've already demonstrated an increase in margin and that will just continue to improve for the foreseeable future. We're still early on in the business. Our cost is a percent of are still higher than we would like them to be, but we are producing positive gross margin, and we'll continue to increase that rate as we leverage the fixed infrastructure that we've already put in place.

Great. I appreciate that, and thanks for hosting the call, and keep up the good work.

All right. Thanks, Nick. Appreciate it.

Thank you. As we currently have no further questions in queue at this time, I would like to turn the call back over to management for any closing remarks.

Yeah. Well, thank you everyone for joining us today. We've enjoyed the conversation, sharing information with you and addressing some of the direct questions folks had. And the results we've shared aren't just numbers. They reflect the real change in how the market views security and the role our AI-powered platform plays in keeping people and property safe. In just six months, we've outpaced last year's total contract value, entered new verticals, launched innovative products like Alpha, and delivered ahead of schedule with over 99% customer retention in the last year. Our ability to combine cutting-edge technology with flawless execution is setting a new benchmark in the industry. The momentum we've built in the first half of 2025 gives us every reason to believe the second half will be even stronger. With a growing base of recurring revenue, scalable infrastructure, and a clear strategy for expanding our market share, we're executing with focus and discipline. The future is bright for cloud structure, our customers, and the communities we serve. Thank you very much for your trust and support as we continue to build the next generation of proactive security.

Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.