Cloudastructure, Inc.

Good day. Welcome to Cloud of Structure, Inc., second quarter 2026 business update conference call. At this time, all participants are in a 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.

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 30th, 2026. The release is available on our website at cloudastructure.com. Also earlier today, the company filed a form 12B25 with the SEC notifying the commission that it requires additional time to complete the review of its financial results for the quarter. Cloud structure expects to file its form 10Q within the five day 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 affected a one-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 the 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 Cloud Structure'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 cloud structure 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 direct 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 Cloud Structure. James?

Thank you, Rob, and thank you all for joining us today. We spoke with many of you just four weeks ago on our first quarter call, so I'll keep the background brief and focus our time on what changed during the second quarter. So turning to the second quarter, the most important development was the continued growth of the recurring portion of our business and the impact that is beginning to have on our revenue mix and margins. Our annualized recurring revenue run rate increased to approximately 3.1 million exiting the second quarter compared with approximately 2.6 million exiting the first quarter. Revenue for the quarter was approximately 1.2 million, representing a 13% year-over-year growth rate. Recurring subscription revenue increased 164% year over year to approximately $764,000, while hardware revenue declined 49% and installation revenue declined 32%. Recurring revenue now represents approximately 62% of total revenue, compared with 27% a year ago. That growing mix of recurring revenue is translating directly into improved economics. Gross profit increased 51% year over year, while gross margin expanded approximately 13 percentage points to nearly 50%. The decline in hardware and installation revenue is a direct result of the kind of business we are winning. and it reflects a deliberate choice about how we compete. In 2025, 57% of the cameras we signed in new contracts were taking over from a previous vendor. Through the first six months of 2026, that figure is 77%. We do not require a customer to rip out equipment that still works in order to adopt our platform. That is central to how we win competitive displacements, and it is why that percentage is climbing. Excuse me.