Rekor Systems, Inc.

Good afternoon, ladies and gentlemen, and welcome to today's ReCore Systems Inc. conference call. My name is Kevin, and I will be your coordinator for today. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded for replay purposes. Before we start, I must remind you that statements made in this conference call concerning future revenues, results of operations, financial position, markets, economic conditions, product and product releases, partnerships, and any other statements that may be construed as a prediction of future performance or events or forward-looking statements. Such statements can involve known and unknown risks, uncertainties, and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. We ask that you refer to the full disclaimers in our earnings release. You should also review a description of the risk factors contained in our annual and quarterly filings with the SEC. Non-GAAP results will also be discussed on the call. The company believes the presentation of non-GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes only. I will now turn the presentation over to ReCore CFO, Mr. Joseph Filippa.

Good afternoon, everyone. I'd like to start by thanking all of our investors and stakeholders who have joined us on today's call. Today I'll walk through our financial results for the year ended December 31st, 2025. We've been focusing on execution and operational efficiency and are encouraged by the progress we continue to make. During 2025, we continued to deliver top line revenue growth while also finding efficiencies within our operations. For the year ended December 31st, 2025, we recognized revenue of $48.5 million, an increase of 5% compared to revenue of $46 million in 2024. This increase represents continued growth across our public safety and urban mobility businesses. Throughout 2025, we continued to see growth in our sales pipeline and active deployments. As of December 31, 2025, our remaining performance obligations increased to $25.9 million. a nearly 80% increase from December 31, 2024, which highlights strong momentum, giving us confidence in our ability to drive growth into 2026. For the year ended December 31, 2025, reoccurring revenue was $23.9 million, up 6% year-over-year. This reflects our long-term strategy of expanding our reoccurring revenue base through software and data-as-a-service subscription contracts. Adjusted margin for 2025 was 56% versus 49% in 2024. This improvement was largely driven by a greater portion of high margin software sales relative to our service and hardware-based contracts, as well as operational efficiencies within our deployments. As we continue to grow, we expect margins to fluctuate over time, but to gradually stabilize as our software and data-as-a-service businesses become a larger share of total revenue. As mentioned in a recent press release, we made the decision to onshore our engineering efforts to optimize our engineering operations and cost containment efforts. As a result of this decision, we recognize the non-cash asset impairment charge of $3.8 million in 2025. A key highlight this year was our continued focus on optimizing our operations. Total operating expenses excluding depreciation, amortization, and asset impairment charges declined 20% year-over-year, representing an $11.4 million reduction. These reductions were achieved across all major areas of the business and reflect continuing disciplined cost containment and a deliberate realignment of resources to support our strategy. The combination of revenue growth and improved operational efficiency resulted in significant profitability improvements. Adjusted EBITDA loss for 2025 was $18.1 million, an improvement of $11 million or 38% compared to 2024. A meaningful indicator of our progress in 2025 is the trajectory of our adjusted EBITDA loss throughout the year. Our adjusted EBITDA loss in the first half of 2025 was $13.1 million compared to a loss of $5 million in the second half of 2025. demonstrating that the operational improvements and cost discipline we've implemented throughout the year are taking hold and moving us in the right direction. We are encouraged by this trend and believe it reflects the early results of our strategic realignment. As we continue to evaluate our operations and identify further efficiencies heading into 2026, we do anticipate incurring one-time charges in the first and second quarters. primarily related to the cancellation and restructuring of existing agreements. While these charges are near-term in nature, we view them as necessary steps in building a leaner, more scalable operating structure that positions the company for improved performance and long-term value creation. We entered 2026 with strong momentum and remain committed to driving sustainable growth and long-term shareholder value. I'm grateful for your continued support and partnership. Thank you for your attention. Robert, over to you.

Thank you, Joe, and good afternoon, everyone. 2025 was a defining year for the company. We made a deliberate shift away from building the company of the future and refocused the organization on executing a pragmatic, profitable business model. That shift is now clearly reflected in our results. We are a more disciplined, efficient, and resilient company, having transitioned from a development-heavy, R&D-driven organization to a customer-focused business with fully productized solutions. As our right-sizing actions conclude towards the end of Q2 and the bulk of our efficiency work moves behind us, we are entering a new phase of the company, one focused on scaling. In the back half of 2026, we expect to aggressively ramp sales execution and drive accelerated growth supported by strong and expanding demand environment and a platform now built for scale. From a financial standpoint, we delivered solid progress. Revenue grew year over year despite a significant focus on efficiency. More importantly, our mix towards higher value recurring revenue and tighter cost controls drove gross margins to 56%. We reduced net loss by 49% and importantly achieved operating cash flow positivity in the fourth quarter of 2025. Combined with meaningful improvement in adjusted EBITDA, this makes a critical inflection point and demonstrates that our model is both viable and scalable. We have already captured substantial efficiencies through our rightsizing efforts and expect additional gains as we continue to align the cost structure with the current scale of the business. That said, we want to be clear. There may be some quarter-to-quarter variability as we complete this process. The long-term trajectory, however, remains firmly intact. We are also taking a disciplined approach to innovation spend, we are reducing and normalizing R&D to a run rate of 7% to 10% of gross revenue by the back half of 2026, aligning investment levels with a company of our size. At the same time, we are improving development efficiency through the use of modern tooling and focusing resources on near-term, customer-driven priorities. Operationally, the decision to onshore our engineering team is already delivering results. We are seeing faster development cycles, improved responsiveness, and stronger customer engagement. This is not only a cost and efficiency improvement, it enhances our competitive positioning. Between late 21 and late 2023, we completed three acquisitions, each with distinct technologies, teams, and operating models, making integration a complex undertaking. after which we navigated a period of leadership transition across both the board and executive teams, which added another layer of complexity. That work is now largely behind us. Integration is substantially complete, and we are operating on a unified platform, and the organization is now aligned, stable, and focused. Importantly, we continue to execute and make meaningful progress throughout this period. positioning us to fully leverage these assets as we enter a growth phase in 2026. We also launched ReCore Labs in 2025, focused on identifying synthetically created and modified media known as deep fakes. This initiative builds on technology we have been developing internally for years. Professor Sanjay Sarma has agreed to chair ReCore Labs and step down from the parent company board to do so. In closing, we have materially strengthened the foundation of the business. We now have a more efficient cost structure, higher quality revenue base, and a clear path to sustain profitability. With the heavy lifting behind us and a platform built to scale, we are entering our next phase focused on execution, growth, and value creation. We believe we are well positioned to drive meaningful, scalable, long-term value for our shareholders. Thank you for your continued support. And operator, we can now turn the call and open it up for questions.