Operator: Good afternoon, ladies and gentlemen, and welcome to today's Rekor Systems, Inc. Conference Call. My name is Melissa and I will be your coordinator for today. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference 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, products and product releases, partnerships, and any other statement that is made to be construed as a prediction of future performance or events are 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 that the presentation of non GAAP information provides useful supplementary data concerning the company's ongoing operations and is provided for informational purposes only. I now would like to turn the presentation over to Rekor's CEO, Mr. Robert Alan Berman.
Robert Alan Berman: Thank you and good afternoon everyone. I will keep this brief Q2 shows the impact of the actions we said we were taking in the second half of 26. Revenue grew gross margins expanded and our adjusted EBITDA loss narrowed sharply year over year to approximately $1.2 million Joel will walk you through the details. The key point is that this is not a 1-quarter effect. We are nearing the end of a judicious cost reduction program and have absorbed many of the 1-time costs associated with that. So the savings are showing up in the run rate now. And we continue to expect additional cost efficiencies and further expansion of our recurring revenue base in the second half of 26. Our focus now is on continued execution, recurring growth and reaching profitability. On growth, I would like to start with GoSecure. We launched GoSecureVideo in June to cryptographically sign video at capture and prove frame by frame whether it has been altered. This is not a probability score. it is a determination. We have now extended the same approach to recorded audio. Addressing splicing, deletion, and synthetic replacement under 1 authenticity framework. In a world of inexpensive voice cloning, altered clips and disputed evidence, we believe the need to prove that both video and audio are real will only grow. We are now in active discussions with prospective launch partners. And we are being deliberate about commercial terms because we believe both can extend beyond the initial launch markets and has the potential to become an important media authenticity standard. Based on where those discussions stand today, our objective is to finalize initial launch partner commercial terms during the third quarter with definitive agreements to follow as appropriate. While we see great potential in GoSecure demand remains meaningful in our core transportation business. As reflected in recent procurement trends, agencies are moving away from in road sensors towards non intrusive AI driven systems. Discover and our data as a service model have positioned us well for that shift. And our recurring revenue continues to grow in that area. I also want to address ALPR. This environment is more challenging. With increased public scrutiny, new rules around retention sharing, and access and a more active litigation environment around data practices. That has affected sales cycles across the industry. But over time, we believe the scrutiny favors companies like ours that have taken privacy responsible use, customer control auditability seriously and Rekor has been delivered across these issues for years. Agencies and oversight bodies demand demonstrable compliance rather than after the assurance that the problems will be addressed in the future, We believe vendors whose offerings have been designed to address these issues from the start will be better positioned. To summarize, the efficiency work is showing through the numbers we remain confident in achieving our goals in the back half of 26. And see meaningful opportunities and GoSecure recurring roadway data revenue and responsible vehicle recognition. And with that, I will now turn it over to Joel.
Joseph Nalepa: Thanks, Robert, and good afternoon, everyone. I am going to walk you through the second quarter and first half of 26 and close with cash and our outlook. Second quarter revenue was $12.7 million, up 2% from $12.4 million in the second quarter of 25. For the first 6 months, revenue was $22.9 million, up 6% year over year. An important indicator for us is recurring revenue. Compared with the respective prior year periods, recurring revenue grew 14% in the quarter to $6.7 million and increased 21% for the first 6 months of the year to $13.3 million. That growth rate is running ahead of total revenue. Indicating the mix of business is shifting towards the type of revenue we have been focused on growing. Contracted, repeatable, and higher margin. The improvement in revenue this quarter did not depend on a large nonrecurring software transaction. It reflects the ongoing economics of the business as it is structured today. Turning now to adjusted gross profit. Adjusted gross profit increased for both the 3- and 6-month periods. Adjusted gross margin expanded to 56% in the second quarter from 50% in the second quarter of 25. For the first half of 26, adjusted gross margin rose to 55% from 49%. 2 things primarily drove that improvement. First, revenue growth allowed us to operate more efficiently across deployments and second, improvement in our product mix. Adjusted gross margin in our business is largely a function of how much higher margin software and recurring revenue we carry relative to service related work. And that mix has been moving in our favor. Shifting to operating expenses, this is where the work from the first half of the year becomes visible. Across all major areas, general and administrative, selling and marketing, research and development. Expenses decreased by $4 million in the quarter and $4.3 million for the first 6 months ended June 30, 2026 compared to the prior year periods. That reduction comes from the actions we have discussed over the past few quarters. We reduced headcount during the first half of the year and worked towards optimizing our engineering operations. We have also identified further efficiencies unrelated to workforce that we expect to produce several million dollars worth of additional annualized savings. We expect to execute on these in the third quarter with the noticeable impact in the fourth quarter of 26 and into 2027. The quarter also included a 1-time gain of $2.8 million associated with the remeasurement of 1 of our lease liabilities. This was an expected noncash item and was tied to our continued operational realignment. As a result, the company recorded income from operations in the second quarter. This was driven by the onetime gain related to the remeasurement along with revenue growth higher adjusted gross profit and the organizational efficiency measures we took at the beginning of the year now flowing through the numbers. Adjusted EBITDA loss for the quarter was $1.2 million, a 79% improvement from the second quarter of 25 Lower payroll and payroll related costs drove most of that improvement, and revenue growth and margin expansion contributing as well. Turning to cash. We ended Q2 26 with a healthy amount of cash slightly exceeding $10 million while our operating cash burn for the quarter was reduced to $2.4 million For the 6 months ended 06/30/2026 compared to 2025, our cash used from operations improved by $9.6 million or 61%. This highlights the improvement in our cash consumption and reinforces our belief that the underlying business is moving in the right direction. We are actively evaluating options to refinance our existing prime revenue sharing notes. Our growing contract portfolio and the impact of our recent win in South Carolina should help support the refinancing. We will provide additional information when there is something definitive to report. Looking to the back half of the year, 3 things give us confidence: First, the full period benefit of the majority of the cost reductions. Many of these actions were taken during the first half, so the third and fourth quarter should reflect a cleaner expense base than the first half of the year did. Second, continued revenue growth in our recurring revenue. Third, continued discipline around capital management. Taken together, we expect to reach profitability on an adjusted EBITDA basis during the second half of 26, assuming continued execution and cost discipline. Thank you for your time and your continued support, With that, I will turn it back to the operator for questions.
Operator: Thank you. Choosing speaker equipment, it may be necessary to pick up your handset. Before pressing the star key. Our first question comes from the line of Mike Latimore with Northland Capital Markets. Please proceed with your question.
Mike Latimore: Hi, this is Vijay Devar for Mike Latimore. couple of questions. 1, so how does the new South Carolina contract expand your opportunity versus the prior, I mean, the contract?
Robert Alan Berman: Joel, do you want to handle that 1?
Joseph Nalepa: Yes. Thanks for the question. The South Carolina contract will expand our current footprint in South Carolina. It will also give us the ability similar to Georgia to go out and get additional work in South Carolina and really expand our footprint in that market.
Mike Latimore: Understood. How is the pipeline for Command? Do you expect new wins this calendar year?
Robert Alan Berman: Joel, do you want to handle that?
Joseph Nalepa: Yes. The pipeline for Command, we continue to monitor it. I do believe that there is the potential for new wins. I mean, 1 of the things I continually mention is working with the government, it is sometimes difficult to predict when they will put pen to paper. But we do have a pipeline and we are in communication with different DOTs and different jurisdictions.
Mike Latimore: Got it. Thank you.
Joseph Nalepa: You are welcome. Thank you.
Robert Alan Berman: Thank you.
Operator: Our next question comes from the line of Mark Sokol, Private Investor. Proceed with your question.
Analyst: Yeah. Hi, everyone. Thank you for the time. I am just trying to get a little bit more understanding regarding, like, the privacy issues that your competitors are, you know, facing and what your sales team is doing to hopefully you know, alleviate some of those concerns and possibly get more wins in the future. Thank you.
Robert Alan Berman: Mike, are you-- this is Robert. Are you referring to the private issues around ALPR? Yes. ALPR. Look, sure. As we said, the industry is in quite a flux. there is been a massive amount of press over the last, you know, even several months, 6 months, a year. But it is becoming more every day. And I think, you know, we are headed into a world where people are trying to figure out how you deploy technology, especially when you have AI and you know, you do this to help public safety and, at the same time, not create a surveillance state. And RECORE has always been about privacy. If you look at some of the patents we filed, you know, half a decade ago, they were always around how this data is used. So I think, as I said in the call, that the industry is the law enforcement agencies, governments, city councils, and all are kind of pausing things. Some of our competitors are losing contracts. I mean, they are turning around and hiring another vendor to replace them. They are trying to sort this all out. And we think that the way we have positioned ourselves and we have stood fast for the last number of years on how we will allow our data to be used and how our systems work. To protect privacy. And I think that will work in our favor in the months to come as the government sorts it out. Thank you.
Operator: Mr. Berman, it seems there are no other questions at this time. I will turn the floor back to you for final comments.
Robert Alan Berman: Okay. Well, listen, thanks, everyone, and stay tuned because at the back half of the year, we are going to deliver the same way we did in the first 6 months of the year. So appreciate all your support, and look forward to talking to you again soon. Be well. Bye.
Operator: Thank you. This concludes today's conference You may disconnect your lines at this time. Thank you for your participation.
