Rekor Systems — Third Quarter 2026 Earnings Summary

Financial Performance:

• Total revenue decreased 23% to $10.9 million for the quarter and 5% to $33.8 million for the first nine months, compared to $14.2 million and $35.8 million respectively in the prior-year periods.
• Recurring revenue increased 16% year-over-year to $7.5 million for the quarter, representing 69% of total revenue (up from 46% a year ago); for the first nine months, recurring revenue rose 19% to $20.8 million.
• Net loss narrowed to $2.9 million ($0.02 per share) for the quarter, compared to $4.1 million ($0.03 per share) in the prior year; for the first nine months, net loss narrowed to $12.8 million from $23.7 million.
• Net cash used in operating activities decreased 49% to $10.6 million for the first nine months, a $10.0 million year-over-year reduction.
• Adjusted gross margin decreased to 48.2% for the quarter (from 63.4%) and 52.4% for the first nine months (from 54.7%), reflecting a less favorable revenue mix due to the absence of high-margin perpetual license sales.
• Total operating expenses decreased 41% to $7.6 million for the quarter and 31% to $28.7 million for the first nine months; underlying G&A, selling/marketing, and R&D expenses declined 28% for the quarter and 20% for the nine months.
• Cash and cash equivalents ended the quarter at $5.1 million, with an additional $0.3 million in restricted cash; total assets declined to $60.5 million from $85.4 million at year-end 2025.
• Total operating lease liabilities declined to $0.8 million as of September 30, 2026, from $13.3 million at December 31, 2025, following the exit of Columbia, MD, and Tel Aviv leases.
• Series A Prime Revenue Sharing Notes totaled approximately $15.0 million, with $9.967 million and $4.984 million recorded as current liabilities net of discounts.

Guidance and Future Outlook:

• The Company established a defined operating objective to achieve profitability at approximately $50 million in annual revenue, contingent on revenue mix, margins, and financing costs.
• Major right-sizing cost initiatives are substantially complete, and the Company is advancing sales and marketing initiatives with a focus on statewide transportation opportunities and expanding recurring revenue.
• Management plans to introduce Born Authentic™ to retail customers via an e-commerce site in Q1 2027.
• The Company is in active discussions with multiple lenders to refinance the $15.0 million Series A Prime Revenue Sharing Notes maturing on December 15, 2026; no assurance exists that refinancing will be completed before maturity or on acceptable terms.

Business Segments and Product Lines:

• The Oregon Department of Transportation issued an Intent to Award for the Connected In-Vehicle Alerts program with an anticipated five-year value of $1.4 million; final terms are under negotiation with annual renewals required after the second year.
• The Florida Department of Transportation increased its statewide intelligent transportation infrastructure contract ceiling by approximately 94%, from $4.9 million to $9.5 million, though the ceiling does not represent committed revenue.
• Rekor expanded Born Authentic™ (formerly GoSecure™) in August to integrate recorded audio authentication alongside video authentication capabilities.
• In July, Rekor launched the Rekor Scout® Axis Agent with Born Authentic™, bringing video integrity verification, license plate, and vehicle recognition to supported Axis cameras.
• Management completed a detailed review of manufacturers' suggested retail prices (MSRP) across offerings to improve prospective margins.

Market and Competitive Landscape:

• The ALPR market is navigating uncertainty regarding evolving privacy expectations and potential standards, contributing to a more cautious customer purchasing environment.
• Management believes customer satisfaction remains high, evidenced by the maintenance of the existing contract base despite market headwinds.
• The Company is pursuing statewide transportation opportunities and expanding its recurring revenue base to offset the decline in one-time perpetual license sales.

Risks and Challenges:

• The Company faces a Nasdaq minimum bid price compliance requirement, having been granted an additional 180-day period through April 26, 2027, to regain compliance.
• A verified complaint was filed in the Delaware Court of Chancery against former director Viraj Mehta regarding a breach of fiduciary duty in connection with the December 2025 financing; the outcome is unadjudicated and unpredictable.
• The Company is examining beneficial ownership reporting and trading activity in Rekor shares and has shared concerns with regulators; further action depends on evidence and applicable law.
• There is no assurance that debt refinancing will be completed before the December 15, 2026 maturity date or on acceptable terms.
• Actual outcomes may differ materially due to financing availability, contract award timing, agency funding, revenue mix, and legal outcomes.

Management Commentary and Tone:

• Chairman and CEO Robert A. Berman stated that progress in 2026 was "substantial and measurable," highlighting reduced expenses, a strengthened recurring revenue base, improved operating cash use, and the exit of non-essential leased facilities.
• Management emphasized that the goal was not merely cost reduction but creating an operating foundation designed for profitability at $50 million in annual revenue.
• The tone indicated confidence in the company's ability to execute a focused sales and marketing program and deliver meaningful progress in 2027, citing a more efficient cost structure and an expanding contract portfolio.

Other Key Points:

• The Company eliminated approximately $9.7 million of operating lease liabilities by exiting the Columbia, Maryland, and Tel Aviv headquarters, positioning itself to realize more than $2 million in expected annual savings.
• Third-quarter results included a $3.9 million net gain on lease remeasurement related to lease terminations, partially offset by a $2.2 million loss on the write-off of property and equipment.
• The nine-month period included a $2.8 million gain on the remeasurement of the Tel Aviv lease liability recognized in the second quarter.
• Rekor Systems builds trusted data, privacy, and security solutions for real-world video and sensor networks, with AI-powered roadway intelligence platforms deployed across the United States.