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DATE

Thursday, November 13, 2025 at 4:30 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Robert Berman
  • Chief Financial Officer — John Nalepa
  • Former Chief Financial Officer — Eyal Hen

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TAKEAWAYS

  • Record Revenue -- $14.2 million, up 35% year-over-year and 15% sequentially from Q2 2025.
  • Recurring Revenue -- $6.5 million in Q3 2025, representing an 18% increase year-over-year.
  • Adjusted Gross Margin -- 63%, versus 44% in Q3 2024, attributed to a higher share of software sales versus hardware and services.
  • Operating Expenses -- Down 24% quarter-over-quarter, with a $3.7 million reduction, excluding depreciation and amortization.
  • Adjusted EBITDA Loss -- $1.5 million, reflecting an $7.9 million, or 84%, improvement versus Q3 2024.
  • Georgia DOT Contract -- Newly secured, valued at a minimum of $50 million over its term, noted as the largest statewide multiyear contract in company history.
  • Leadership Changes -- Eyal Hen steps down as CFO; John Nalepa, Corporate Controller for over six years, named successor with an immediate transition.
  • Product Expansion -- Rekor Labs established to develop a deepfake detection solution, with initial commercialization targeted for 2026.
  • Scout Leadership -- Jennifer Candelaria appointed General Manager of Scout, responsible for full P&L, sales strategy, and market expansion.

SUMMARY

Rekor Systems (REKR 7.27%) achieved its strongest financial quarter to date, combining record revenue with improved profitability and disciplined cost containment. Management emphasized that operational changes and an enhanced software-driven revenue mix have produced sharply higher margins and recurring revenue growth. The company underscored strategic momentum through a landmark $50 million Georgia DOT contract, expansion into deepfake detection, and leadership updates central to its data-as-a-service model. Management stated that multiple states are issuing RFPs that specifically seek Rekor’s integrated data solutions, indicating validation and replication potential for the Georgia contract framework.

  • Chief Executive Officer Berman said, "we pioneered was the concept of data as a service and delivering the solutions that these agencies are looking for. And that's where it's headed."
  • Management clarified recurring revenue growth is mainly driven by long-term software and data subscription agreements.
  • Rising customer demand is leading to broader adoption of Rekor’s Discover and Command platforms by three new large states, supporting nationwide market expansion.
  • The South Carolina virtual weigh station program’s state award for nearly 100% accuracy was cited as external validation of Rekor’s AI-based offerings.
  • Rekor Labs, operating as a separate entity, is advancing proprietary technology based on the company’s established AI and video analytics expertise.

INDUSTRY GLOSSARY

  • Data as a Service (DaaS): The practice of providing real-time or archival data via subscription or usage-based models, rather than delivering or maintaining hardware or conventional software systems.
  • Adjusted Gross Margin: Gross margin figure excluding certain non-cash or one-time costs to better reflect the underlying profitability of core operations.
  • Adjusted EBITDA Loss: Earnings before interest, taxes, depreciation, and amortization, excluding certain one-time or non-cash items, used to assess recurring operating performance.
  • RFP (Request for Proposal): A formal solicitation process by which agencies seek competitive bids or proposals to fulfill specific project requirements, used for major public sector contracts.

Full Conference Call Transcript

Eyal Hen: Thank you, Robert, and good afternoon to everyone joining us. After nearly seven years with Rekor, I've made the decision to step down from my role as Chief Financial Officer. It's been a tremendous privilege to help lead the company through its transformation and growth journey, and I'm deeply proud to conclude this chapter with the strongest quarterly and year-to-date results in Rekor's history. It's truly a testament to the dedication and talent of our entire team. I'm also very pleased to introduce my successor, John Nalepa, who will take over as Chief Financial Officer.

John has served as Rekor's Corporate Controller for the past six and a half years and has been deeply involved in every aspect of the CFO role over the past year. John brings both internal institutional knowledge and financial rigor with prior experience as a manager at KPMG. His long-term tenure at Rekor and commitment to excellence make him the ideal person to step into this role. There will be no learning curve with John. His appointment by our board ensures a seamless transition, maintaining continuity and stability. I remain overwhelmingly optimistic about Rekor's future and leave with complete confidence in the company's strategy, our team, and the tremendous momentum the company has built.

It's been an honor working alongside such a talented and mission-driven team. Rekor's future is bright, and I look forward to watching its continued success. With that, it's my pleasure to turn the call over to our incoming CFO, John Nalepa, to discuss the financial performance for the quarter.

John Nalepa: Thank you, Eyal, and best of luck to you and your family. I'd also like to thank all our investors who have joined us on today's call. Today, I'll walk you through our financial results for the three and nine months ended September 30, 2025. We've been focusing on execution and operational efficiency and are encouraged by the progress we continue to make. During 2025, Rekor delivered its best financial performance in its history, marking our third consecutive quarter of positive results. We delivered record revenue of $14.2 million, an increase of 35% compared to Q3 2024 and 15% compared to Q2 2025.

On a year-to-date basis, we recorded revenue of $35.8 million, up 9% from the first nine months of 2024. This increase represents continued growth across our public safety and urban mobility businesses. We continue to see strong momentum in our sales pipeline and active deployments, giving us confidence in our ability to continue to drive growth going forward. Recurring revenue for the third quarter of 2025 totaled $6.5 million, representing an 18% increase compared to the recurring revenue in Q3 2024. For the nine months ended September 30, 2025, recurring revenue was $17.5 million, up 5% year over year. This reflects our long-term strategy of expanding our recurring revenue base through long-term software and data as a service subscription contracts.

Our adjusted gross margin for the quarter was 63% compared to 44% in Q3 2024. For the first nine months of 2025, adjusted gross margin was 55% versus 48% in the prior year period. This improvement was largely driven by a greater portion of high-margin software sales compared to our service and hardware-based contracts. As Eyal has noted previously, we expect margins to continue to fluctuate over time but to gradually stabilize as our software and data as a service businesses become a larger share of total revenue. A key highlight this quarter was our continued focus on operating efficiency. Total operating expenses, excluding depreciation and amortization, declined 24% quarter over quarter, representing a $3.7 million reduction.

Year to date, we've reduced operating expenses by $7.8 million, an 18% improvement compared to the same period last year. These reductions were achieved across all major areas of the business and reflect disciplined cost containment and a deliberate realignment of resources to support our strategy. The combination of record revenue and operational efficiencies resulted in significant improvements in our profitability. Adjusted EBITDA loss for Q3 2025 was $1.5 million, an improvement of $7.9 million or 84% from Q3 2024. On a year-to-date basis, adjusted EBITDA loss improved by $10.8 million to $14.5 million compared to $25.3 million in the prior year period.

These results reflect record performances across the company as we continue to manage our operating expenses to align with our growth as our revenue base continues to expand. Before I turn it back to Robert, I want to say how truly honored and excited I am to serve as CFO and move forward with our efforts to focus on transparency, financial discipline, and execution to support our long-term strategy. We have a clear strategy, a strong foundation, and a dedicated team driving results to create value for our shareholders. I look forward to building on the progress we have made and helping lead the next phase of growth. Thank you for your attention, Robert, back to you.

Robert Berman: Thanks, John, and welcome officially to your new role. We've had a long-standing relationship, and I am pleased to see you take on this leadership position. With your prior experience at KPMG and long tenure at Rekor, we are fortunate to have you here and to take the reins from Eyal. As outlined, this quarter represents a third straight quarter of positive results for both investors and the company. We are seeing clear signs that Rekor is reaching a point where the growth of recurring revenue and expanding market demand are aligning with operational discipline to drive sustainable growth.

These results reflect the momentum outlined in our prior announcement, where we stated that Rekor expected record quarterly revenue along with a significantly improved adjustment in EBITDA and gross margin. We continue to work towards these objectives. In early October, we achieved a major milestone by securing our largest statewide multiyear contract with the Georgia Department of Transportation, valued at a minimum of $50 million over the contract's full term. This contract further validates our leadership in roadway intelligence and data infrastructure, providing a long-term growth foundation in one of the most strategically important transportation markets in the country. We also received recognition for our work in South Carolina, where Rekor technology powers the state's virtual weigh station network.

The program was recently awarded a state technology innovation award for establishing a nearly 100% accuracy rate in overweight truck targeting, a model that other states can follow. This project showcases Rekor's ability to effectively use AI and connected infrastructure to deliver measurable value and efficiency to state agencies. Furthermore, three new and very large states have begun using Rekor's Discover. Beyond our core operations, I'd like to briefly mention a new initiative Rekor plans to enter the global deepfake detection market. While we can't speak in detail yet, this opportunity builds on years of experience in video analytics for government agencies and particularly law enforcement.

For some time, even before deepfakes were a notion in the public's mind, we've considered the evidential implications of synthetic media and deepfake technologies and positioned ourselves to protect our customers and the public at large in this critical area. These efforts have now been concentrated in Rekor Labs, which is operating as an independent entity, and there's more to come on this when the time is right. We continue to see strong performance across our core portfolio. Rekor Discover and Command have generated considerable attention. Rekor is perfectly positioned to meet that demand with AI-driven solutions that are scalable, cloud-based, and high-margin. I also want to take a moment to recognize the continued strength of Rekor's Scout.

While Discover and Command received much of the public attention, a significant portion of our revenue continues to come from Scout, which remains a cornerstone of our technology portfolio and a recognized leader in vehicle and license plate recognition. As part of our ongoing effort to strengthen and expand this business, I am pleased to announce that Jennifer Candelaria will join Rekor as General Manager of Scout. Jennifer will be based in our Columbia, Maryland office and report directly to me. Jennifer brings more than a decade of global leadership experience across North America, Europe, Asia, and Latin America and the Caribbean.

She has a strong track record in technical sales, product management, and business development, with prior leadership roles at Motorola Solutions and Milestone Systems' AI business unit, BriefCam. Her experience building high-performance teams and driving strategic growth aligns perfectly with our goals for Scout. Jennifer will oversee the full P&L for the Scout business, lead sales strategy, market share expansion, and partner channel engagement to accelerate both revenue and margin. Her appointment significantly strengthens our overall leadership team and reinforces our commitment to operational excellence across all business lines. As we enter the first quarter of the year and look ahead to 2026, Rekor continues to be positioned for substantial growth.

The momentum we built across our technology platforms, customer base, and financial performance underscores that Rekor's transformation is delivering lasting value. We would like to thank our shareholders, employees, and partners for their continued trust and support. And lastly, I'd like to publicly thank Eyal once again for his dedicated service to Rekor. And with that, operator, we'll now turn the call over for questions.

Operator: Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Louie DiPalma with William Blair. Please proceed.

Louie DiPalma: Good afternoon, Robert, Eyal, and John. And Eyal, it was a pleasure working with you. And congrats, John, on your appointment as CFO. My first question for Robert: what type of product does the Rekor team envision developing with the deepfake detection division? And would the product be software as a service, or do you imagine it would be more of a solution in which it requires your personnel combined with your software?

Robert Berman: So this is Robert. Thank you for the question. And by the way, it's John Nalepa, right? So who is assuming the role of CFO. But let me answer you by saying that the product that we had previously announced is being developed by a subsidiary, which is operating independently as Rekor Labs under the management of the director. And given what's going on in that space and the competition for IP and other things, there's not much more we can say about what we're doing than what we've said. I know that's probably not satisfying, but we expect to get a product in the market in 2026. And we just want to be careful.

Look, Rekor has a long history of working with AI machine vision, which is video and audio. And this came to our attention back in '23. So it's not something that just kind of popped up one day and decided, oh my god, deepfakes. Right? So we had been looking at it. We actually started developing some technology around it for our customers that were requesting this technology. So that's really all we can say about it at this point in time. I wish I could say more than we can.

Louie DiPalma: Definitely exciting. And how should we think about the EBITDA trajectory and margins over the next several quarters? I think you've been able to take OpEx out of the model, and you're also in the process of scaling the Georgia contract. So how should we think of margins and EBITDA?

Robert Berman: I think the way you should think about it is exactly what we've been saying. We always said that we expect as things progress that our margins will increase. We expect that they will stabilize higher than we reported this quarter. And that's just part of the development process of the technology that we're putting in the field. I think the most important thing is what was said earlier about our clients looking for the data as a service business model. They're not interested in technology and hardware and maintenance contracts and so forth. They need the data that they need to operate the roadways. Look, everyone here understands what's happening.

You hear all these things about robotaxis and companies doing this, that, and the other thing. The DOTs have to keep pace. They've got to keep the roadways safe. And they have to do that through managing data, and the idea of delivering the data as a service as opposed to delivering technology and maintaining it as a contractor is where it's headed, and that means higher margins, longer-term contracts, and a better business model for a company like Rekor. So I think it's consistent with where we projected that we were going. And we're seeing that. And we're seeing that in results today. Right?

Louie DiPalma: Great. And do you see many other contracts similar to the Georgia contract in your pipeline such that other states will look at Georgia as the model or the paradigm and, you know, they perhaps won't need to do a rigorous RFP process? They can trust that Georgia did the proper due diligence and they can expedite the process and go straight with you.

Robert Berman: Yes. Well, look, I think, obviously, states procure the way they procure. But I think the good news is that they do follow each other. What we're seeing, and at the end of the day, I believe that what we pioneered was the concept of data as a service and delivering the solutions that these agencies are looking for. And that's where it's headed. And what we're seeing now, which I think we said during the call, is that this is unprompted. We're seeing RFPs come out that we're responding to that are asking for this business model with the solutions that we have.

And what's really interesting about it is we're seeing a convergence of both the Discover and the Command platform. And what I mean by that is when people think about DOTs, they have two sides. They have operations, which is maintaining roadways, operating roadways, public safety, and all the things that go along with that. And then you have more long-term things like planning for how you maintain your roadways over the next ten, fifteen, twenty years.

And what we're seeing is now that the DOTs are looking to combine that into a single pane of glass where they can get the data that they need through one supplier, not by buying hardware, not by having a contractor install equipment and you have to worry about is it working, is it not working, but by a company like Rekor, it's just guess what, you know, we'll give you all of this data that you need to do both planning and operations with and pay us for the data. And if it's not giving you what you need to operate your roadway system, then don't pay us, right?

And if people think about today's world, everyone's used to getting things as a service. And that's something that I'm proud to say we pioneered. And we fought long and hard to make that business model work. But that's exactly what we're starting to see. So we're seeing RFPs come from states that, again, are unprompted. They're just showing up, and they're looking for exactly what Rekor does and the way we do business. More importantly, they're asking for that from the companies that are going to bid that. And I think Rekor is uniquely positioned.