Logo of jester cap with thought bubble.

Image source: The Motley Fool.

DATE

Monday, May 11, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Robert Berman
  • Chief Financial Officer — Joseph Nalepa
  • Operator

Need a quote from a Motley Fool analyst? Email [email protected]

TAKEAWAYS

  • Revenue -- achieving 12% growth year over year; every product line contributed to this increase (Scout: $281 thousand, Discover: $6.682 million, Command: $102 thousand, with offset in subtotals as other business lines are not separately detailed).
  • Adjusted Gross Margin -- 53%, rising by five percentage points compared to 48% in the prior year, reflecting a favorable shift toward higher-margin software and recurring revenue.
  • EBITDA Loss -- $6.5 million, an improvement from $7.4 million in the prior year, despite absorbing one-time costs tied to restructuring and cost-reduction measures.
  • Recurring Revenue -- 64% of total quarterly revenue, as confirmed by Joseph Nalepa.
  • Headcount Reduction -- Workforce reduced by approximately 45 positions (16%), implemented between year-end and the first quarter, with most resulting cost savings to be reflected starting in the second quarter.
  • Cash Position -- $12.2 million in cash at quarter end, compared to $16.6 million at year-end; decline attributed to typical seasonality and one-time restructuring expenses.
  • Georgia DOT Contract -- Base value roughly $60 million; management expects the actual value to be "substantially higher" due to expanded access for state entities, and a "price bump on equipment that is already in the ground."
  • Rekor Labs and GoSecure -- GoSecure product on track for Q3 2026 release; designed to mathematically certify the authenticity, timestamp, camera of origin, and location of video and imagery, amid increasing concerns over deepfakes.
  • Guidance on Costs -- Management projects a "stark drop" in operating expenses starting in the second quarter, as the full benefit of cost-cutting actions becomes visible, and as one-time restructuring costs are fully absorbed.
  • EBITDA Outlook -- Management targets EBITDA neutrality by the end of the second quarter or early in the third quarter, advancing toward EBITDA positive by year-end, driven by cost reductions and existing revenue trajectory.
  • Refinancing Plan -- Active evaluation of refinancing existing Prime revenue sharing notes to lower cost of capital, supported by a growing contract portfolio.

SUMMARY

Rekor Systems (REKR 0.01%) executed significant structural changes in the first quarter, including a workforce reduction and comprehensive cost review, which are expected to produce visible impact on operating expenses beginning in the second quarter. The GoSecure product from Rekor Labs is set for commercial launch in the third quarter, aiming to address growing issues in video authentication for public safety markets. A major Georgia DOT contract, with its base value at $60 million, may contribute upside as more state entities access the contract and equipment margins improve. The company ended the quarter with $12.2 million in cash after absorbing seasonal cash outflows and restructuring charges. Management maintains a clear path to EBITDA positivity by year-end, anchored on both ongoing cost controls and expansion in recurring, high-margin software revenues.

  • Management described Rekor Labs as being "chaired by Professor Sanjay Sarma, MIT Professor of Mechanical Engineering and former Vice President for Open Learning at MIT," to highlight technical leadership behind the GoSecure solution.
  • The Oklahoma uninsured vehicle enforcement program was renewed for a "quite a long period," and additional state pipeline opportunities remain under discussion, though "government takes time" for adoption.
  • Operating cash consumption improved year over year, suggesting tighter cash discipline, despite the sequential cash decline during the quarter.

INDUSTRY GLOSSARY

  • Contract Vehicle: A master contract that allows multiple government entities within a jurisdiction to procure goods or services under negotiated terms, without separate bidding.
  • EBITDA: Earnings before interest, taxes, depreciation, and amortization; commonly used as a proxy for operating cash flow and profitability, especially in early-stage or restructuring firms.
  • Recurring Revenue: Ongoing revenue streams from subscription or service contracts, providing stable and predictable cash flows for a technology company.
  • Prime Revenue Sharing Notes: A specific debt structure where lenders receive repayment based on a set percentage of company revenues, affecting ongoing interest and capital costs.

Full Conference Call Transcript

Robert Berman: Good afternoon, everyone, and thank you for joining us. I want to be direct about where we are and where we are headed, because I think the story is clearer now than it has been in some time. For 2025 into Q1 2026, we decided to take a hard look at every part of this organization. Every headcount, every contract, every expense—nothing was exempt from that review. The question we asked was simply, does this make the company better? If the answer was no, or even maybe, we adjusted to improve our core business. That process produced real structural change. We reduced headcount by approximately 45 positions, roughly 16% of our workforce, between year-end 2025 and 2026.

We found efficiencies and optimized engineering activities that were core to our path forward. We right-sized the cost and organizational structure to match where the business actually is today. The financial impact of those decisions was not fully visible in Q1. Some of those actions were taken mid-quarter. Some carried one-time costs that hit Q1 but will not repeat, and Joseph will walk you through all of that in detail. What I want investors to understand is that this work is done. The organization we are running today is leaner, faster, and more focused than the one we had a year ago, and Q2 will be where you start to see what that means in the numbers.

Our target is to reach EBITDA positive by the end of the year, and we expect to be very close to EBITDA neutral by the end of Q2 or in early Q3. That is not a wish. It is where the math takes us when you run the full impact of the cost reductions we have already executed against our current revenue trajectory. Now let me turn to the revenue side, because the business itself is performing well. Revenue grew 12% year over year, and every product line—Scout, Discover, and Command—grew. Gross margins reached 53%, up from 48% a year ago. These are not small moves. They reflect a business that is executing.

Finally, we previously announced the creation of Rekor Labs, and before I close, I want to spend a moment on Rekor Labs, because I think it deserves attention. Rekor Labs was established to develop technology that extends into public safety and the commercial markets. Its first product, GoSecure, is on track for commercial release in Q3 2026. GoSecure answers a question a law enforcement customer put to us way back in 2024. That question was, can video evidence captured by your platform be faked? Prosecutors and defense attorneys were using that footage in court and they needed a definitive answer. We built one.

GoSecure certifies, with mathematical certainty, whether video or photo content has been altered, down to a single frame. It verifies the camera of origin, the timestamp, the GPS location, and the integrity of the file from the moment of capture. In a world where deepfake technology is becoming widely accessible, the credibility of surveillance video is increasingly under threat. The ability to authenticate video evidence is, therefore, becoming essential for law enforcement, insurers, and the courts. Rekor Labs is chaired by Professor Sanjay Sarma, MIT Professor of Mechanical Engineering and former Vice President for Open Learning at MIT. Professor Sarma also previously served as a Director of Rekor Systems, Inc.

His involvement underscores both the technical rigor behind the platform and the seriousness with which we are bringing this technology to market. We look forward to sharing more about GoSecure as we move towards its planned Q3 launch. I will now turn the call over to Joseph Nalepa for the financial results.

Joseph Nalepa: Thank you, Robert. Q1 came in largely as we planned. We expected the quarter to include normal seasonality as well as certain one-time charges tied to the cost-reduction actions we executed during the period. We also expected that the full benefit of those actions would not be meaningfully reflected until Q2. What is important to highlight is that when comparing Q1 2026 to Q1 2025, the underlying trajectory of the business is positive. Revenue increased, adjusted gross margin improved, and we continued to identify and execute on meaningful cost efficiencies, the majority of which are expected to show in Q2 2026. Revenue increased 12% year over year, approximately $1.1 million in growth realized across each of our product lines.

Scout contributed $281 thousand to that increase, while Discover contributed $6.682 million, and Command contributed approximately $102 thousand. Adjusted gross margins rose to 53% in Q1 2026 compared to 48% in Q1 2025. This five-percentage-point improvement reflects revenue growth, which allows us to be more efficient when we operate deployments; a favorable product mix, with higher-margin software sales; and recurring revenue representing a larger portion of our total revenue. EBITDA loss came in at approximately $6.5 million, an improvement from a $7.4 million loss in Q1 2025. Importantly, the Q1 2026 results do not fully reflect the benefit of the cost-optimization measures implemented during the quarter, and also include certain one-time costs related to those actions.

Despite those items, we still delivered year-over-year improvement, and we believe that improvement will continue through 2026. The improvement in EBITDA was driven by revenue growth and a disciplined focus on cost containment. Payroll and payroll-related costs declined as a result of the headcount reductions Robert referenced, a significant portion of which were implemented during Q1 and will begin to have their full impact in Q2. Q1 also reflected normal seasonality, which typically results in lower activity relative to later quarters. Beyond those specific actions, we evaluated every line item and policy across our cost structure.

Where spending was not critical, it was eliminated, and where spending was deemed necessary, we evaluated how to improve efficiency, optimize processes, and reduce cost. This detailed review of our current operating model has already produced meaningful improvements, and we expect it to help lower overall operating costs going forward. We ended Q1 2026 with $12.2 million in cash, compared to $16.6 million at the end of 2025. The sequential decline was expected and reflects the seasonal Q1 pattern as well as the one-time restructuring costs. On a year-over-year basis, our operating cash consumption improved, which reinforces our view that the underlying business is moving in the right direction.

We are actively evaluating options to refinance our existing Prime revenue sharing notes with a goal of reducing our cost of capital. Our growing contract portfolio supports the refinancing; we expect to have more to report on this as we get further into 2026. Looking ahead, the cost reductions executed during Q1 were not fully reflected in our quarter-end results because many were implemented mid-quarter. In Q2 and the remainder of the year, those savings are expected to be reflected, and combined with our revenue growth trajectory, we believe the business is positioned for continued EBITDA improvement as we move through 2026. We remain focused on disciplined execution, cost efficiency, and driving sustainable growth across the business.

Thank you again for your time and continued support. I will now turn the call back to our operator for Q&A.

Operator: Thank you. We will now open the call for questions. It may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question comes from the line of Mike Latimore with Northland Capital Markets. Please proceed.

Mike Latimore: My first question: I was just wondering about the status of the Georgia DOT deployment, and then how should we think about that building throughout the year? Thank you.

Robert Berman: Hey, Mike. It is Robert. How are you? Thanks for asking. Georgia took a little longer to finalize, but we got it done last fall, and we are seeing substantial growth already because it is a contract vehicle, meaning that it is not just with the Central Office of [inaudible], but it gives the ability to all other entities in the state of Georgia to buy through that contract vehicle. So without getting into specific details, which I cannot, we are already working with several other counties, a couple of large cities, and so forth.

As I think we said when we announced the contract, we think the value will be substantially higher than the base value, which was roughly $60 million, and I think we are doing well with it. Plus, we got a price bump on equipment that is already in the ground, which means higher margins. So overall, headed in the right direction.

Mike Latimore: Great, good to hear. And then thinking about expenses throughout the year, do you expect the Q1 expense level to be about right for the rest of the year, or do you expect it to change?

Robert Berman: I think that is a question for Joseph. Joseph?

Joseph Nalepa: Thank you for the question. We expect Q1 to be on the higher end of expenses. A lot of the cost-cutting measures that we implemented in Q1 did not get their full impact—they were made towards the end of the quarter and carried some one-time costs. As we get into Q2, you will see a stark drop in expenses, especially within our operating expenses, and that will continue throughout the rest of the year.

Robert Berman: Mike, just to add to what Joseph said, severance related to all those employees, office shutdowns which required negotiating out of leases, and so forth really all took place toward the end of Q1. So I think we are going to see the results of all of that in Q2. It is behind us as of Q1, and we pick up, but it is mostly Q2 where you will see the results.

Mike Latimore: Cool, great. And then around the Oklahoma UVED program, was wondering if there are any additional prospects that might enter into an uninsured vehicle program that you expect to get approved this year, or maybe sitting in the pipeline currently?

Robert Berman: We are talking to several other states. I scratch my head thinking, given the benefits that the states get from this type of program and the insurance industry, the natural question is, why are all the states not doing this, right? But government takes time. We are proud of the fact that they renewed for quite a long period with us, and hopefully we will see others realizing we need to be doing this. There is just no reason not to. Things just take time.

Mike Latimore: Mhmm. Then just one quick final one. What percent of revenue was recurring in the quarter?

Joseph Nalepa: This quarter, we had about 64% of our revenue that was recurring.

Robert Berman: Awesome. Thank you.

Mike Latimore: I appreciate it, guys.

Operator: Thank you. There are no further questions at this time. I would like to turn the call back to Robert Berman for closing remarks.

Robert Berman: Yes, Operator, I just want to make sure that there is nobody in the queue and there are no further questions. Please double check.

Operator: Yes, sure. Please press 1 on your telephone keypad to ask a question.

Unknown Speaker: It is not.

Robert Berman: Operator, are you seeing anything, or are we clear?

Operator: No, there seem to be no further questions.

Robert Berman: Okay. In closing, again, thank you, everybody, for joining the call, your attendance, and your patience. What we did in late Q4 2025 and all through Q1 2026 was long overdue. We needed to do it, we focused on it, and we got it done. I think we will see the results of that now going into Q2 and beyond. We thank everyone for their support and patience. Thank you.

Operator: This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.