Good afternoon, ladies and gentlemen, and welcome to today's Rekor Systems, Inc. Conference Call. My name is Kevin and I'll 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 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 you to refer to the full disclaimers in our earnings release.
You should also review a description of the risk factors contained in our annual 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 Rekor CFO, Mr. Joseph Nalepa.
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 31, 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 31, 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, recurring revenue was $23.9 million, up 6% year-over-year. This reflects our long-term strategy of expanding our recurring 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 recognized a 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 Q1 and Q2, 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 rightsizing 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 Q4 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%-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 2021 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 Rekor Labs in 2025, focused on identifying synthetically created and modified media known as deepfakes. This initiative builds on technology we have been developing internally for years. Professor Sanjay Sarma has agreed to chair Rekor Labs and stepped down from 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. Operator, we can now turn the call and open it up for questions.
Thank you. We'll now be conducting a question-and-answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment please while we poll for questions. Our first question is coming from Michael Latimore from Northland Capital Markets. Your line is now live.
Hi, great. Yeah, thanks very much. Congrats on getting cash flow positive here in the Q4. I guess as you look to 2026 here, do you expect the year to be cash flow positive? Maybe, you know, excluding maybe one-time items.
Joe?
You know, I don't want to provide specific profitability guidance, but, you know, we are encouraged by the progress we made at the end of 2025, and we hope to continue to, you know, build on that momentum as we enter 2026. I think you'll see some additional cost savings related to the onshoring of engineering efforts, as well as some other things that we're working on to kind of help reduce our expense base while also maintaining top- line revenue growth. You know, I do want to be conscious that there are gonna be those one-time charges that come in as we look to restructure the business. You know, I think it all gets back to ensuring that we're running a lean operation and working towards that goal of becoming profitable.
Yeah. Great. Okay. Sounds good. Maybe an update on the Georgia deployment. You know, that was a big contract you guys won last year. You know, maybe talk a little bit about any deployments in the Q4. How does that kind of play out through 2026?
Yeah. Mike, typically the state agencies or DOTs usually shut down between Thanksgiving and New Year's. It'll let you do a lot of work and then obviously around the country, depending on the weather, it may be impossible. We just started to crank things up there, probably, you know, towards the second half of the Q1. We're working down there right now at a pace that's more than we've ever done in Georgia before, and hopefully it'll continue.
Great. You highlighted for 2025, you know, the public safety sector growing. Can you just describe a few of the more important customers you had in 2025 for public safety?
Um. Uh.
That's what it said in the press release.
Yeah. We have a couple of large OEM customers. Unfortunately, that's where we cannot use their name. But they've been using our engine and software for years. The LPR business is growing. It's picking up, and we're seeing that. We still have probably one of the best engines there is, given that it operates, you know, not only in the U.S., but in 90 other countries. We're seeing more licensing of our software, which is where our focus is. You know, we're gonna continue those efforts going into 2026 because it's just a better business model, right? Less overhead, boots on the ground, sales churn and so forth. We're focused more on the software side of it now, which is good.
Yeah. Great. Last one for me. You know, there's been some talk about just political and, I guess regulatory resistance to ALPR technologies. How do you view that? I mean, is that elongating sales cycles? Is that creating obstacles or is it accelerating, you know, opportunities since you have some solutions there?
You know, the majority of our software license sales are not in the law enforcement arena. You know, there are theme parks, parking companies and others, so we don't have that issue there. In law enforcement, you know, it's always been an issue, Mike. It's not going away. We don't operate like others. We don't have data lakes. We don't sell the data to third parties. That's where you see a lot of issues. You know, we kind of stay in the background and let others battle that out, you know?
I got it. I guess I'll sneak one more in, if that's all right.
Sure.
In Texas, you know, there's a good kind of, I guess, master contract there, and you have Austin and you're trying to sell other big cities. Maybe update on kind of the receptivity of other big cities to Command in Texas.
Only that it's moving forward. It's a very slow grind. You know, these agencies do not move quickly, although we would like them to, and sometimes we're naive to think that, you know, that it was a much faster process. I do think the good news is that we're in front of them. I know we have a couple of meetings coming up, you know, later in April with a number of the districts. There is interest, and we are in the process of working on a couple of new contracts and a couple renewals of existing contracts.
I think onshoring Command was a good thing for us to do because it brought us closer to the customer, and it frankly fixed a lot of bugs that the system had that you know where attention wasn't being paid to it. We'll be able to get that to scale a lot faster now and tweak it.
Yeah. Sounds good. Good luck this year.
Okay. All right. Thanks, Mike.
Thank you.
Thank you. As a reminder, that's star one to be placed into question queue. Our next question is coming from Louie DiPalma from William Blair. Your line is now live.
Robert and Joe, good afternoon.
Hey.
For Robert and Joe, you referenced the Georgia DOT $50 million contract. In another geography, during the summer of 2024, you won the 1,000+ camera contract with the Florida DOT. What has been the progress of the Florida rollout, and do you expect that program to generate further growth in 2026? What are the other prospects in Florida besides that particular contract? Thanks.
Yeah. Florida, it wasn't 1,000, it was 150 systems in District Seven. It was a pilot as the state is looking to move to a Data as a Service model for the entire state. It's gone well, and we're in discussions with them now, and the program is expanding. It's not public. I can't talk about it yet, but we're making good progress down there. You know, the growth of the model and Data as a Service is clearly starting to scale. That's a good thing.
Great.
We're seeing that.
Make sure-
Across a number of states, right?
Yeah. Yeah. Maybe the opportunity was 1,000 and your deployment was in the hundreds. Thanks for that clarification.
We deployed 150 systems in District Seven. We have more cameras in Florida than the 150. We deployed at least, I think another 50, maybe a little bit more, and we're deploying now. You know, if you look at what the apparatus that we deployed does, okay, and you look at what it can replace, yeah, there's thousands, okay, of systems that you know, all this technology can replace just in Florida alone, right?
Right. For the year that just concluded, 2025, did you disclose what percentage of the $49 million in revenue came from recurring revenue versus equipment revenue? What was the growth of your recurring revenue?
Yeah. Joe, you want to-
Yeah. It was about a 50/50 split, and we had about a 6% growth in our recurring revenue year-over-year.
Great. Should we think of, you know, that trend continuing in 2026?
I think so. You know, I think it is part of our strategy. We're working to push customers more to a recurring revenue model, and then that aligns well with data as a service, software as a service. It's a little dependent on the buying power of the certain DOTs, but we do expect as part of our strategy to continue to push that into a recurring model.
I think it-
Thanks, Robert and Joe.
You know, one way to think about it is that the... Look, when we first went to the LPR business way back when, law enforcement agencies, PDs, large and small, were not doing subscription-based procurement. You know, they were buying hardware and software with maintenance packages. That's traditionally how DOTs have operated. You know, we were the pioneers. The company we acquired, SCS, was the pioneer of the concept of data as a service. The idea that you get what you need to be able to have the data to manage your roadways, both for planning and public safety, but you don't have to buy anything.
You just pay, you know, a company for the data, and they're responsible for the hardware, the software, and the maintenance. It is a very appealing model. It's just that it takes government a little bit of time to catch on to that. It is catching on and, you know, we've got multiple states doing that now. You know, that's gonna continue to expand because they get, you know, they can stretch the dollars that they spend much further, right?
Great. Thanks.
Thank you. As a reminder, that's star one to be placed into question queue. One moment please, while we poll for further questions. If you're on a speakerphone, it may be necessary to take yourself off before pressing star one. One moment please, while we poll for further questions. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.
Look, everybody, thanks for your support. If you recall back, during the call, you know, it was just a few years ago that we, you know, completed the acquisitions of these three disparate companies and, you know, we've gone through a lot, and Rome isn't built in a night, right, or a day. I think, you know, we've got the company stable. We're focused on profitability. I would encourage you to look at the back half of 2025 with regard to the EBITDA loss compared to the first half of 2025.
I would remind you that, you know, a lot of the right sizing, and cost savings and efficiencies that we're doing have taken place here in the Q1 of this year, which, you know, will probably be, you know, equal to or, if not greater than what we did last year. You can look at the balance sheet, and you can do the math, and you can see that the company's headed in the right direction. The back half of 2026, we're gonna focus on scaling, and then you'll see the company grow but grow profitably and smartly. It's growing anyway, but growing a lot faster. Anyway, thanks, everyone. Appreciate it. Take care.
Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.