Cloudastructure (NASDAQ:CSAI) said its annualized recurring revenue run rate reached approximately $3.1 million at the end of the second quarter of 2026, up from about $2.6 million exiting the first quarter, as subscription revenue growth continued to reshape the company’s sales mix and margins.
The company reported preliminary second-quarter revenue of approximately $1.2 million, up 13% from a year earlier. Cloudastructure said it filed a Form 12b-25 with the Securities and Exchange Commission to obtain additional time to complete its quarterly financial review and expects to file its Form 10-Q within the five-day extension period. The company cautioned that the results discussed on the call remain preliminary and may change.
Subscription Mix Drives Margin Expansion
Recurring subscription revenue rose 164% year over year to approximately $764,000, representing about 62% of total revenue, compared with 27% in the prior-year period. Hardware revenue declined 49% and installation revenue fell 32% from a year earlier.
Chief Executive Officer James McCormick said the shift reflects the type of contracts Cloudastructure is winning, particularly competitive “takeovers” in which customers retain functioning camera equipment while adopting the company’s platform. He said 77% of cameras signed in new contracts during the first six months of 2026 were taken over from prior vendors, compared with 57% of cameras in new contracts during 2025.
“We would rather win the recurring seat on a customer’s existing camera system than lose the account defending a hardware sale,” McCormick said.
Cloudastructure said gross profit increased 51% year over year to approximately $610,000, while gross margin expanded to about 49% from approximately 37% in the prior-year quarter. Cost of goods sold declined 9% to about $623,000, primarily due to lower hardware and installation activity, according to Chief Financial Officer Greg Smitherman.
During the question-and-answer session, Smitherman said hardware margins are generally above 50%, while installation margins are typically around 10%, varying by project. He said margins on the service side can improve as subscription revenue grows against fixed infrastructure costs, although the company has ordered additional infrastructure equipment to support customer growth.
Loss Narrows as Operating Investment Continues
Operating expenses totaled approximately $2.7 million in the quarter, compared with about $2.3 million a year earlier. The company attributed the increase to investments in sales and marketing, operational capacity for deployment and remote guarding, and infrastructure for future growth. General and administrative expenses declined about 15% year over year, reflecting lower professional-services costs.
Loss from operations was approximately $2.1 million, compared with about $1.9 million in the prior-year period. Net loss narrowed to approximately $1.8 million from about $2.2 million, which Smitherman attributed to stronger gross profit and a non-cash gain from changes in the fair value of derivative liabilities, partly offset by higher operating expenses.
Adjusted EBITDA loss was approximately $3.8 million, compared with approximately $3.1 million a year earlier. Stock-based compensation totaled roughly $376,000, down from approximately $542,000 in the prior-year quarter.
Cloudastructure ended the quarter with approximately $3.8 million in cash and $4.5 million in working capital. Smitherman said the company believes its cash, equity line and at-the-market facility provide flexibility for continued investment, though access to additional capital is subject to market conditions and facility terms.
Deployments Target Multifamily, Commercial and Construction Markets
McCormick said Cloudastructure continues to serve eight of the 10 largest NMHC-ranked multifamily property managers in the U.S. Earlier in August, the company announced its third deployment with a luxury multifamily operator in Houston, extending its presence to approximately 38% of that customer’s Texas portfolio.
The company also announced a five-building Southern California office portfolio deployment, where Cloudastructure will replace dedicated on-site guards with AI-powered surveillance and live remote guarding. The project includes designing and installing camera infrastructure across the properties and is expected to begin contributing revenue during 2026.
In Baltimore, Cloudastructure was selected during construction of a new multifamily development. The initial work consists of surveillance installation, with AI surveillance and remote guarding expected to be added as the building approaches completion. McCormick said the Baltimore installation is expected to begin in the first half of 2027.
McCormick said customers are adopting the company’s technology at different stages of a property’s life cycle, including new construction, competitive replacements and portfolio expansions. He cited rising labor costs, staffing challenges and demand for continuous coverage as factors supporting demand for remote guarding.
Sales Leadership and Second-Half Focus
Cloudastructure appointed Nile Coates as chief revenue officer. Coates previously served as vice president of U.S. sales at ECAMSECURE, a GardaWorld company, where he led the U.S. sales organization and oversaw the integration of ECAMSECURE and Stealth Monitoring sales teams.
McCormick said Coates will build the company’s sales organization, processes and channel strategy to help convert its pipeline into deployments and recurring revenue at greater scale.
While Cloudastructure does not provide formal revenue guidance, McCormick told analysts that management expects second-half 2026 revenue to be “substantially more” than first-half revenue. He said the company is adding sales personnel and monitoring active transactions across multifamily, commercial properties, construction and other verticals.
The company said its customer retention rate is approximately 99%. Smitherman added that deployed sites among the company’s relationships with eight of the top 10 multifamily property managers increased 150% year over year. Management described incremental recurring revenue as being split roughly evenly between expansion within existing accounts and new customer wins, though it does not formally report that breakdown.
About Cloudastructure (NASDAQ:CSAI)
Cloudastructure, Inc (NASDAQ: CSAI) is a technology company specializing in cloud-based video security and surveillance solutions. The company’s core offering is a subscription-based Video-as-a-Service (VaaS) platform that enables customers to deploy, manage and monitor high-definition cameras and environmental sensors through a unified cloud interface. By leveraging scalable cloud infrastructure, Cloudastructure eliminates the need for on-site video recording hardware and simplifies system maintenance and updates.
In addition to managed hardware, Cloudastructure provides advanced analytics capabilities powered by artificial intelligence and machine learning.
