A2Z Cust2Mate Solutions Corp. Common Shares 2026 Q2 Earnings Call

Before we begin, please note that today's call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual to differ materially from those projected. Please refer to our earnings release as well as our filings with the SEC for discussion of these risks. A replay of this call will be available shortly after its conclusion. With that, I'd like to turn the call over to our CEO, Mr. Gadi Graus, Chief Executive Officer of A2Z.

Thank you, Simon. Good afternoon, and thank you for participating in today's call to discuss our second quarter progress and our business outlook. Our team executed well in the second quarter, resulting in sequential revenue growth of 78%. We continued to drive commercial adoption of our platform and Smart Cart solutions. Key takeaways from the quarter included the strong positive momentum in our deliveries, which reached 950 Smart Carts, nearly doubling from first quarter levels and bringing to 3,350 the number of units that have been delivered to date. We brought an important new customer on board, Hastok, a 50-store home goods retail chain in Israel, and have already made a partial delivery to them. We also expanded our partnership with Super Sapir, a large and growing supermarket chain based in Israel with over 70 stores.

Our dedicated manufacturing facility in China came online in the second quarter, significantly increasing our delivery capacity and shortening our lead times. We introduced our next generation Connected In-Store Commerce Platform. We secured a $30 million line of credit with Bank Leumi to provide funding to support our future growth. These accomplishments demonstrate significant progress across our organization and underpin our confidence in delivering 10,000 Smart Carts by the end of this year and at least 19,000 by the end of 2027. Keeping in mind that the 19,000 is based only on our current orders and does not take into account additional new orders or increases from existing customers between now and the end of 2027. I'd like to spend a few moments reviewing our business proposition and the opportunity set.

Our platform builds on our Smart Cart technology to help retailers digitize the in-store shopping journey through connected shopper engagement, retail media, and operational intelligence. Shoppers benefit from a more convenient shopping experience, while retailers gain new tools to improve store operations, reduce checkout friction, strengthen loss prevention, and generate new retail media revenues. In the first half of this year, we delivered Smart Carts to two retail customers. Yochananof, a major supermarket chain in Israel with over 45 stores nationwide, and Hastok, which, as I mentioned before, is a 50-store home goods retailer, the largest in Israel. Earlier this week, we expanded our partnership with Super Sapir, a large and growing supermarket chain in Israel with over 70 stores.

In light of their expansion and recent purchase of stores from Carrefour Israel, Super Sapir placed a follow-on order for 4,000 additional carts, bringing their total commitment to 7,000 units, with deliveries starting in the third quarter. Later in the second half, we will also be delivering to Toys R Us in Israel and the Red Pirate, two prominent toy retail chains. These wins have put us at an inflection point on the cusp of larger scale rollouts. During the second half of 2026, we expect to grow our retail media revenues as we accelerate cart deliveries. As we scale the business, we have taken several actions to support future growth. First, as I mentioned, our dedicated Chinese manufacturing facility came online in the second quarter and expands our capacity while reducing lead times and production costs.

Next, we are in the process of rolling out our newly completed Connected In-Store Commerce Platform, marking a major evolution from a product-centric offering to a unified enterprise platform for modern retail. With this launch, we have restarted delivery of new carts to our largest customer, Yochananof, under their agreement to take 5,000 carts. We believe the new features will attract further interest from other potential customers. We expect to see our Smart Carts in at least two retailers outside of Israel within the next six months. Third, we are shifting our spending towards deployment, sales, and marketing. Gadi Levin will speak more about this in a moment. Speaking of Gadi Levin, we are pleased to have Gadi take over the role of CFO. Gadi has significant experience with more than 25 years of executive financial leadership across publicly traded companies. I look forward to working closely with him.

Gadi will also speak more about our new $30 million credit line with Bank Leumi. I would just like to say that we believe this represents an important vote of confidence in our business prospects, which we appreciate. To sum up, this was a strong quarter for us, with deliveries up in line with our expectations and a path forward to continued growth. Now I will turn the call to our CFO, Gadi Levin, to provide a fuller financial review.

Gadi. Thank you, Gadi, and thank you everyone for joining us.

I am pleased to join on my first conference call as CFO. I have long admired A2Z's leading-edge technology platform and solutions, and I am excited to step into this leadership role. Today, I will review our financial performance for the second quarter of fiscal 2026. In the second quarter, we made meaningful progress on both the commercial and operational fronts, accelerating Smart Cart deliveries to a growing client base while taking deliberate actions to enhance our focus on commercial execution.

Customer expansion. My financial commentary will focus on sequential comparisons, which we believe are more meaningful at this stage than year-over-year comparisons. Second quarter revenues of $5.9 million were significantly above the $3.3 million reported in the first quarter of 2026. Smart Cart revenues rose to $4.4 million from just $2.5 million, as we nearly doubled Smart Cart shipments sequentially from 500 units to 950 units, including the initial delivery to Hastok, as Gadi mentioned. Gross profit was $2.5 million, reflecting a gross margin of 42.6%, compared to gross profit of $100,000, reflecting a margin of just 4.2% in the 2026 first quarter. The increases were due to higher unit volumes and the shift to more efficient manufacturing in our facility in China, which came online in the second quarter, and which translated to lower production costs.

As production ramps, we expect to continue to realize meaningful economies of scale from our new Chinese manufacturing facility. With this facility in place, we have adequate capacity to fulfill existing and future customer orders. In addition to improvements in our manufacturing capabilities, our operational hubs in Panama and Bulgaria remain an important part of our global deployment strategy. During the quarter, we made further progress in establishing the infrastructure, processes, and capabilities that will support regional deployments and customer service as rollout activities continue to expand. Operating loss was $7.6 million in the second quarter of 2026, compared to a loss of $8 million in the first quarter of 2026. Net loss was $7.3 million or $0.16 per share in the current quarter, compared to a loss of $8.3 million or $0.18 in the prior sequential period.

Moving forward, we expect to find operating expense savings from an organizational realignment that is already underway. This initiative was designed to accelerate commercial growth as we leverage our next-generation Connected In-Store Commerce Platform, which is now entering commercial deployment. As part of the realignment, we will be reducing our use of external consultants and subcontractors as we internalize functions we previously outsourced. In addition, net headcount is expected to decrease 10%. These actions reflect our increased focus on deployment and customer-facing functions. We expect the realignment to generate savings of approximately $7 million annually once it is fully completed in the fourth quarter, while preserving our delivery capabilities and core technical and customer support functions. Ultimately, these actions will sharpen our focus on commercial execution and our sales efforts. Turning to our balance sheet, we have continued to strengthen our financial position.

As of June 30, 2026, we have $43 million in treasury and working capital of $55 million. We also have the new $30 million credit line with Bank Leumi, of which we have used just $2.2 million. The Bank Leumi credit line is an important tool to provide the financing we require as we scale the business. The credit line will be used to fund inventory and underscores our progress and success as we build on cart deliveries. As Gadi mentioned, we view this as an important validation of our business model and our early execution. We continued to act on our $20 million share repurchase program in the quarter. As of June 30, 2026, we repurchased 919,000 shares for a total of $5.8 million. In July, we repurchased a further 147,000 shares, bringing the total to approximately 1.07 million shares, which we have now canceled.