AZ — Q2 2026 Financial Report Analysis

A2Z Cust2Mate's revenue rose fivefold in the second quarter of 2026, to $5.9 million from $1.16 million, because its smart-cart business finally shipped carts in volume: about 950 carts in the quarter, against roughly 500 in the first quarter. The company still lost $7.3 million, and the smart-cart sales come with strings attached. Much of the revenue is booked upfront on deals where customers pay over several years, so cash went out much faster than revenue came in.

At a glance

• Revenue $5.9M, up 409%: smart-cart sales went from $0.18M to $4.4M. This is the first quarter in which the cart business, not the older metal-parts factory, made most of the company's sales.
• Operating cash outflow $21.8M in six months: more than double the $9.7M a year earlier. About $11.4M of that went into customer IOUs and inventory rather than running costs.
• Cash plus short-term investments $43.4M at June 30: down from $69.2M at December 31, after $21.8M of operating outflow and a $5.8M share buyback.

What the company does

A2Z Cust2Mate (Nasdaq: AZ) is registered in British Columbia and run from Israel. Its main product is a shopping cart with a built-in scanner, scale and screen: shoppers scan items as they go and pay at the cart instead of at a checkout lane. The screen also shows advertising, which the company sells as "retail media." A second, much smaller business, Isramat, makes precision metal parts for hundreds of industrial customers. All sales are currently in Israel. The company reports under IFRS (international accounting standards), not US GAAP, and files results as a foreign issuer on Form 6-K.

Q2 2026 results

Gross margin is the share of revenue left after the direct cost of making and delivering the product. Operating margin is the share of revenue left after also paying for research, sales and administration; here it is deeply negative because costs still far exceed sales. "n/m" = not meaningful (a percentage change between two losses is easy to misread).

Where the revenue came from. Smart-cart revenue of $4.41M was almost all one-off product sales ($4.31M); recurring service revenue was $107K, down from $181K a year earlier. Management says the increase "is due primarily to the increase in sales from the Company's smart carts segment." The new customers named in the filing are HaStock, an Israeli home-goods chain that received about half of its 2,000-cart order during the quarter, plus earlier rollouts. Two customers made up 74% of first-half revenue (one at 46%, another at 28%), so the business depends on a handful of retailers.

Margins. Gross profit jumped to $2.51M from $0.27M. The cart segment earned a 37% gross margin in Q2 ($4.41M revenue, $2.78M cost). In Q1 it made roughly nothing: about $2.45M of revenue against about $2.48M of cost, implied from the six-month and three-month segment tables. In other words, Q2 is the first quarter where carts sold for clearly more than they cost to build and deliver. That fits management's statement that its dedicated production line in China became fully operational in June. The metal-parts unit's gross margin jumped to 59% from 9% a year earlier ($1.49M revenue, $0.61M cost). The filing gives no reason for that swing, so treat it as unexplained rather than a new normal.

Costs. Operating expenses rose 43% to $10.1M. Sales and marketing more than tripled to $2.68M, on payroll and share-based pay. General and administrative costs rose to $3.44M; investor-relations spending was $741K, against $24K a year earlier. R&D was flat at $3.99M. As a result, the operating loss widened to $7.59M even though gross profit grew by $2.2M.

What the headline numbers hide

• The smaller net loss is mostly an accounting comparison, not better operations. Q2 2025's net loss included a $4.14M non-cash loss from revaluing warrants (rights to buy shares, whose accounting value moves with the stock price) and a $1.44M loss from a business since sold. Strip those out and the year-ago loss from continuing operations was about $7.02M, slightly smaller than this year's $7.34M. The operating loss tells the same story: $7.59M now against $6.80M then.
• Loss per share fell partly because there are more shares. The weighted share count rose 27% to 44.7M from 35.3M after 2025's equity raises. Spreading a similar loss over more shares makes the per-share figure (-$0.16 vs -$0.31) look better than the underlying business moved.
• Revenue is booked well before cash arrives. Several of the cart contracts are paid in monthly fees over five years (the Toys "R" Us Israel / Red Pirate order is one). When a customer pays over more than 12 months, the filing says the company records the sale at its discounted present value, meaning the future payments reduced for the time value of money, and books the discount as interest income as the payments come in. The result shows up on the balance sheet. Long-term trade receivables (money owed to the company, due more than a year out) rose to $6.25M from $1.22M in six months. Short-term trade receivables rose to $5.17M from $3.03M. Together that is $11.4M owed, against first-half revenue of $9.2M.
• Some Q1 revenue was "bill-and-hold." In the first quarter the company recognized $2.2M of revenue under bill-and-hold arrangements: sales booked before the goods were physically handed over to the customer. There was none in Q2. That $2.2M was most of Q1's cart revenue, which makes the Q1-to-Q2 trend look less smooth than the delivery count suggests.
• Cash conversion is poor. Net loss for the half was $15.6M, but operating cash outflow was $21.8M. The gap is working capital: $5.0M more in long-term receivables, $4.2M more inventory (inventory roughly doubled to $8.1M) and $2.1M more short-term receivables. Before those working-capital moves, the business consumed about $11.6M in six months. Share-based pay of $3.7M (down from $7.1M) is a real cost to shareholders through dilution, but not a cash cost.
• Cash went to a buyback while the company burns cash. It spent $5.82M repurchasing shares in the half, and about $6.7M in total by August 12, under a program of up to $20M running to December 31, 2026. Cash and short-term investments fell $25.8M in six months. The main drains were the $21.8M operating outflow, $3.5M moved into cash pledged to the bank and the $5.8M buyback, partly offset by $2.2M of new bank borrowing, $0.9M from warrant exercises and a $2.6M currency-translation gain on cash.
• Internal controls are still flagged. Material weaknesses (serious gaps in the checks that keep the accounts accurate) were found in 2025 in procurement-to-pay and in inventory management and counts. Remediation is ongoing. Inventory is also the balance-sheet line growing fastest.

Funding: how long the cash lasts

At June 30 the company held $14.8M in cash and $28.6M in short-term bond and money-market funds, $43.4M in total. That excludes $3.9M of cash pledged to its bank. At the first half's operating outflow of about $3.6M a month, that is roughly a year of runway. Three things change the picture:

• A bank facility for building carts. In June, Bank Leumi committed up to NIS 92M (about $30.9M) to finance inventory for specified customers, at prime + 4%. About $2.2M was drawn by June 30 and NIS 85.4M (about $28.7M) remains available. This can fund cart production for contracted orders, but it is debt secured on customer contracts. It is not free cash for running costs.
• Cost cuts. A reorganization started in late July is expected to cut annual operating expenses by about $7M once complete, mainly in R&D and administration.
• A new acquisition. On October 6, 2026, after the quarter, the company closed its purchase of Hedia, an Israeli in-store advertising business with FY2025 revenue of about $20M. The price was about $8.4M in cash (about $7M of it expected to come from a new bank term loan), 833,333 new shares, and up to about $6.7M more in cash tied to 2027-2028 targets. The company estimates Hedia's adjusted EBITDA (earnings before interest, tax, depreciation and amortization, a rough cash-profit measure) at about $2.3M a year. From Q4 2026 onward, consolidated revenue will include Hedia, so headline growth will no longer reflect the cart business alone.

Management states the company has "sufficient working capital for at least the next 12 months." It also says it expects to keep operating at a loss for at least 12 months and may need to raise more capital, which could dilute existing shareholders.

Takeaway: Q2 is the first quarter where A2Z's carts were sold at a solid gross margin in meaningful volume (37% on $4.4M). But the company is booking multi-year cart contracts as upfront revenue and collecting the cash over years. Receivables ($11.4M) now exceed six months of revenue ($9.2M). The figure to watch is no longer revenue growth but whether those receivables turn into cash.

Outlook

Management reiterated, based on signed orders only, that it expects cumulative deliveries of about 10,000 carts by end-2026 and 19,000 by end-2027. With about 3,350 delivered by June 30, the 2026 target needs about 6,650 carts in the second half. That is more than four times the 1,450 shipped in the first half, so it depends on the new China production line and on rollouts to Sapir Group (which raised its total commitment to 7,000 carts, about $84M over the life of its contracts), the rest of HaStock's order, and Toys "R" Us Israel and The Red Pirate. One large deal is less certain than when it was announced: the company says it is "currently renegotiating" the terms of the April agreement with Carrefour Israel (4,000 carts, about $50M over five years). Management also expects to start deploying with two or more retailers outside Israel by end-2026, with Turkey's Migros carts expected in Q1 2027.

Our read: Q3 will show whether Q2's 37% cart gross margin holds at higher volumes. Three things to check in that report: how many carts were actually delivered against the 10,000 target, whether receivables keep growing faster than revenue, and how much of the $28.7M bank line is drawn. The company also plans to switch to US GAAP for its full-year 2026 audited accounts, so year-end figures may not compare neatly with these IFRS numbers.