Ineo Tech Corp

Good to start this one again. Well, hello, everyone, and thanks for joining us today. I'm Greg Watkin, founder and chairman and president of Ineotech Corp. With me today is Kyle Hall, Ineos CEO. We scheduled a call for 30 minutes. We'll spend about 20 minutes on prepared remarks, then we'll take questions for another 10 minutes. We're going to cover our fiscal Q3 results at a high level, what we're prioritizing strategically, and how we're thinking about liquidity in the context of fulfilling customer orders. We've also covered production readiness and shipment execution that we're making this quarter. Before we begin, I want to note that our remarks today include forward-looking information with our full statement on the screen now. A little bit hard to read. Per our policy, within the constraints of our contracts, no names of retailers will be discussed. Actual results can differ materially due to risks and uncertainties. I would ask you all to refer to our public filings on CDAR Plus for a discussion of those risks.

Next slide, Kyle.

The three headlines for investors today. First and foremost, and most importantly, we're pleased to report record quarterly revenue for fiscal Q3, which represents execution and momentum in the business. Second, as we disclosed on April 28th, we had confirmed orders for more than 425 systems pending production or delivery, and we're shipping systems against this backlog this quarter. Third, we've materially improved the near-term financing and maturity profile of the business through the Pathfinder extension, and we're using the coinciding private placement of shares in a practical way, which is to support liquidity so we can fulfill orders and maintain shipment cadence. We'll cover each of these in order. I'll now turn it over to Kyle.

Thanks, Greg.

I believe I'm on camera now. Hi, everybody. I'm pleased to have you join us today. First off, I wanted to dig in a little bit on why And it was differentiated. Some of you have seen this slide before. It's actually a fairly heavy slide, a lot going on on it. But the main thing is we operate at the corner of loss prevention, retail media, and retail intelligence, retail operations intelligence. And we do deliver a lot of features, a lot of things that we do that the competition doesn't do. By far, you know, the service of the others, we've upgraded the loss prevention capabilities, but we've really added in the retail media features. And that's significant for a lot of reasons, you know, in terms of gaining customers. But really for the traction that we're getting is, you know, the point I want to make well through this presentation today is that for every system that we ship, it's both a hardware sale and the start of recurring monthly subscription fees tied to an installed base. So it really is a business model on recurring subscription revenues that's delivering the promise to the retailer of great loss prevention technology and then, of course, the media aspects which can fuel the business for the retailer. So in terms of the prepared remarks for our fiscal Q3, we're going to keep it fairly brief today. But for the quarter, we were $586,589 compared to $546,001 for last year. It's a record quarter for us. We've been getting shipments out against the confirmed orders that we have, POs that we have in-house. It's a 28% increase over our prior year's quarter. And gross profit is improving. We have some one-time non-recurring items that we took in this quarter just to clean things up going forward. There's more information on those in our MD&A file on CDAR. But we're really at this point in a conversion phase. We've got confirmed orders. We have an execution plan to ship against those. And recognizing the revenue on those orders is where we're lining up. all of our capabilities, all of our time and effort and energy, and the liquidity plan for the company is to support that throughput. And you look at the business as a whole and how we approach the market with our customers, and we're really modernizing the entrance infrastructure of the retailer. The entrance is where, you know, the retailers put their best foot forward when people are entering and exiting the store. You know, it's what they want to, you know, have the greet the customer as they come in. Our platform is built around connected systems at the entrance for monitoring, reporting, servicing those locations, delivering messaging, and we offer a managed service to keep those systems running. And so you think about retailers trying to put digital screens in their stores. Who's going to manage those systems? How are they going to manage them? The system that we're putting in for loss prevention is already a managed system. We make sure that system runs at all times. It's doing its reporting. It's connected. Very, very few systems from anybody else in the industry are connected. All of ours are connected, but we add a digital screen to that footprint, and that connectivity to that digital screen allows us to do much, much more. So, in a practical sense, you know, it's essential loss prevention infrastructure with a supporting economic layer delivered by the media screen that we put into it. And so our near-term priorities are pretty straightforward. We're executing on the shipments that we have. We're maintaining a strong operation performance. We're making sure that our pipeline is matching our capabilities at the moment and that we can fulfill in a pipeline. And it's really about expanding that installed base so that we can drive the subscription revenues. And those subscription revenues, I just want to talk about them for a minute. You know, they cover a lot of things. On the high level, you know, monitoring, reporting, remote maintenance support, and media integration. And media integration is key, of course, for the retailer because they've already invested in media and they've already invested in teams that are selling media. They're doing it on their website. They're doing it now into the stores. we just integrate our system into that infrastructure and work with them. It's a fine-tuned model that we've come up with. People who have been with us for a while know that we've gone a few different directions as we've got here. We are now in a really sweet spot. We've fine-tuned our model, our business model, so that we operate as the media business for the retailer. We still have a retail media business of ourselves with our large office supply retailer, but that is not the go-forward plan. Our go-forward plan is to sell a system that generates revenue streams in terms of hardware and recurring subscription fees. Every incremental shipment is not just a one-time sales. It's the start of a recurring revenue stream that scales for us. And so, delving the numbers just a little bit here, in terms of the order backlog, we put a press release out on April 28th saying we had 425 systems confirmed orders for We've been shipping against that. We've received more orders in the meantime. We're not going to update the total number on that today, but we are shipping against that backlog and receiving more. Our target is to ship 300 in the next 30 days before the end of the current quarter that we're in. We have more in the pipeline. We're going to lock up more orders over the next few months. So if you look at some indicative economics, based on our targets, this is what you can come up with in the lower part of my screen. Hardware revenue, a nice high number. Margins aren't great. They're good. They're not great, but they're not where they are in the terms of the recurring revenue subscription fees. Subscription fees revenues, margins are very high. So our blended rate will be moving up constantly as the systems go out there. Annual recurring revenue is what we're focused on. And if you look at that annual recurring revenue number versus market cap today, a video, we have some work to do to let people know who we are, what we're about, and where we're going. And once we can get that messaging out there, we deliver a few more quarters of our numbers, the market cap will take care of itself.

And so with that, I'm going to turn it back to Greg for a few slides.

Thanks, Kyle. In addition to ensuring our patented technology is being extended to bring INEO's new opportunities, our focus is on ensuring we can fulfill what we sell, which means production readiness, quality control, staging, shipping discipline, and serviceability once systems are deployed. Over the last period, we've been building repeatable production processes which support higher volume output with consistent quality. That includes inbound component control, assembly workflow, test procedures, staging, and packout procedures. Over the last six months, we consolidated our production facilities to bring all of our activities under one roof. This has allowed us a lot more efficiency in our production processes by co-locating our engineering team and production team under one roof. If anybody on the call is hearing noise in the background, it's from the CNC machine that's running in the manufacturing area behind my office. The practical outcome of our production improvements is that we are set up to fulfill the backlog that Kyle referenced while maintaining predictable performance in the field. We're also planning around the realities of supply chain lead time so we can keep shipment cadence steady. This quarter is about execution against confirmed orders. We're shipping systems against the backlog, revenues being recognized as shipments go out in accordance with customer requirements, Just as important, each system we ship and deploy also drives recurring monthly subscription fees, which create predictability over time and scales with the installed base. From an operations perspective, there are three things that we're managing carefully. Component availability and lead times, it's a challenge out there. With the situation that's going on in the Middle East, quality and test completeness before each shipment, logistics and scheduling so the shipment flows steadily. We built internal visibility around production status and shipment plans so we can now execute reliably and communicate clearly with our customers. For investors, the best way to track operational progress near-term is simple. Shipping cadence, which drives revenue recognition, backlog conversion over time, reliability and deployment and service, which supports long-term scaling. Our objective is consistent execution. That's what converts the order book into reported results. I'll hand it back to Kyle.

Thanks, Greg.

So we had a few releases in the last little bit, a few disclosures. One of them was quite a significant one. We've had a $1 million loan from a shareholder, a fund that has been quite close to us and quite good and supportive of us, and that is Pathfinder. I just closed that publicly. But we had a million-dollar note coming due in May. And in our conversations with them, talking through our progress, where we're at, We were able to work with them to extend that loan, a 19-month extension, to December 17, 2027. With that, the interest rate staying as is. We owed some interest coming up off that loan as it was coming due. That is going to be converted to equity. And it was done in conjunction with the requirement that we do a minimum raise to give us a little bit more working capital to handle these large influxes of orders. So the loan extension had terms on it that we would do a minimum raise and that we would convert the interest, but that would give us the extension out to December 2027. That really allows us to materially reduce our near-term pressure in terms of cash needs and support the execution plan that we have into the marketplace. And we're thankful to Pathfinder for working with us on that. The extra runway will really allow us to execute on those confirmed orders and move towards the improved cash generation, which will then – be in line for when that loan is coming due. And so then on the offering that we're doing in conjunction with that loan extension, we originally announced it as up to $1.1 million with a minimum of $500,000. This morning we announced that we're going to extend that, upside that to $1.5. We're doing this with a fair amount of demand Possibly it could have gone higher, but we're still cognizant of the deletion. But we are more looking at this from the lens of we need to produce these orders, get these orders out, generate the revenue, get the systems into the market so we can get the recurring revenue out of it. The offering that we're doing is going to be done in conjunction with a 1 for 10 share consolidation. So the offering... is uh at zero one of any pre-consolidation ten cents post consolidation uh we expect to close uh following tsx uh the approval um and we're moving on that now um it's just a bit of an orchestration in terms of the consolidation with the close but we'll have more news on that that we will share publicly shortly you know the use of proceeds for the offering You know, it's working capital. Inventory purchases, production requirements, you know, deployment costs, and, you know, general operations to support that. The point is throughput. We're aligning the liquidity of the company with confirmed orders so that we can maintain the shipment cadence. We're going to convert those confirmed orders into shipped orders, which means we will generate revenue now. We book revenue on shipment of hardware. and then we get the monthly fees recurring as the systems get installed. So combined with the extension, the offering really supports the working capital needs of the company, and that will allow us to keep that shipment going so that we can hit those numbers and have the future quarters reflect the work that we're doing today. So on just a recap, We feel that this was quite a crucial quarter in terms of where we got to in terms of the order backlog. We're delivering record revenue against that in the current quarter, and the shipments that we have will obviously affect future quarters. We're shipping against that backlog. We're going to clear that as soon as possible, maintain a consistency of inbound orders, and clearing up the short-term, near-term maturity pressure of the loan and using the offering to support our liquidity and fulfillment. And with that, let's open this up for questions. I will just get my screen reset so we can add Greg in here.

Let's see what we have in terms of questions. We have a few here. Let me just sort through them.

One question we have is, how important is media versus systems and descriptions?

Greg, do you want to take that one?

I've got a couple of questions here. The question is, how important is media subscription? This is critical for us for building a long-term sustainable business, to have a growing backlog of subscription revenues for the services that we provide, which provides the ongoing revenues for the company. Yes, it's nice to be able to sell the hardware to the systems, but providing the ongoing service to the customer is is critical for us. We see that as a growing piece of our business and we're really pleased with the way that it's developing right now. Okay.

Next question.

Why is the market cap so low relative to the backlog? market dynamics right now. We need to show what we are doing. We need to get word out and messaging out about our business. We need to put a few quarters together of the consistent growth and show the market our recurring revenue numbers coupled with our margins from our hardware sales and how that progresses in business. We need to show new customers and pipeline. And that will all take place in due time. Market dynamics will take care of the rest, we believe. It's one of those things that we see as a management team. We have a lot of work to do, and we're going to do it.

Questions going through this list? Why the share consolidation?

I think we get to a point as a company and we've really put forth getting to this point. Somebody told us one time survival capital is tough and growth capital gets a little bit easier. We're at that stage now. We're at this point where we're moving into growth mode and we need to just position the company a bit. And one of that is having the share count and a reasonable level, having a stock price where it's attainable that certain investors can buy. We feel strongly that our future is definitely ahead of us. So it's just, I think, a fact of where we got to in the market and where we need to execute on and move forward.

That's a good segue because one of the questions was talk execution risks in the next 90 days. And for us, execution risk is primarily supply chain. It's getting in the parts. We've got a fairly complex product in terms of the amount of pieces that go into it. There's a lot of suppliers that are involved with this that we have. Our supply chain is literally worldwide for all the pieces that we put into them. So our risk is getting all of these in there. We've done a good job of trying to ramp up and get all the components in that we need. Sometimes there's some little hiccups on that, but we're starting to see things flowing a lot smoother on that in terms of getting materials in from our suppliers and being able to build at the pace that our customers are looking for. But it's an ongoing challenge every day dealing with suppliers to make sure that they can deliver the products that they promised to us so that we can turn to meet the promises that we made to our customer.

Next one, just a couple more here, I think. Where do subscription fees start? Where do subscription fees start at shipment or activation? We start a subscription fee billing when the system is installed and commissioned. So once it's installed with the retailer and it's commissioned to the network, it's live on the network, we start building from that date. Hardware, we recognize revenue as it ships. We bill as it ships. But we, for subscription fees, they're not until the system is installed. So there's a slight lag from installed systems to monthlies, but then the monthlies just kick in. And the big picture really is that, you know, every incremental system then does drive that installed base that contributes to that revenue.

Yeah, another question that's up on with regards to what are the actual subscription fees and what's that covering? That's, again, for monitoring, reporting, remote maintenance. One of the things that we've built into our system is the ability to manage our systems remotely. We're a small company. We don't have the luxury of a very large team to build a roller van to go and do service calls. So we've built a lot of tools into our system to be able to support our systems remotely, same with software integrations, upgrades. There's a whole host of services that are provided in the subscription fees, which allows keep on running. And then more importantly, the analytics that are involved for the customers, bringing real value for them as they're selling the advertising on their systems. We're providing them with detailed analytic information, which supports their efforts to be able to sell advertising on the system. So that's all wrapped up in the services that we provide as part of the subscription fees.

looking like it, Greg. Anybody else have anything they want to submit right now? Okay. Well, with that, I will thank everybody.

Greg did the closing remarks, but I thank everybody for joining us and appreciate the support as we move forward.

Yeah, I want to thank everybody, all the shareholders that support us. It's been a long journey for us to get to where we are. We're really encouraged. We've got some good things that are happening with the company, and we're just going to continue pushing forward and helping to build the company for everybody. So thank you for your continued support, and thanks very much.

Thank you, everyone.