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Good day, and thank you for standing by. Welcome to NEET first quarter 2020 conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated device when your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Katie Cata, IR lead for NEET.

Please go ahead.

Thank you, Operator, and welcome everyone to NEET's earnings conference call for the first quarter of 2026. Today's call will be hosted by Eddie Ryan, NEET's CEO, and Dave O'Reilly, NEET's CFO. Please note the safe harbor statement on slide two in the forward-looking statements disclosure at the end of the earnings release informing you that some comments made on today's call contain forward-looking information. This information by its nature is subject to risks and uncertainty, so actual results may differ materially from the views expressed today for further information on these risks and uncertainties. Please consult our relevant filings, which can be found on SADAR and on our website at NEAT.com. Also, during the call, we might refer to certain supplementary and financial measures as key performance indicators. Management uses both IFRS measures and supplementary financial measures as key performance indicators when planning, monitoring, and evaluating our performance. Management believes these non-IFRS measures provide additional insight into our financial results, and certain investors may use this information to evaluate our performance from period to period. I will now pass the call to Eddie Ryan, CEO of Needs.

Good morning, everyone, and thanks for joining us today. I'll keep things brief so we can get to your questions quickly. I'll cover the key highlights from the quarter, Dave will walk through the financials, and then we'll open it up for questions. Overall, we're pleased with how we started 2026. The quarter brought us a step closer to our strategic goals. We saw solid revenue growth and a stronger cash position. Revenue was up 22% year over year, in line with expectations, and annual recurring revenue grew 20%. As I mentioned in my shareholder letter, customer transitions to full digital validation take time. While we're confident in our strategy and execution, and both are very well aligned with what the market needs, timing on the customer side can vary. That said, what gives us real confidence in expansion is what we've seen time and again. Customers recognize the value meat delivers, and they want to build on this. In fact, two significant expansions we had expected in quarter one actually closed in early April. We're also seeing this reflected more broadly in our annual state of validation study. 87% of respondents are still relying heavily on paper-based processes, and the 80% say the validation workloads are increasing. That's simply not sustainable. Efficiency gains from digitization are clear. But what's really important is that the benefits go much further than that. And we heard this directly from customers at our user conference validated. They talked about the need for a single trusted system of record with high quality compliant data, especially as they move toward AI and greater automation. As we've evolved our platform from being document centric to data centric. We're increasingly becoming the partner of choice for these kinds of workflows, including computer system assurance. As we continue to build out our data-centric capabilities alongside what we already do on the document side, customers are getting what they've been asking for, one platform they can trust, easy to use, that helps them connect processes, collaborate more effectively, and reduce repetition and errors. At Validate, several customers also spoke about the importance of connecting what's happening digitally with what's happening on the factory floor. Keeping those environments in sync is critical. And importantly, the message from our customers was very clear. They're all in on these. They're aligned with our roadmap and are excited about what we can achieve together over the long term as we continue to modernize validation in life sciences.

With that, I'll hand it over to Dave to take you through the numbers. Good morning.

As I take you through the numbers, a reminder that our results are presented in Canadian dollars. As Eddie mentioned, revenue came in about where we expected it to. $18 million was 22% higher than the $14.7 million we posted for Q1 a year ago. Annual recurring revenue grew 20% over the same period to $76.1 million. Relative to December 31, FX was a tailwind to our Q1 ARR of about $900,000, Conversely, year over year, FX was a headwind of $950,000. Customers expanding their use of NEET drove most of this growth, with new customer ARR making up the balance. Incremental ARR is historically back-end loaded, and we expect that pattern to hold for full year 2026. So Q1 growth isn't a read-through to where we expect to land for the year. Year over year, gross margin expanded in Q1 for two reasons. First, we're getting better cloud hosting economics as we scale. And secondly, services revenue grew compared to last year. Services typically run at lower margins than SaaS, but with disciplined delivery and continued improvements in how we execute, meant we completed some projects sooner, which in turn lifted the service margin this quarter. Operating expenses increased 32% over last year's Q1. A substantial contribution to the growth was R&D and a reduction to what we capitalise. As we were capitalising a smaller percentage of our R&D costs in the past, This translates to more of the R&D expense running through the income statement. In Q1, we capitalized about $750,000 less than we would have done in our previous approach. Of course, we've also made investments in R&D and sales and marketing over the past 12 months to develop our product capabilities, as well as our sales and marketing reach, especially as our customer base expands. Being first and being integrated builds a durable competitive edge. In close Q1, with a cash balance of $51.5 million, and pay over $48.7 million at December 31, 2025.

With that, I'll turn it over to you for your questions.

Thank you. As a reminder, if you would like to ask a question, please press star 1-1 on your telephone. You'll hear automated message advising your hand is raised. If you would like to withdraw yourself, please press star 1-1 again. We also ask that you please wait for your name and company to be announced before proceeding with your questions. One moment for the first question. Our first question will come from the line of David Kwan of TD Cal, and please go ahead.

Good morning. I was wondering if you guys have seen any material change in the sales cycles and deployment times over the last few months here, particularly since the start of the Iran conflict?

Hi, David. Eddie here. Thanks for your question. I would say that through 2025, the sales cycle slowed down a wee bit in places through the year. I think we're seeing more stability now going into 26 over later 25. But it's hard to measure it, and it's an ongoing thing. But deployment times are not effective. But I would say the sales cycles and the budget approvals probably had been slower last year, but they're improving a bit this year.

Well, that's awful. Thanks, Eddie. And at the Validate conference, can you maybe talk about some of the more common things that customers were talking about as to what they want you to help them with?

Yeah, it was a great conference, David. And it's a conference we use every year to make sure we're aligned with our customers. You know, the first day of the conference, which only takes on board our customer advisory board, which is a lot of our key customers are invited to that. And they share all the details around what they want, what they would like. We share what we have, where we're going in detail with them. And I would say the one thing that I've taken away from this conference is we get stronger every year. Our alignment with our customers, we're listing, obviously, through the year, but also once a year. And our alignment with our customers is really great. And this year, we had the ability to show them where we are with AI, what we're doing in the product today, what we have today, what we're bringing forward in the next release and subsequent releases. And I must say, I really feel positive about the alignment. Also, we talked to them about the ability for them to do more data-centric workflows. In parallel with the doc-centric workflows, which is one of our key strengths, being flexible to allow either a doc-centric process or a data-centric process, they're really buying into that. We even had one customer come back and do a presentation of what he had done with our data-centric capabilities of his own accord, and it was really impressive. We had some of our big customers really talking about how they're getting deeper into need and how they're rolling need out to more and more sites. And the plans are really very good to hear. So we're very happy with the Validate conference, David, and we're delighted to have that conference, the key conference for the company. And we learn a lot from it, and we get really aligned with the market. And I think the market continues to show why they like me so much.

No, that's great to hear. Thanks, Eddie. And maybe one question for Dave, just on the accounts receivable, saw a big jump there. I don't know if that was just a timing thing, maybe a lot of billing late in the quarter, but any commentary you can provide?

Yeah, thanks, David. Q1 and tail end of Q4 is when we do a lot of our large billing. It coincides when we see our large ARR growth. So what you will see is you'll see a spike in our AOR balance, but you'll also see a spike in our deferred revenue or contract liability balance as well. That AOR balance will be then cleared down in Q2. So one of the things that we continually reference is that H1 is typically where we see a lot of our cash inflows from our customers. This is just a timing aspect of when we bill and when we get the cash receipts.

Yeah, it was just a lot bigger this year than what we've seen in prior years. So I didn't know, like I said, if there was something specific going on. It isn't really the timing of those billings.

It's purely timing. So if you compare our AOR balance from Q125 to the Q126, it's substantially higher. But that's literally just due to a handful of customers that are due to pay us. And we're expecting that payment to land into Q2. Some of that has already been cleared down.

That's great. Thank you.

Thank you. One moment for the next question. And our next question is coming from the line of Erin Kyle of CIBC. Please go ahead.

Hi, good morning. Thanks for taking the questions. On the adjusted EBITDA side, the number in the quarter came in a bit below our expectations. And I know, Dave, you spoke to some elevated expenses in the quarter tied to R&D spending and sales and marketing. But maybe you can expand a little bit more on that. And then how are you thinking about balancing profitability with the free cash flow break-even objective that you've called out in the past? And are you still aiming to hit that in 2026?

Thanks, Aaron. Great question. Just to answer the latter part of that question first, yes, we're still planning to be cash flow positive for the year. In terms of adjusted EBITDA, to the point that I made earlier around our R&D, we're capitalizing a little bit less now in 26 than we had done in prior year. So we're roughly seeing 750K in Q1 that would have been typically amortized or capitalized if we kept the same ratio as we did in 2025. So if I look back onto 2025, we capitalized on average 52% of our overall R&D expense. In Q1, that dropped to 44%. As you know, from a cash flow perspective, regardless of where it sits within the income statement or on the balance sheet, it's not going to ultimately impact the cash flow. It's purely just the recognition between the income statement and the balance sheet addition.

Thanks.

The G&A expense was a bit elevated in the quarter as well, so just wondering if you could kind of expand on that as a percentage of revenue is quite elevated versus Q1 last year as well.

Sure. The G&A in Q1 includes roughly a one-time professional fee adjustment of about $300,000. We don't expect that to continue.

Okay. Thank you. And then maybe just on the professional services side, Revenue is higher in a quarter than it's been in the past. Just wondering if you can speak to what's driving that. Are you seeing partners doing less implementation work? Is Neat doing more of it? Just what's driving the elevated professional services revenue?

Yeah, Neat is doing more professional services. We're not outsourcing our professional services to partners. The goal is that we complete that internally. We also delivered on some of our projects a little bit sooner than even we would have anticipated. So we're seeing improvement in delivery. We're also seeing, you know, disciplined management there by the professional services teams, and that's contributing to our increased gross margin.

Okay, and do you expect a similar level, I guess not quite as high as Q1, but how should we expect the cadence for the rest of 2026 to look?

Yeah, I would... I would suggest that the professional service is going to be higher in 26 than we would have seen in 25. Gross margins should continue roughly around this level. But yes, from a professional services perspective, I would assume that it's going to be higher in 26 than we'd seen in 25.

Thank you. Thank you. One moment for the next question, please. Our next question is coming from the line of Gavin. for weather of ATB Cornmark. Please go ahead.

Oh, hey, good morning, good afternoon. Maybe just on your comments on the macro, kind of improving so far in 26. Haven't quite seen it yet showing up in ARR bookings and other seasonality there, but maybe you could just characterize kind of your pipeline of expansions versus this time last year, which was maybe at the height of the trade uncertainty and how you found that your tenor of client conversations has shifted.

Yeah. Hi, Gavin. So, correct. I would say that the macros are definitely, I guess the word has probably become more used to them. And I think that the sales cycles would have been longer, budgets getting delayed and put off. We saw quite a bit of that at the end of last year. It's a bit early to judge the year right now, but I would say there's definitely a more positive posture coming from the customers on the cycles and on the budgeting. And, you know, a lot of this knowledge is based on our conversations with our customers. And as I say, you know, we did have slippage at the end of last year. Those deals are still in, you know, some of them are over the line and some of them are still in play. And I would point out a couple of deals that just barely missed a quarter. And, you know, Dave is tough on the closing off the quarters and the sales guys are not happy. But, you know, there's a couple of deals we'll get into Q2. But yeah, generally speaking, I think I'd be more optimistic about the macro. Having said all that, we never know which way it goes.

I appreciate that. And in your CEO's letter, you called out, I think it was the strongest new logo pipeline you've ever had. So maybe you can just comment on that a little bit. And if there's any particular regions or segments where you're seeing an uptick in traction.

Yeah, we had a strong logo, new logo pipeline last year. Gavin, we have the same one again this year. Our marketing team is doing a great job at filling the top of the funnel. And, you know, that takes a year for it to kind of filter down to deals and stuff like that. So, yeah, we definitely have that strong pipeline. And, you know, it's very enterprise and strategic orientated, the pipeline, because that's what we focus on with our sales team and our marketing team. So, yeah. Yeah, I'd say, you know, if you look at quarter one, we had another good quarter of new logos. And within our expectations internally and, you know, trending to what it was last year.

Appreciate that. And then, you know, you've chatted a lot with clients on AI over the past month or so, given the conference. I'm curious what you're hearing in general in terms of the client readiness for AI and if you're hearing from any of the customers that they might want to accelerate the rollout of digital to prepare.

Yeah, I think that's a very good point. And I think customers are beginning to think, you know, how do we make good AI and how do we get good AI input in our business? And I think they're focused on data and, you know, digitalization to make sure that they have the process and the connected systems that they can get at the data and stuff like that. I would say that our customers definitely want to see AI in their business. They want to see more of it. But they're cautious, especially the larger companies. They're cautious about turning on native AI features easily. I mean, they have to assess it quite clearly. And they won't turn on features if there's any sort of risk to data integrity or potential patient safety. So, you know, we've seen a warning letter in the marketplace as well from the FDA on some companies that used AI to, you know, to generate a batch record, stuff like that. So there's going to be a lot of caution here, but the companies are going there. And I think what I, you know, really excited about is our customers are very aligned with us. They see what we brought and what we're bringing, and they're very happy with us. And they think it's being brought in a thoughtful manner, aligned with the way they think and the way they want to move.

That's great. And then just lastly for me on the strategic review, we'll see if you answer, but I'm curious if there is something that's kind of catalyzed that strategic review, whether it's an inbound bid or just maybe your perception that the stock wasn't properly discounting the value of the business that you're building. Any comment here on that front would be helpful.

Well, I like to think of it like this, Gavin. Great companies get a lot of attention. That's the way I see it. And that's the way our people internally see it. And, you know, we've been getting inbound inquiries for quite some time. And, you I would say that there's no guarantee of anything. You know, there's, you know, discussions ongoing. There's a strong interest. There's no, you know, obviously, like we said in our letter, there's no guarantee of anything happening. And, you know, we have a strong vision for the company and any partner that, you know, you know, getting involved with NEET will be aligned with that. And all stakeholders will benefit to the maximum. That's the way we see it. very early days and know, you know, it's totally inbound for them.

Thanks so much for the past one.

Thank you. One moment for the next question. Our next question is coming from the line of Justin . Please go ahead.

Good morning. Thanks for taking my call. Maybe just a follow-up on the strategic review first. Any indication of timing on when it could conclude?

We don't have any timing on it right now, Justin, other than it's early in the process.

Understood. Just in general, the Pharmaceutical space has been pretty active as far as M&A, including some of your customers acquiring other companies. Does this impact NEET's profile at all? Is it a tailwind or potential headwind as far as onboarding new seats?

Absolutely. It's totally a tailwind. The tailwind may take a little bit of time to materialize in the sense that they have to, you know, if they acquire a company that may have an alternative product, you know, and they already have need and, you know, the acquiring company already has need, then, you know, it just takes a bit of time to switch out and stuff. But it's definitely, if our customers are acquiring others, it's definitely and has proven all the time to be a tailwind for need.

Good to hear. And then, are we able to have any color on the net retention rate in Q1? I know it's disclosed annually, but just trying to see if there's any context for how existing customers are expanding with NEAT.

Well, just at the top level there, I would say that it's trending similar to last year at this time. And I will point out, Justin, that, you know, like, You know, we're in the enterprise software business, as you know, and it's usually quarter four is usually when we see a lot of our expansions and stuff, right, and the growth. So, you know, for most of the last years, you know, most of our growth, our increased revenue comes in in quarter four. But I will say that, yeah, we're trending as we were last year.

Great to hear. And just a question for Dave. On the AR industry, Is there any concentration in that or is it diversified among your customer base?

It's diversified. It's usually going to be, you know, like our top customers make up a reasonably good portion of our revenue. It's linked to those customers, but there's never any issue with those. It's purely a timing relations point at the end of the Q1.

Good to hear. Thank you very much.

Thank you. And there are no more questions in the queue. I would like to go ahead and turn the call back over to Eddie Ryan, CEO for Closing Remarks. Please go ahead.

Thank you. Every quarter that goes by is getting us closer to our goal. Even if our goal of digitalizing life sciences can be as efficient as possible is an ongoing journey. Need is and always has been resilient and executes to a long-term vision. They say discipline is remembering what you want. We will maintain that discipline and continue to get bigger as we get better.

Thanks to everyone for your support of NEIS on our journey.

This concludes today's program. Thank you all for joining.

You may now disconnect.