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spk03: Hi, everyone, and welcome to Extract One's live first quarter earnings call for fiscal 2024. This is Will Mays from RB Milestone Group. For those of you who aren't already aware, Extract One Technologies is a disruptor in the stadium and public space security industry with their unobtrusive artificial intelligence driven weapons and threat detection system. The company's shares are traded on the TSX under the symbol XTRA and on the OTCQX under the symbol XTRAF. Joining us today is the company's CEO and director, Peter Evans and CFO Karen Hirsch. Today's earnings call will include a discussion about the state of the business, quarterly financial results, and some of Extract One's recent milestones. This will be followed by a question and answer session based on questions investors have sent in prior to and during the webcast. This call is being recorded and will be available on the company's website after the earnings call. Before we start today's call, I would like to note that all dollars are in Canadian unless otherwise specified. Today's call contains supplementary financial measures. These measures do not have any standardized meaning prescribed under IFRS and are therefore may not be comparable to similar measures presented by other reporting issuers. These supplementary financial measures are defined within the company's filed management discussions and analysis. Today's call may also contain forward-looking statements that are subject to risks and uncertainties that may cause actual results, performance, or developments to differ materially from those contained in the statements and are not guarantees of future performance of the company. No assurances can be given that any of the events anticipated by forward-looking statements will occur, or if they do occur, what benefits the company will obtain from them. Also, some risks and uncertainties may be out of control of the company. Extract 1 has a full disclaimer contained in their presentation. Today's call should be reviewed along with the company's interim condensed financial statements, management's discussion and analysis, and earnings press release issued today, December 7th, 2023, and is available on the company's website and its CDAR Plus profile. Lastly, RBMG is not a registered investment advisor or broker-dealer. For more information, please visit rbmilestone.com. Now it's my pleasure to introduce Mr. Peter Evans, Chief Executive Officer of Extract One. Peter, the stage is yours.
spk01: Thank you so much, Will, and thank you to everyone for joining us today and participating in this call. I'm really looking forward to sharing more detail about our first quarter results, which was an excellent start to the year and a great jumpstart on so many more great things that will be happening. Hopefully our investors saw the business update that we provided and shared in November, which outlines some of the preliminary results for the Q1. We've received immense interest from our investor base about this quarter, particularly following a very successful year last year. And the state of the business, considering that strong results we shared on our last update in October. So we decided to share a few of the metrics early, those that were most frequently requested by investors. For those of you who did not see that business update, Karen and I will reiterate many of those points today and dive into more details during this call. Let's get started and let's jump right in. There are a couple of key highlights I'd like to bring to the table first. First is the business momentum overall. This was another record year for the company. By every measure, revenue, bookings, contractual backlog, installed systems, operating expenses, cash flow, named contracts, expansion in different market segments, we experienced a significant year-over-year and quarter-over-quarter improvements in this first quarter. We had a record number of deployments during Q1, which resulted in an 82% increase in revenue for our platform operating segment compared to the prior quarter, Q4 of 2023. Simultaneously, we posted our strongest quarter for new bookings in the history of the company by adding almost $10 million of new total contract value into our backlog of sales commitments. All in all, we're very excited with the continued growth and the trajectory that we're on as a company and expect further continuation of that trajectory and we will continue to focus on beat setting and beating new milestones every quarter going forward the second key area that is a highlight for me is around continued market expansion well our primary focus started with and we were hyper focused on sports and live entertainment Those industries where we've onboarded key strategic partners, we also continue to expand into other markets where we're experiencing very high growth rates for customer adoption. The market was not willing to wait for us. Segments such as healthcare, hospitals, schools, and others pulled us into their market segment much faster than originally planned, and we're pleased to be pulled into those segments that fast. We're seeing the same time that we are providing the same benefits of high quality service to our customers and the benefits of a high performing security solution and the benefits that we can deliver to those segments through an extract one smart gateway. Later on, I'm gonna talk more about our fastest growing market verticals, and I'm gonna dig deeper into some of the results that we're experiencing due to the high customer satisfaction that is perpetuating our business into those market segments. The other key area that I'd like to highlight is our focus on scale. I want to remind our investors that we're still focused on efficiently scaling the business. Last year, we made significant progress in streamlining how we operate and reduced our operating expenses by about 6% year over year, while continuing to see the rapid growth in bookings and conversion to revenue. This year, we're continuing our drive on those efficiencies across the entire business, with a focus on cost-effectively scaling our manufacturing, installation, and our ongoing customer support. I'm very pleased to report that we had a record quarter for those deployments, including successful deployments at several marquee venues, including locations like The Sphere in Las Vegas, Madison Square Garden, Radio City Music Hall, The Beacon Theater, amongst others. And we've proven to ourselves that we can continue to ramp our ability to perform large scale deployments at a faster pace than we were able to achieve previously. We were able to do this also incredibly cost effectively, which is resulting in market leading gross profit. Throughout the year, you're going to hear more from Karen and myself as we talk about how we continue to scale the business and continue to grow overall. Today, Karen's going to dive more specifically into our efforts to date and how they've impacted the very successful performance we've seen in Q1. We've got a lot to cover, so I'm going to jump right in a little bit more. In the first quarter of 2024, it was a historic period for the company. I mentioned earlier that we improved on several KPIs across almost every function of the business. We're very dialed in and very focused on scaling that business. Here we can see a chart of the total contract value of bookings over the course of the past several periods. Looking at this demonstrates how and provides evidence on our growth trajectory, and it paints a picture of how the company is changing and growing quarter over quarter. I'm very pleased to be reporting the total contract value of the new bookings in Q1 was $9.6 million. Since we first entered into commercialization for our gateway products, we booked over $27 million of business, approximately which one third of came from the past quarter alone. Not only do we have more customers, but they are spread across the United States where we have physical presence now in over 40% of the country. And we continue to extend our footprint in order to protect our fans, patrons, office staff, teachers, and healthcare professionals each and every single day. We also continue to support both upfront and purchase models for our solutions. as well as a subscription model for our customers. So far, we've found that about 65% of our customers are opting for our subscription arrangement. As we continue to expand into new segments, we're starting to see some trends within each customer segments and the buying patterns that are specific for each type of customer. For instance, it's been our experience that so far, most of the sports and live entertainment customers find value in a multi-year subscription model. In contrast to this, customers in other markets, such as schools, healthcare, and the public sector, are finding that an upfront purchase model with recurring annual maintenance best fits their organizational structure and their financial profiles. This can often be offset with one-time government funding programs, as an example. These trends are not true for every single customer, but generally for each segment. These are the patterns we're starting to see with those customers we've seen today. In all cases, we're very happy to offer customers both models so that we can fit their best business model and be the customer that fits and aligns our solutions to how they wish to do business. As we continue to scale the business and expand our presence both locally and internationally, we'll continue to take a pragmatic and judicious approach to growth. We talked about this in a prior call and with a press release earlier. We're being very selective about the markets and customers we engage and to focus our efforts on those opportunities that are highly accretive and very profitable to our business plans. The demand for our solutions continues to accelerate as we continue to see tremendous interest within sports and entertainment sectors, and we continue to welcome new customers like the KC Current that we recently announced. We also continue to expand into multiple market verticals as the interest from those markets is putting a great pull on us and causing customer adoption of frictionless technology much faster than we'd originally planned. We're now actively pursuing about a $40 billion TAM. And so we are seeing the mix of our sales pipeline shift meaningfully. Now about 40 to 50% of all our qualified pipeline of opportunities and our revenues are coming outside that primary and initial market that we focused on sports and live entertainment. In this quarter alone, the majority of our contracts we announced publicly were actually in the secondary markets or secondary market segments. So I think it's safe to say that they're no longer secondary to our strategy. During the quarter, we expanded our presence significantly within the healthcare community. which along with education is now becoming one of our fastest growing market segments and market verticals. At the start of Q1, we announced that we had been chosen by the US Department of Veterans Affairs Medical Centers in Virginia, and we continue to expand our engagements with the VA. We've also been selected to secure organizations like Community Health Network, which is one of the largest healthcare organizations in the US Midwest. With more than 200 sites of care, excuse me, throughout central Indiana, community healthcare focused on putting the needs of its patients first, and ensuring that they're providing patients with exceptional healthcare services. Extract One is proud to partner with these organizations and ensure a safe environment for patients, visitors, and the critical healthcare professionals who are now demanding that they be secured and safe in their workplace environments. Across the United States, healthcare professionals have expressed that they no longer feel safe at work. And you can see this in instances like the strike that occurred in New York earlier this year and multiple other situations throughout the year. In the past year, various regions across the country have seen those healthcare professionals speak out publicly and even striking against their employers as they demand a much safer workplace environment. Healthcare professionals deserve to feel safe at work so they can focus on providing the best care possible for their patients, and we're there to work with them to ensure we deliver that outcome. We're engaging with more and more of these healthcare providers on a daily and weekly basis and look forward to helping them create a warm and welcoming environment that increases safety for all patients and employees. At the same time, we're starting to tap into $135 billion TAM that we're seeing within the global economy. We've adopted a very pragmatic approach to growth and global expansion based on winning large critical accounts and using those accounts as the anchor upon which to build and to fund profitable growth in that region through those anchor accounts. So from day one, those wins and the expansion of those marketplace is highly profitable and grows our profitability as a business, as opposed to being a net negative until we reach a certain critical mass. With the recent announced global contracts, we've done just that. And as an example, one of these contracts totaling about $5.1 million US is a multi-phase agreement that will deploy over a period of time with a very large global entertainment organization that will provide the company with recurring revenue during the duration of the three-year contract and potentially afterwards, and introduces us into other organizations that they have throughout the world. This contract is well underway and we expect it will lead to further contracts with the same customer and at other global venues and with customers of a similar caliber in a similar sort of industry. We're going to continue to take a very pragmatic and judicious approach to growth. You'll hear me say this many, many times, being very selective about the markets and the customers we engage and ensuring that we see a business as highly accretive to our business plans and profitability and a drive towards cash flow breakeven. While it's very satisfying to welcome new customer advocates to our solution, it's also been very gratifying to me personally to seeing existing customers expanding their orders with us and to increase our presence in their facilities. In this quarter alone, over 20% of the contracted value of new bookings came from existing customers who increased their prior orders with us and added additional systems for additional venues or expansion within existing venues. These customers are across multiple different market verticals and demonstrate two really important factors that is driving our success right now. First, as we've said in the past, that we focus on providing each customer with a high degree of service and the outcome they expect. No surprises. This is security and we take it seriously. We want to ensure that the products that are operating effectively in the environment and we're willing to provide enhanced levels of support to the customers to ensure that they do so. Secondly, the fact that the customers in multiple market verticals have expanded their orders reaffirms that our smart gateway solution has the flexibility to protect very different environments with very different requirements in very effective manner. The result of having very happy customers from multiple markets is that those customers become very strong advocates of our solutions and recommend Extract One to others in their industry. Most of the industries we play in have very tight organizations and networks of customer security officers, chief security officers. Those chief security officers share knowledge, share best practices, and share very positive experiences, and that's driving our pipeline significantly. These advocates, fueled by genuine satisfaction, not only attract new customers through that word of mouth and those word of mouth recommendations, but they also serve as authentic testimonials that resonate with potential customers in similar markets. Harnessing the power of these advocates is creating a significant ripple effect and resulting in some of the accelerated growth that we've seen and establishing trust and credibility in our solution that significantly influences the decision-making processes of other prospective customers. We continue to cultivate and leverage these advocate-driven dynamics so that it's continuing to foster brand loyalty to the value that we can deliver to them. This is laying the foundation for sustainable and repeatable growth and the success we're seeing and the snowball effect or the flywheel effect that we're now seeing in multiple market segments. Now we've established these referenceable accounts in each market segment. The start from our gateways now become the most cost-effective solution to detect weapons as validated by third parties such as the TSA. With a very simple out-of-the-box experience, we're now focused on how we scale the business and we're constantly shifting our go-to-market mix to balance both direct and partner sales. Now that we have a referenceability and we have that out-of-the-box experience with a smart gateway solution. The channel is now providing us cost-effective scale further in both selling, installing, and supporting customers as a force multiplier to our growth. At this point, I'm going to turn it over to Karen to take the investors through the specific details of our financial results for the year, and then we'll move into some Q&A.
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spk00: Perfect. Thanks, Peter. This has been another incredibly busy quarter, and there's several financial highlights that I want to speak about in more detail today. But first, however, I think it's important to note some changes that were made in the presentation of our financial statements this quarter. Many of you have noticed that we're now presenting cost of revenue and gross profit numbers and have simplified the presentation of our operating expenses into three key functional areas, being selling and marketing, research and development, and general and administrative. Our financial statements also provide more disclosure around the nature of expenses, which are included in each of the operating expense lines. We made these changes to provide more relevant financial information for investors and other users of the financial statements, and also to facilitate benchmarking of our financial performance relative to our peers. Now let's talk about the record growth in revenue generated from our platform operating segment. Revenue from the platform segment was approximately $3 million for the quarter, which is an increase of 82% from the prior quarter, or over 600% more than the revenue recognized in the same period last year. By way of reference, for all of fiscal 2023, the platform operating segment generated $3.6 million of revenues. This means that during the first quarter of fiscal 2024, we almost surpassed all of last year's revenue for the platform business unit, demonstrating the strong growth trajectory we're on and is a testament to the hard work and dedication of our team. Of the 3 million of revenue recognized during the quarter from the platform business, approximately 30% of it was recurring revenue. This is primarily because we delivered some systems for several large upfront purchase agreements during the quarter. While a large portion of these contracts are recognized to revenue once deployment is completed, there's still substantial recurring revenue pertaining and associated with the ongoing support and maintenance of these contracts. This, however, doesn't tell the full picture. If we look at the total contract value of all our contracts in aggregate, which includes both the revenue and the contractual backlog, we see that approximately 65% of the total contract value relates to recurring revenue versus one-time revenue. This is consistent with what Peter had mentioned earlier in the presentation. Revenue from the extract operating segment was about $120,000 for the quarter, which is down from $220,000 for the same period last year. This is primarily due to the unprecedented demand for our platform solution, and we expect that this operating segment will continue to increase support of and focus on our platform business on a go-forward basis. In Q1, we reported healthy gross margin of about 67%, which is a combination of our product, support, subscription, and professional services revenue and the associated costs. The year over year improvements in our gross profit margins partially relate to a large deployment completed during the quarter, but it's also attributed to ongoing efforts to streamline efficiencies in support and installation services through continued improvements in our products and our processes. Due to a record quarter of deployments and new bookings in the quarter, we continue to grow the value of our contractual backlog and total contract value of signed agreements pending installation. At the end of the quarter, this collectively totaled just over $20 million. Of this amount, the company's contractual backlog grew to $9.5 million, which is more than double our contractual backlog from last quarter Q4. Of the 9.5 million of contractual backlog, approximately 3.9 million or 41% of the backlog is expected to convert into revenue over the next 12 months as we complete our obligations over the duration of our customers' respective contracts. Along with our contractual backlog, we had an additional 10.6 million worth of signed agreements which are pending installation. While the balance of this amount has not changed significantly from last year, I think it's up only maybe 2%, it's important to note that part of the reason is that we deployed a historic number of systems during the quarter and moved a large portion of the 10.4 million balance from Q4 into revenue and or contractual backlog in Q1 2024. Interestingly, the value of our signed agreements pending installation is comprised of a wide range of customers. Consistent with what we're seeing in the makeup of our sales pipeline, about 55% of the 10.6 million is from customers within our primary target market, while the remaining amount is from a mix of customers within healthcare, education, manufacturing, and other industries. We're also seeing the same trends when it comes to our contract mix with subscription contracts representing 65% of signed agreements pending installation. While deployment dates for any given customer will vary depending on the circumstances, we're expecting that the overwhelming majority to be installed within the year. What this means is that both the value of our contractual backlog and our signed agreements pending installation represent revenue that will be recognized in future periods and are leading indicators of our future revenue. Moving on to operating expenses, the company remains focused on balancing top line growth while continuing to invest and build a sustainable and scalable business that supports the needs of our customers. In the past, we've demonstrated our ability to achieve revenue growth that outpaces our operating expenses. In fact, year over year, we've managed to once again increase revenue while reducing expenses. However, we expect certain operating costs will start to increase in future periods as we increase headcount and invest in other initiatives to fuel the continued growth in revenue and maintain the high level of customer satisfaction that we currently provide to our customers. Sales and marketing expenses were 1.5 million for the period, which is relatively unchanged from last year. We continue to make investment in sales and marketing teams with a focus on go-to-market strategy initiatives, including partner-related expansion and a broadening of spending on sales and marketing-related activities and events. In future quarters, we expect sales and marketing expenses will increase in response to an unprecedented market demand for our products. The company continues to invest in R&D activities to refine, improve, and expand our platform solution based on our technology roadmap and feedback that we receive from customers. Costs associated with R&D were about 1.7 million for the quarter, which is actually a decrease of 19% relative to last year. This was primarily due to a large one-time expense associated with an innovative R&D project incurred during the first quarter of last year. At the same time, we have since completed some internal restructuring to streamline our R&D processes. We anticipate that R&D expenses will remain at current levels or increase slightly in the upcoming quarters as we continue to deliver new and innovative products to our customers. General and administrative costs were $1.6 million for the quarter, up about 4% for the same period last year. General and administrative expenses include costs associated with manufacturing, supply chain, procurement, logistics, and other corporate functions such as finance and human resources. We expect that these expenses will remain at current levels or perhaps increase slightly in future quarters. As demand for our solution grows, investment in manufacturing and procurement will be two areas of focus for us as we ensure that we're able to satisfy the demand for our customers. Finally, moving on to cash flow. During the quarter, the company had a cash outflow of $3 million compared with $4.1 million for the same period last year. This improvement from last year is due to the continued growth in revenue quarter over quarter, due to achievements made in growing revenue while continuing While containing cash-based operating expenses, the company has continued to see a positive trend for our cash used in operating activities. Excluding changes in our working capital, we continue to reduce the amount of cash used in operating activities for the fifth quarter in a row and has decreased and was $1.9 million for Q1. We plan to continue this trend in the coming quarters as we deploy more of our products to customers which will fuel the continued growth in our recurring revenue and slow down our cash burn. In summary, I'm very excited about what we've achieved in the first quarter of 2024. We've hit several milestones across new bookings, a record number of deployments, record revenue, and consistently managing our expenses as we continue on our growth journey. We are aiming to maintain current trends as we grow the business in a balanced manner, It's an exciting time to be part of extract one right now, and I look forward to sharing many milestones with investors in the upcoming months. And with that, Peter and I welcome any questions that investors might have at this time. Thank you.
spk03: Well, thanks, Karen. And thanks, Peter. We've received a number of questions from investors. Let's try and answer as many of these as we can in the remaining time we have. The first question. relates to the typical size of a contract. The question is, can you please provide more information about the size of a typical contract you're now realizing? Are new contracts which are being won similar in size to those in the past?
spk01: Yeah, so thanks, Will. I always love the Q&A portion of this because we can kind of get into the meat and potatoes of business and kind of let our hair down and talk about specific issues. So in general, we are definitely seeing an increase in deal size. Our investors might recall in earnings calls from maybe one and a half to two years ago that we talked about how customers were opting to start small with small initial orders. Nobody wants to flash cut a whole arena to something that's new, whether it's us or competitors, you name it. So normally people do find a pragmatic matter. Um, and so what we've seen though is with more and more solutions that have been deployed, there's more and more places to date customers. They see the environment, they see the solution, they see the success and they are moving towards more larger contracts. So to answer the question, you know, in the past we might have averaged two to four systems per typical contract. Today we're seeing deals worth, you know, averaging,
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