Xtract One Technologies Inc.

Good morning and welcome to the Extract One Technologies Fiscal 2025 Second Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Chris Witte, Investor Relations Advisor. Please go ahead.

Good morning, everyone, and welcome to Extract One's Fiscal Second Quarter Conference Call. Joining me 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 XRAC1's recent milestones, followed by a Q&A session. This call is being recorded and will be available on the company's website for replay purposes. Please see the presentation online that accompanies today's discussion. Before we begin, I would like to note that all the dollars are Canadian, unless otherwise specified, and provide a brief disclaimer statement, as shown on slide two. Today's call contains supplemental financial measures. These measures do not have any standardized meanings prescribed under IFRS and therefore may not be comparable to similar measures presented by other reporting issuers. These supplementary financial measures are defined within the company's file management discussion and analysis. Today's call may also include forward-looking statements that are subject to risks and uncertainties, which may cause actual results, performance, or developments to differ materially from those contained in the statements and are not guaranteed a future performance of the company. No assurance can be given that any of the events anticipated by the forward-looking statements will prove to have been correct. Also, some risks and uncertainties may be out of the control of the company. Today's call should be reviewed along with the company's interim condensed financial statements, management discussion and analysis, and earnings specialties issued March 12, 2025, available on the company's website and its CEDAR Plus profile. And now it is my pleasure to introduce Peter Evans, Chief Executive Officer of Extract One.

Well, thank you, Chris, and good morning and welcome to all of our investors and the analysts joining the call today. I could not be happier to be on this call today presenting the results of the company and to join you all on this Thursday. Let's start by turning to the first slide, slide four. To begin with, we had a record quarter across multiple number of business metrics with growth in each of our key market segments and securing new business from a broad set of customers. The booking success we experienced in Q2 has set Extract out one for our best year ever, and with results from Q2 setting a tone for continued accelerated growth that we expect throughout the year. There are several key metrics and deliverables I'd like to highlight about our fiscal financial second quarter. First, we've had more wins this quarter, and our bookings and booking backlog indicate that in the numbers that were presented. We reported bookings of $13.5 million in Q2, our strongest performance ever, and far exceeding our prior record of $9.6 million, and representing 250% growth year over year from the same quarter last year. Together with our Q1 results, our first half results have put us back on track and a foundation for a very strong fiscal year. Similarly, we grew. Our total booking backlog and we grew the business. Our total bookings backlog is now at $37 million versus $22 million at the same time last year. Aaron will get into the details of these booking backlogs and the breakdown of that in a moment. We also continue to build a highly scalable operational model, and we've leveraged that significantly as we've progressed through fiscal 2025. Our Q2 gross margins reached 70% versus 61% last year, while we managed to take our over-operating costs down very slightly throughout the quarter. Again, this is due to that highly scalable model that we've been leveraging for aggressive growth. We reported revenue of $3.4 million for Q2 versus $2.9 million in fiscal 2024. The second quarter revenue results were negatively impacted primarily by the timing of the deployments and the makeup on subscription business versus upfront deals. Again, Karen will get into the details, but we had a larger number of subscription deals than we've historically seen in the past. This is good news for the future. as our existing backlog of agreements positions the company for continued success and better results in future quarters to come. As a reminder, we previously indicated that we expect this year to be back-end loaded, and that is still the case, and we still see that kind of growth coming. We see that through the customers we're engaged with, through the quality of the pipeline we're seeing, and we're expecting growth acceleration and anticipating that for the second half of fiscal 2025. We've also experienced further momentum in all of our business segments with new customers in healthcare, in schools, in manufacturing and distribution, and in the arenas. And we are experiencing a rapid expansion of our international demand right now, where legislation similar to Martin's Law in the UK is now being adopted in other countries throughout Europe and Asia. With our unique technical capabilities to address the broadest set of weapons and delivering a fantastic guest experience we are well positioned to serve those countries and expand our business globally and create more diversification in our business model. The key for myself and the executive team is that we continue to set new milestones for ourselves and we set new targets and exceed those milestones and targets that we put ourselves up against. We're doing what we've set out to do at the beginning of each fiscal year and we are beating our business plan in all cases. We're responding to incredible demand for our products and building a base of business that will continue to accelerate our top line growth going forward, our profitability, and at the same time, improving our cash burn and underlying results. For me and for the team and for our customers, particularly who we serve, I believe the future continues to look very, very bright. I'd like to turn to slide five now and provide some further color on the market dynamics that we're seeing and our expectations for the coming quarters. Our recent wins include being selected to install the Smart Gateway at locations like Bowie State University and the One Gateway at hospitals throughout Manitoba. Interestingly, healthcare has become a fast-growing market for us and has represented almost 30% of all our bookings in Q2. We are also seeing legislative changes in the United States that are mandating weapons screening, such as the announcements made in California requiring hospitals to implement weapons screening policies at the main entrance, entrances, emergency entrances, et cetera, as a minimum. This has to go in place by 2027. And as such, we're seeing an uptick in interest. Violent incidents are actually five times more frequent in healthcare facilities versus any other vertical marketplace. And so we are rapidly developing a presence in this market and finding that both Smart Gateway and OneGateway have excellent use cases for both products in that healthcare environment. At the same time, we saw solid bookings across numerous other markets this past quarter, demonstrating the flexibility and performance of our products, which gives us continued confidence of the company's future growth potential and the large addressable markets we serve. And as we deliver more and more unique features suited for each of those vertical marketplaces, we're finding ourselves becoming the default answer to solve unique vertical market needs. We've also been having great success with our channel partner program, which we started with an intended focus about 18 months or so ago. And we've been steadily onboarding the types of partners that we want, strong regional and national partners that are trusted with their geographies and with the vertical markets that they serve. With the investment of time, the focus on working with selected partners, we're now seeing the impact of those efforts. In the most recent quarter, channel partners accounted for about 50% of the total systems deployed and also just under half of the revenue recognized. Channel partner sales also now account for about one quarter of all deployed systems in our installed base. These results demonstrate our ability to rapidly leverage those channel partners to grow based on their marketing and selling efforts. Said another way, we're finding a great upside to our business through partner-led opportunities versus partner-fed opportunities. These relationships like this are helping to solidify and bolster our growth trajectory. and they can meaningfully add new customers on top of what our own great sales organization can deliver. I think we've built a solid foundation for growth from both our own staff as well as these key partners. I also could not be happier with what we've seen with the Extract One Gateway. Whether by intelligent design or by good fortune, the timing for One Gateway has been ideal as momentum builds for delivery of this unique and innovative solution. The product is benefiting from very strong interest within the education marketplace. But given its effectiveness in not only stopping threats in the presence of laptops and other devices, we're also seeing growing demand from a host of other industries, whether it's healthcare providers, offices, convention centers, and others. And interestingly, we're seeing new use cases for OneGateway in manufacturing and distribution, an entirely new market application that, interestingly also, that we alone can serve. My estimate is that this is a new $8 billion market segment, and our new technology, now fully certified, will be shipping very soon, and we believe product acceptance and referenceability will further accelerate new contracts in the second half of fiscal 2025. Everything we're doing now is paving the way, not only for record results this year, but much stronger performance in 2026 and beyond. Our one gateway sets the new standard for what we believe will be the number one threat detection system going forward. I've mentioned briefly our qualified pipeline. Let's dig into that a little bit level. Our qualified pipeline of opportunities is at record levels, currently sending about $100 million, of which conservatively $40 million are in the late stages of development with the customers. This is what gives us confidence in the quarters to come as well as the years to come. Our ability to grow that pipeline, ability to convert that to bookings and backfill the pipeline, and the ability to convert that to revenues and backfill the bookings. Our technology, our people, our partners, and the inbound demand for our solutions in a growing marketplace is giving me a lot of confidence in where we are as a company. I did a quick calculation the other day on just our top six customers. and they alone are scanning over 75 million people every year. And if we look at the entire environment of all of our customers, the number is well, well in excess of that amount. But with top six customers alone, 75 million people, that gives us a lot of insights and a lot of opportunity to be a customer back organization and reflect the kinds of products back to the marketplace that they want. As our reputation grows, so too does the size and complexity of the opportunities being presented to us, and particularly satisfying to me is the inbound calls that we're getting from Fortune 50-type companies. This means multiple locations, larger venues, more lanes, and a greater number of people passing through our systems. There's nothing more rewarding to me personally than seeing satisfied clients, and I see more and more and more of those every single day, where they've now become champions for what we do versus customers. Overall, I'm very optimistic about our future, which is no surprise given the growth in our backlog and the strong accolades we've seen from these existing customers and champions. As stated last quarter, we expect higher top-line results in the second half of the year, and we're also building a foundation for revenue acceleration for the future quarters and future years. Given the nature of the contracts, many of which have a subscription or recurring revenue component to them. The business is running on all cylinders right now, extremely proud of where we are, and the staff that has gotten there. And after a small bump in the road, we're now back to the passion and delivering with acceleration that we had ourselves accountable for. Our products and the outlook for Extract One Gateway is also looking extremely good. Without the hard work and execution of our team and of our partners, we would not be sitting where we are today. We're making very rapid progress towards profitability and cash flow break even, and I'm very excited about that also. As always, I appreciate the ongoing interest and support of our investors. We have dedicated to the success of our company. We're dedicated to the success of our investors also. Now, I'm going to turn it over to Karen to provide a bit more details around the financial results. Karen, over to you.