Xtract One Technologies Inc.

Good day and welcome to the XTRACT 1 Technologies Fiscal 2025 Third Quarter Earnings. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by a zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Chris Witte, Investor Relations Advisors. Please go ahead.

Good morning, everyone, and welcome to Extract One's fiscal third 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 Extract One'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 dollars are Canadian unless otherwise specified and provide a brief disclaimer statement as shown on slide two. Today's call contains supplementary financial measures. These measures do not have any standardized meetings 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 followed management discussion and analysis. Today's call may also contain 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 guarantees of 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 press release that were issued on June 5th, 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 X-Track One. Peter?

Well, thank you, Chris, and welcome to all our investors and analysts who are joining today's call. Let's start by turning to slide four. I'd like to start by beginning with the discussion by talking about the elephant in the room, the week of undesired third quarter results. I trust that our investor community and the stakeholders have previously appreciated my transparency on the business, whether the news was good or bad, but to continue to provide clear directions and transparency on what we're doing and how we're doing it. I'd like to continue that approach today. Our results for Q3 were below our business plan or expectations, and frankly, the outcomes I hold myself and the company to. However, these results are not an indication of the current health of our business or the industry, but rather are largely a function of some one-time events and some shift in the dynamics of the kinds of customers and the markets that we are serving. And we'll talk about that a little bit more. Some items that impacted the Q3 results include the following. First, The mix of our business and our business model has shifted quite significantly from smaller companies and deals to much larger organizations, particularly Fortune 100-type organizations. Accordingly, these larger organizations tend to invest a lot more time in the analysis, the budgeting, the security design, the con ops, and the flow of their overall business, mapping out that whole process, and often request pilots that last from 30 to 90 days, where previously we might have seen pilots lasting for a day. In the short run, this has delayed bookings and pushes out revenues. However, over the long run, we're hugely positive about what the impact is to our business, and we expect to recognize increased revenue in the future and benefit from greater overall predictability in terms of our operations and the growth of our bookings with these types of significant customers. In addition, there was a noticeable pause with some of our customers as they evaluated the impact of the business from the rapidly changing U.S. economic policies, and therefore the timing for the deployment of our solutions. A lot of questions about tariffs, about the economy stabilization, and other activities that we expect these customers to work their way through that drove some pauses in the business and some declines in Q3. We expect that to decline over time as the economy stabilizes and some of these debates about tariffs stabilize. And lastly, we experienced some shifts from an interest in the smart gateway to our new extract one gateway, with some customers resetting their pilots and activities to also evaluate the one gateway before making the decision on the right solution for them and their deployments. However, we believe this will only be a short-term impact as more customers who have initially chosen the smart gateway simply determined that either the Smart Gateway or the One Extract One Gateway would indeed be the best fit for them after they've extended their testing on operations and other activities. Going forward, we believe that this issue will be resolved and new prospective customers will have the benefit of seeing both products in place with other customers from the start of their evaluations. All the items above are mentioned that I just mentioned above are slowed down business decision making by our customers. However, it is fundamentally important to me, I'd like to highlight to all of our investors that the business remains strong, the pipeline remains strong. These orders and opportunities with these customers and the backlog are still in place. It's really just delays in timing. The backlog is near record levels and we're on track for a very solid year in fiscal 2025. The orders that we expected to occur in Q3 have not disappeared. They simply have taken longer due to the maturity and due to the size of the deals and other matters, as I've just discussed. Let's dig into the details just a little bit more. First and most importantly, our total backlog remains strong this quarter at $36.5 million, near record levels. While revenue was negatively impacted by installation timing and the percentage of upfront deals, We remain in great shape as we near the end of our fiscal 2025, and we've achieved a number of key milestones for the business that actually continue to position us for future accelerated growth. We're on track to have another solid year of performance with all evidence pointing to top-line acceleration and solid Q4 results. We have an expanding pipeline, a growing number of demonstrations and contracts under negotiation, increasing deal sizes, and expanding addressable market that we can uniquely serve with our unique solutions. While cash burn did increase during the quarter, Aaron will talk about some other impacts to cash. It's very important to understand that this was largely due to some one-time investments and expenses related to the rollout of the Extract One Gateway. Introducing a new hardware product is very complex and costly. In the early stages, there's a heavy investment up front for those first systems that come off the line. You have not yet had the opportunity to optimize your supply chain, your manufacturing, and these sorts of things. We're already starting to experience the early returns on this investment as previously announced earlier this week. Since that press announcement, we've had additional deals signed, and they're in the middle of negotiating multiple other contracts for the OneGateway. We are very pleased with the orders generated for the OneGateway thus far and the future potential for this unique and innovative product, and I'll touch on that a little bit more in just a moment. While not all customers allow us to announce wins as quickly as we'd like, we did publicize two meaningful contracts over the past few months. One was a master services agreement for a global customer, a large global media and entertainment organization where our smart gateway was selected as the company's preferred screening technology. Initially, now with the first deployments at a venue in Asia and future deployments to come. This selection followed rigorous testing in two different locations in two different countries, and we believe this has the potential for expansion over time across the brand's portfolio of hundreds of entertainment venues, retail stores, and production facilities worldwide. The first installation was just recently completed, and the feedback from the customer who had tested other solutions has been outstanding. They are very pleased. The second major announcement we did was with the Colorado Rockies Major League Baseball team, who will be using the smart gateway at their home ballpark, Coors Field, for the upcoming season. This collaboration reflects our continued commitment to advancing stadium security across major MLB teams and other leagues and organizations. And we look forward to contributing to a positive, worry-free experience for everyone entering into more than 50,000-person capacity seating at Coors Field. Of course, for every customer announcement we make, there's obviously many, many more, dozens that have not been made publicly, hence our large and growing backlog. As previously stated in every one of these calls, when we are allowed to announce new customers, we will. I have absolutely no interest in holding back customer announcements, but we are bound by strict NDAs, and in many cases, the CSOs have told me bluntly we do not announce security technologies. We remain upbeat about the future of our solution for threat detection in North America and across the globe. ExtractOne is at the forefront of this business with an AI-enhanced next-generation technology which we believe puts the company on track for significant growth and continuing improvement on bottom line results. I'd like to turn to slide four and provide some more details on where we are with OneGateway's market and the status of its rollout. First of all, I'm very pleased to say that the demand for OneGateway continues to rise and that the potential customers are very impressed with the efficacy of this product. We've hosted dozens and dozens of demonstrations at schools, at conferences, at healthcare organizations, warehouse and distribution companies, manufacturers, and a long list of interested parties who are looking for further details, proposals, and with many other customers in the early stages now of contract negotiations. We're very excited by the market's overall growth potential and outlook. Most pleasing to me and a portent to the future of the company is is many of the customers that we are working with have undertaken head-to-head competitive pilots and have indicated that they are selecting and going with X-Trek 1. I love when I get things like a text from a customer and he sends a picture of Babe Ruth with a comment home run underneath it. We are on track to start shipping on schedule in July. Inventory is currently being built for our first five customers who have aggregate order values of approximately $6.7 million dollars. A very pleasing trend that we're seeing is that the average deal size is growing significantly, almost threefold from what our standard deal size used to be. The One Gateway has already been certified in the US and Canada, with the UK and EU set to be certified within the month, and additional international markets anticipated to follow very shortly after. Suffice it to say that we're pleased with the overall market response so far. Demand continues to rise when working on additional contracts at present, following an intense period of outreach and customer engagement. We're very excited to see this product put to use in the very near future across multiple applications and for our specific target markets that the One Gateway was built for. Organizations such as schools, convention centers, and office buildings. The clients who have tested the One Gateway are thrilled at the way that we can improve the overall efficacy and security by accurately and quickly alerting staff to the specific dangerous items instead of just anything made of metal. When I look at the overall market opportunity for the One Gateway, we believe we're barely scratching the surface at present. As an example, the K-12 school threat detection market in the U.S. is estimated to be between about $15 and $30 billion by itself alone. And the Extract One Gateway serves that market very, very well, without the need to bolt on an X-ray machine, resulting in a TSA-like entrance experience for students, or complex bag checks and searches and other nonsense in the operations. We've also had a very new, exciting market opportunity, which we estimate to be about $8 billion, with distribution centers, manufacturing organizations, and other customers. When developing the OneGateway, we realized that we could deliver certain unique capabilities that were not in the original design. We've now created an object identification product and therefore an object identification market, which has incredible untapped potential in an area where there is no other solution that has previously been able to compete, including ourselves. Think of conference centers, warehousing and distribution organizations, and commercial and government buildings, even potentially retail locations. I continue to be surprised daily by the inbound discussions and use cases brought to us by our customers, such as one call I just had this morning, where this unique capability for object detection at walking speed without the need for X-ray systems, without the need for second and third and fourth technologies is very compelling. As one executive shared with me when he saw the OneGateway, he said, quote, this is the solution I've been looking for for three years, and I finally found it. At present, we are bidding on roughly $46 million of RFP opportunities alone, bidding us on a pace to potentially end fiscal 2025 with new record backlog levels and or positioning us well for the year ahead. Some of these backlog numbers and these RFP numbers, sorry, some of these RFP numbers are not included in my calculations of the pipeline that we'll talk about here in a moment. With all the positive momentum for the OneGateway, We're pleased with the continued growth of the smart gateway also in the market segments that it was specifically designed to serve. As evidenced by the Rockies news, we're seeing strong demand in sports venues, theaters, and arenas, hospital organizations, as well as particularly with those hospitals in Canada and the U.S. Our total pipeline of opportunities for the business remains at approximately $100 million Canadian, of which conservatively about $40 million of that, excluding those RFPs, are in late stages of development. I only include in my calculations fully qualified opportunities when analyzing our pipeline. For this reason, I remain very optimistic about the future and the steps that we're taking to accelerate that pipeline growth, improve the underlying results, and move quickly towards cash flow break-even. The past few quarters, while impacted by lower upfront purchases and certain installation delays, have provided ammunition for the future in terms of record-breaking backlogs and investment in new product rollout. As I personally work with a sales team through all these specific contracts and customer engagements, I truly believe that we're on the precipice of a step function change in our overall size, market position, and I'm confident in the people that we have in the company as we navigate this road to success. At this point, what I'd like to do is turn it over to Karen, who can provide a lot more details on the financial results. Karen, over to you.