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.

Thanks, Peter. Let's start by turning to slide seven. Total revenue was approximately $3.5 million for the third quarter versus $4.7 million in the prior year period with approximately 65% of sales coming from upfront purchase contracts versus approximately 80% in the third quarter of fiscal 2024. As we said before, a lower percentage of upfront sales negatively impacts immediate revenue recognition and creates some uneven quarters However, the company has an improved outlook for sales over the longer term given the recurring revenue inherent in subscription contracts. In addition to our Q3 top line being impacted by installation timing, we've also noticed some lengthening of the sales cycle as we're now pursuing larger, more complex customer opportunities that can take longer to close, as Peter previously mentioned. Ultimately, we feel these larger opportunities, while initially taking additional time upfront to bring to completion, will lay the foundation for expanded markets and increased bookings and revenue for many quarters to come. Revenue for the third quarter was spread across numerous customers and industries, with the largest contributors being entertainment, education, sports, and healthcare. We anticipate a revenue mix to continue to grow and diversify going forward particularly with the one gateway where we are making headway in schools and commercial environments. Overall, sales are expected to accelerate in the fourth quarter, leading to strong results for the fiscal year. In addition, we continue to roll out our channel partner program, which remains a valuable contributor to the company's growth, accounting for approximately 65% of Q3 bookings. Our gross profit margin was approximately 57% for the quarter versus 58% in the prior year period. Margins were slightly lower sequentially versus the second quarter of fiscal 2025 due to certain one-time startup costs incurred as we ramped up our manufacturing for the launch of Extract One Gateway. We anticipate margins to improve in the fourth quarter and potentially increase further in fiscal 2026. due to the higher revenue and operating leverage that we hope to achieve. Turning now to slide eight, our contractual backlog and signed agreements pending installation continue to be strong. At the end of the quarter, this collectively totaled $36.5 million, just slightly under Q2, but significantly higher than this time last year when the total backlog was $26.6 million. It's important to note that while the total backlog decreased slightly in terms of Canadian dollar reporting relative to Q2, the actual total backlog in Q3 was higher than Q2's backlog, but was negatively impacted on conversion due to the drop in the exchange rate of the U.S. dollar relative to the Canadian dollar during the quarter. New bookings for the quarter were 4.6 million, of which approximately 30% were subscription contracts. As mentioned on prior calls, the mix of purchase versus subscription awards often varies depending on our customers' priorities and the business operations. The company's contractual backlog at quarter end was $15.4 million, with an additional $21.1 million worth of signed agreements pending installation, the majority of which are expected to be installed within the next 12 months. Based on our large pipeline of opportunities and the increasing interest in One Great Way, We anticipate bookings and backlogs to reach new record levels before the end of fiscal 2025. As previously indicated, RFPs are moving towards larger, more complex system installations and multiple site locations, putting us on sound footing for fiscal 2026 and beyond. Now let's turn to slide nine, which shows third quarter and year-to-date operating costs year-over-year for each of our key operating expense categories. Sales and marketing expenses in the third quarter were 1.6 million for the quarter versus approximately 1.3 million a year ago, as we continue to reach a broader set of target markets, which while costs with research and development were 1.6 million this year versus 2.2 million in fiscal 2024. General and administrative expenses were approximately 1.9 million for the quarter in both years. Overall, we reduced operating costs year over year, even as we sustained a robust backlog and invested in the rollout of OneGateway. We continue to actively manage operating expenses as we maintain a focus on our path to profitability and cash flow breakeven. Finally, on slide 10, I'll discuss cash flow. During the quarter, the company had operating cash usage of $3.4 million, compared to 2.4 million in the prior year period, and excluding changes in working capital, we spent approximately 2.2 million compared to last year's 1.9 million. The higher use of cash this quarter compared sequentially to Q2 of fiscal 2025, which had considerably low cash usage, reflects a greater loss for the period and an investment in higher prepaid deposits due to our investment in extract one gateway manufacturing and rollout as previously discussed. Basically, the third quarter included more costs and outlays related to new product inventory build and startup costs, which are not expected to reoccur going forward. We believe Q4 cash flow will be greatly improved, and in fact, we currently have more cash today than we did at quarter end. Accordingly, we feel comfortable in current cash levels to carry us through our next phase of growth. And with that, Peter and I welcome any questions investors may have.

We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing any keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we will pause for a moment to assemble our roster. And your first question today will come from Amir Azad with Ventum Capital Markets. Please go ahead.

Peter, Karen, thanks for taking my questions. I appreciate the color you guys gave in your prepared remarks on booking volatility, but I'd like to focus on the current backlog. The $36.5 million backlog is near all-time highs, as you guys mentioned, but the quarterly sales are flat sequentially. And you guys spoke to timing of installation, really delaying that conversion. So I'm just trying to understand, when you guys speak to timing of installation, is there, like, structural friction in customer onboarding? Is it site readiness? Or maybe internal capacity constraints? More color would be appreciable.

Sure. I guess I'll jump in first.

I think there's... Sorry, Karen, I was on mute. Please continue if you'd like, or I can rewind.

It's up to you. It's up to you. Why don't you go ahead?

Let me start here, and you can add to colour commentary. Amr, thank you so much for the question, as always. It's really not anything to do with us internally. We have the manufacturing capacity. We have the installation capacity through ourselves and through our partners. It's really timing on the customer's part. A simple example, one very large customer is going through some reorganizations and some policy shifts. This is a federal organization, and so they've tapped the brakes on the deployment schedule for a significant number of systems. We've got another customer as an example who's going through a very large major renovation to their live entertainment venue. So they've tapped the brakes as they figure out some of those construction requirements. So there's things like that that have slowed things down. But in terms of the internal issues, it's not related to us. It's related to customer activities and their ability to absorb the systems on the schedule that we hope.

Okay, fantastic. Then to help me understand, the points you brought up on some clients evaluating the OneGateway instead of the SmartGateway, which makes a lot of sense, by the way. That impacts just new bookings, right? Or do you have some of your current signed backlog clients looking maybe to switch their order?

That's a great question also, Amir. I think there's sort of a good news story here on both. The bulk of that is customers who are moving aggressively down the path of the smart gateway. They decided that the innovation that we brought to the market was the right solution for them after their competitive analysis. but as one gateway become more prevalent in the marketplace, obviously they wanted to check it out before making an investment in a technology. In some cases, these customers run 60 or 90 day pilots and they pause those pilots and said, we'd also like to now run a 30 or 60 day pilot on the one gateway. So the interest is still strong. It's a decision to buy from extract one. We're just trying to make sure that they're actually getting the maximum value out of the right solution for their business needs. In terms of, you know, people, swapping out what we have seen with a couple of customers. They said they really like what they're doing with the Smart Gateway. They'd also like to evaluate the One Gateway and are discussing an upgrade program from A to B. But interesting enough, those same customers still see value in the Smart Gateway, and they're starting to redeploy them to other locations, such as other organizations who are part of their supply chain.

Understood. Then on the One Gateway shipping in July, can you walk us through, What gives you confidence in that timeline? What milestones still need to be hit before units actually go out of the door next month? Are there any gaining factors that we should be thinking about, whether it's, I mean, manufacturing, client readiness, certification, that still impact that July shipments timeline that you guys put forth?

Well, right now we're very, very confident on the July timeline. And as you can imagine, Amr, this is something that I pay close attention to every single morning. And we do analysis on the business in that timeline. We've got customer contractual commitments and expectations for delivery. If you think about it this way, many of the schools start back in August, and they're holding our feet to the fire about delivering in July. And accordingly, we're holding our subcontract manufacturers and our supply chain. We've worked our way through a lot of the supply chain items, and we have confidence in the ability of all the componentry. We've already built units in the factory, part of the process where you build the first handful of units, and you test those extensively before you move to volume production. And so we're now at the final stages of fine-tuning some of those production processes before the manufacturing line is fully ramped up. So at this point, I don't have any concerns about our ability to meet July.

Okay. Thanks for that, Keller. Then maybe one for either you or Karen. I appreciate the color that you guys give on the revenue mix in general being like this quarter 65% up front. But I wonder whether you're willing to give color on the $21 million in signed agreements pending installs. What sort of, you know, like very roughly a sense of the split between upfront purchases and subscription?

That's a good question. I think from what I have seen, we are still dealing with about the same type of split where the upfront is about 70% of the pending backlog and subscription is 30%. And interestingly, about... a third of that might be related to the one gateway. And so that's pretty much the color that we can provide at this point. It's also split between a variety of industries being, you know, sports, education, healthcare, the usual, you know, split that we normally see in the pending backlog. So certainly, yeah, it's a helpful note there to know that it's about a 70-30 split upfront versus subscription.

Thanks. That's very helpful. Then I just want to double-click on the gross margin dynamics. You know, like, how much of the decline sequentially is tied to the early one gateway production costs, or are there any factors that we should be thinking about outside of that?

There really isn't, Amer. That's a good question. There's just I think when we're dealing with the numbers that we're talking about, any kind of change can have some impact, a percent here or there. If you think about it in a more holistic, larger viewpoint, there really is nothing to be concerned about. Our business is operating exactly as it did in previous quarters, and we don't see any change. external factors that are impacting us in any way. It's just this particular quarter, as Peter had mentioned, that some of those early units that first come off are obviously not going to be where we expect. And we saw this type of dynamic when we started with the Smart Gateway back in 2021, where you've got initial things to work out in the first year of commercialization and manufacturing of the product. So there's A little bit of that going on, but it's business as usual for us, and Smart Gateway continues to support higher margins that we have been fortunate enough to achieve in previous quarters.

Amber, if I could just add a little bit more color and context to that. As anyone on this call could imagine, when you're building a new piece of hardware, your upfront costs, getting your manufacturing line set up, NRE costs for tools and tooling and jigs and, you know, shaping the plastic forms and all these sorts of things, that's an expensive upfront investment. And then those first handful of systems, you know, we've built about a dozen systems or so with about a half dozen already shipped to a customer, and they're almost hand-managed as opposed to something that's just coming off, you know, an assembly line. And so that hand management of those and that extra attention to that is a lot more cost. And so when we think back to the smart gateway, when it first came to the marketplace four years ago, we were probably running about 50% GM. Fast forward four years later, we're bumping up against 70% as you start to get operational efficiencies, supply chain efficiencies, and you've got any kinks in that manufacturing process ironed out.

Yeah, I'm not totally surprised by the gross margins. In fact, we were thinking that they would get compressed like this quarter, but what surprises me is in your prepared remarks, you guys are speaking to the margin improving as early as Q4 when you guys are only starting shipments in July and who knows when in July. So what sort of gives you that confidence that we start to see a ramp in margin as early as Q4 as opposed to Q1, which is what I was modeling.

From my perspective, and I invite Karen to jump in, but those first half a dozen units, they had a high cost to build. And we already know what the manufacturing, when the units start coming off the manufacturing line in a more, you know, systematic way, we have a good view on what that cost will be. Karen, over to you.

I think you've addressed it. Thanks, Peter.

Fantastic. Thank you for taking my questions. I'll pass the mic.

And your next question today will come from Scott Buck with HC Wainwright. Please go ahead. Hi. Good morning, guys.

Thanks for taking my questions. Peter, I thought you did a nice job laying out in your prepared remarks some of the reasons behind the deployment delays. A lot of that seems structural. So I'm curious, you know, a month into the fiscal fourth quarter here, whether you're seeing any kind of easing with any of those headwinds or, you know, we should really consider it to be more the baseline moving forward?

No, Scott, it's a great question. Thank you. And, of course, you know, anything can change, as we always know. But right now, as we're a month into the fourth quarter, we've seen sort of that drawback stopping, and it's almost back to business as usual. Things are, in fact, starting to accelerate significantly for us. We're very, very busy, which I like to be, and so I think it's safe to say that we've seen some of those headwinds easing throughout the fourth quarter. Perfect.

That's great to hear. And I'm curious, the 21-plus million of pending installations, can you talk about customer concentration there, or maybe just the customer concentration in general in the backlog? Are we talking about, you know, one or two particularly large orders, or is it more widely spread?

Nice to hear from you, Scott. There's about a dozen customers that are sitting in that pending backlog, give or take. So probably more than that, actually, sorry. Probably closer to two dozen. And the mix is split. So there are a few that are larger, there are a few that are smaller. They seem to work out to slightly larger than our usual deal size, I think it's fair to say. I'm not sure what other commentary we can give, except that probably half of it is in sports and entertainment and live entertainment. We have at least 20% at this point in healthcare, a solid 10% in education. I think we see that probably changing and growing considerably in Q4. And then a mix of all kinds of other industries for the balance of, say, 10% or 10%, 15%. So it's a wide range of customers, a wide range of industries, a split between upfront and subscription, a split between channel and direct. So it's really no concentration in any one particular customer or industry.

Great. That's helpful. And besides the kind of uptake, I guess, in contract size, any material structure changes from maybe a year ago? You know, is duration... shorter or longer, you know, any kind of meaningful change in terms, I guess, would be interesting to get some color on.

No, I don't think so. I mean, we certainly average usually a three-year contract, but we are seeing a few that are extending perhaps to four and five years. So perhaps they're slightly longer, but really, you know, they tend to, even with the one gateway, they tend to follow our same sort of contract timelines.

Okay, perfect. And then, Karen, last one from me. On operating expenses, can we maintain the current levels here or the depressed cash position, maybe we pull some levers on OPEX to rein that in near term, or do you potentially spend a bit more maybe on the sales and marketing side to try to accelerate top line?

That's a good question. I mean, we tend to be very nimble, and we're able to adjust our levers quite easily depending on how we're hitting our milestones and where we feel that there's short-term revenue gains or mid-term revenue gains that we want to invest in. We're a highly revenue-generating-focused organization. Everybody is highly focused on revenue generation. We believe that that's really important to us. And so we'll spend accordingly when we feel that there's a good return from a revenue standpoint. We're a pretty lean shop as it is, but we can turn the levers up and down as needed to address short-term revenue opportunities for us. And we're going to continue to do that in the quarters to come. I don't see that changing anytime soon.

Perfect. Well, I appreciate the added color, guys. Thanks for the time.

Always a pleasure, Scott. Jen, if you have a question, please press star and then one. And your next question today will come from John Heade with Strategic Investing Channel.

Please go ahead. Hey, Peter, Karen. Thanks for taking my question. My first one is kind of around one gateway. Just one, it seems like, just looking for some clarification, but it seems like at least most of or maybe all of the 6.71 million you guys have announced Is that already included in the bookings that we've seen so far in Q3 and maybe Q2, if we got some of those earlier? And then around kind of that as well, I know you mentioned some customers upgrading to the OneGateway or switching from the OneGateway from the SmartGateway. Just curious, you know, how much of that there is going on and kind of, too, just how does that in general work? when you guys have an upgrade like that? Is it different for a subscription contract versus an upfront? Just any information around that would be great.

Thank you. Why don't I address just the first part, and then, Peter, you can talk about the sort of upgrade process. Sure. And let me give my view on this. As we previously announced, we've already signed with five customers for a total contract value of $6.7 million. And we learned a lot from these first orders. First of all, from what we've seen so far, the one gateway deals tend to be quite a bit larger than our smart gateway deals, perhaps two to three times the total contract value. Secondly, these contracts tend to cover a number of market verticals and they're well suited particularly for schools and commercial buildings. In terms of revenue recognition and the timing of those orders, you know, is highly dependent on the number of factors in terms of when we recognize that revenue and, you know, the contracts, depending on whether they're upfront or subscription and whether they're phased installations. And so I think that's all that we can really reveal at this point, John, but we look forward to sharing more information about the OneGateway and the upcoming releases and our next earning call as well.

And on your second question, John, We've only had a couple of customers who've looked at an upgrade, and those are folks, interesting enough, who are coming to the end of their term on the smart gateway contracts, but they want to retain the smart gateways. There's a place for the smart gateway, and there's a place for the one gateway. They address different market needs and different application needs. And so for one customer that I'm thinking of in particular, they're getting towards the end of their smart gateway contract. They'd seen one gateway. They booked their orders for the one gateway, and they already have a plan for redeployment of the smart gateways to other entrances around their facility. We've also, you know, looking at contracts with customers that are currently working through the details where they've seen both products, and they're purchasing both products. And they will be using smart gateways at certain entrances and one gateways at other entrances. And so we're very pleased that both products are very viable, and both are delivering value for customers. their applications we've had very minimal people who said they're halfway through the smart gateway contract and would upgrade it to the one gateway because the smart gateway fits their needs it's purpose-built for a specific application and those applications are being well served okay awesome thank you one well another question here

We've seen a lot just from news releases and things like that, but it seems like there's a lot of interest from Canadian hospitals. I've seen several articles recently and just seems like in the last month that Canadian hospitals are looking for weapons detection systems. A lot of them seem to be testing the smart gateway. Can you guys touch on maybe some of the demand you're seeing there? Is it a significant increase, or is it just that this is now getting some press?

I think what you're seeing, like, everywhere in the world, John, is there's an increasing level of security concerns everywhere. And if you look at the statistics, about 76% of all workplace violence issues occur within the healthcare marketplace. And it's not surprising when people are in pain or they're having, you know, drug-related issues or other related issues. And they're looking for service and they're looking for it fast. And so there's an increase in violence, particularly in healthcare. So why, for example, if you look at a lot of the strikes by the nurses, one of the number one priorities is keep us safe at work. And so we're seeing a significant piece of interest for the smart gateway in the healthcare environment because it uniquely picks up the edge weapons, the small little razor blades and knives and things that are an issue. and there are a specific need for a hospital environment. When the caregiver is that close to the patient, it's not just a firearms issue. You have to catch the knife also, and that's what we do extremely well. In Canada, in November, December, January of last year, there was four major events in four different hospitals, firearm-related events and knife-related events. These are news you can research, but, for example, in Nova Scotia, a patient stabbed three nurses and one needed life-saving surgery. And so we're seeing a high interest in Canada, as well as we are in the United States, for the healthcare segment itself.

Okay, awesome. And just one quick follow-up to that one. You know, you guys have a lot of investors from the U.S. and other countries outside of Canada. And I know there's been some kind of debate in the retail investor community and whatnot around the decision-making process and everything. I know where I'm at in Southern California, for example, you know, you could have one county like San Diego County or L.A. County might have dozens of different hospitals that are managed, owned, and operated by up to 15 or 20 different entities or organizations, whereas it seems like it's a lot more centralized here. in Canada that I think that might offer you maybe some advantages. Can you touch on that?

I think like any kind of market segment, sometimes you have centralized decision-making. You know, a school district will be looking at technology for the entire school district. They don't buy on a school-by-school basis. Similarly, when you look at health care, you might see a health care system. I think in California near you, John, you might have places like San Mateo or Souter Health, or Adventist Health or any of these others. They will typically buy on a kind of a hospital-wide basis, or they may just simply have an issue with one particular hospital where it might be in a part of town where they're seeing a higher level of violence, and so the primary focus is there. Regardless of how the customers wish to buy, whether they wish to do it for a single location or for a broad set of locations, we're going to serve them, and we're going to take good care of them with good solutions.

Okay. Thanks for taking my questions, guys.

Thank you, John.

At this point, there are no further questions in the queue, so I'll turn it back to Mr. Evans for any closing remarks.

Well, thank you very much, everyone, for taking the time out of your day to listen to us. Thank you to all our continued support from all of our investors. We're in a very good position as a business. We've seen a few headwinds that have caused us to kind of think about our go-to-market model. But the thing that's most pleasing to me overall is the business continues to grow. We have great engagements with some unbelievable customers, and I could not be happier with the market response we're getting for both of one gateway as well as the continued market response for the smart gateway. And as we work our way through Q4 and the rest of the fiscal year, you can count on us to be very, very focused on driving bookings and converting those to revenue as quickly and as possible as we can. Thank you, everyone, for listening in today. I very much appreciate it.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.