Xtract One Technologies Inc.

Good day and welcome to the Extract One Technologies Fiscal 2025 Fourth 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 a touch-tone phone. 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 Woody, Investor Relations Advisor. Please go ahead.

Thank you, and good morning, everyone. Welcome to Extract One's Fiscal 2025 Fourth Quarter and Annual 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, financial results, as well as 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 presentation. Before I 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 meanings prescribed under IFRS, and therefore may not be comparable to similar measures presented by other reporting entities. These supplemental financial measures are defined within the company's filed 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 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 annual consolidated financial statements, management's discussion and analysis, and earnings specialties issued October 23, 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 XR1. Please go ahead, Peter.

Well, thank you, Chris, and welcome to all of our investors and analysts joining us today. We're going to start off by turning to slide four and talk a little bit about the state of the business. I'm very pleased to say that we ended fiscal 2024 with a very strong Q4 that has positioned us well for the immediate and long-term future, particularly as our new extract one gateway benefited from strong and accelerating demand across a wide variety of markets, most particularly education. where we are rapidly cementing ourselves in a leadership position by offering the most efficient, most adaptable, frictionless technology suitable for screening solutions in environments where the average individual has a much higher volume of personal items on them as they pass into a venue. Items such as backpacks, laptops, tablets, metal water bottle, and other items. We see this application not only for schools in the education market, but also for places like convention centers, office buildings, and hospitals, where we've seen a significant uptick in interest for our solutions. Following a record $16.1 million of total bookings during the fourth quarter, we began fiscal 2026 with a solid backlog, including pending installations of nearly $50 million. These are signed contracts soon to be installed. This is clearly the largest in our company's history and something we're very proud and pleased about. While revenue was negatively impacted by certain one-time events, which we'll talk about in a moment, these were customer-initiated delays. And it was also times when we saw a customer doing a phased approach for some of our larger installations. We continue to work through these items with our customers and cannot be happier about where the company stands as we begin on the next stage of our journey as a company. I personally am looking forward to the coming year being one of higher revenue growth, significant conversion of the backlog into revenue, and continuing improvement of our bottom line results, as well as continued progress on our path to cash flow breakeven, a key objective for the company and myself and the other executives. Let's turn to slide five for a moment. I'd like to provide some further commentary on the rollout of the extract one gateway. The market continues to be very large and growing for this recently launched product, as evidenced by the number of announcements that we've made over the past few months, particularly in the education marketplace, including organizations and school districts like Maynard Independent School District out of Texas, the Del Mar School District in Delaware, Volusia County Schools in Florida, and Mecklenburg in Virginia. It was a very, very active summer for us with several of these awards taking place just before the end of our fiscal year or just after the fiscal year, and some additional contract wins that have continued to go and be booked soon after the end of the fiscal year. Many of these are not yet reflected in our backlog. That said, during the year and predominantly in the fourth quarter, the company signed contracts for X-Track 1 Gateway with multiple customers worth over $13.1 million, serving a variety of markets including education, some healthcare, and some commercial enterprises. Since then, we've continued to win additional contracts and are now successfully begun commercial deployment of the X-Track 1 Gateway just subsequent to the fiscal year-end. And the initial feedback from those first customers has been extremely positive, with many of them looking to expand. We see this as the tip of the iceberg for us in terms of overall demand, as deployments, referenceability, client demonstrations, and all further drive interest that we believe will continue to show growth and acceleration in 2026 and beyond. we have surpassed the original business plan that we built and that we envisioned for the first year of deployments for the extract one gateway and accordingly we now have plans in place to double the manufacturing capacity very quickly for the extract one gateway in fiscal 2026 in order to serve this inbound demand that we're seeing from organizations like schools and others this thing is a nice sign of having a vision to deliver something different and actually delivering on that and the market responding incredibly positively. The positive market response has been in comparison to other solutions where essentially you need to introduce other technologies like x-ray machines and create an environment like a TSA screening activity in airport in order to have a comparison versus the extract one gateway. It's for these reasons that the customers are so excited. As a reminder and a point often asked by investors, we would love to announce many, many more of these customer wins, but due to competitive reasons or their preference of a particular entity, or perhaps their non-disclosure agreements, we may not always be able to announce some of those new wins. This is why we promote and highlight that our backlog is a much better barometer at a good forward-looking indicator of the health of our business and the future success of our business. is the best measure of our performance than the number of press releases that we put out. We continue to visit potential customers and host demonstrations on a weekly basis, multiple different demonstrations across the country every single week. And this is resulting in expanding the way of interested school boards and new previously untapped industries who are intrigued by our unique and groundbreaking capabilities. Our AI-enabled technology is truly the best in class at determining real threats in a world where the average individual is carrying a large number of large metallic items like laptops phones chromebooks chargers metal bottles and all sorts of other paraphernalia and invite anyone on this call to think about your own experience when you have to divest of all those items versus the extract one gateway where you just simply walk through with your rolling luggage your backpack or whatever and we can uniquely highlight that is a gun and that is a knife on the person and on the location. We continue to meet not only with school boards, but healthcare entities have now shown interest, warehouse and distribution companies who are looking to protect them both inbound and outbound. Commercial property organizations, due to some of the unfortunate incidents, such as what happened in New York a few months ago, has caused these marketplaces to open up to us. Other organizations like that, similarly, are looking to showcase our applications, which will then result in us securing new contracts. All of this does take time, particularly as the size of the orders grow. A typical school board is much larger or a school district is much larger than, say, a theater. And so the analysis that goes in takes some time for these organizations, but we're very pleased because that is increasing the size of our average order. And we're very pleased with the pace of introduction and even more excited by what the future holds for this solution. With rapid growth on the horizon, we're planning for the future and expect fiscal 2026 to be a significant change here at Extract One on many aspects. Complementing this new and accretive growth that we're recognizing the Extract One gateway, we continue to win new contracts for our smart gateway at a strong, steady pace. The smart gateway has proven itself to certain specific vertical markets and is performing extremely well. In the past few months, we've announced awards from organizations such as Temple University in Philadelphia, a global performing arts organization, San Mateo Medical Center in California, and follow-on contracts, for example, with a multinational entertainment organization amongst others. These wins underscore the continued and strong demand for the Smart Gateway product and its unique fit to serve those markets particularly well. particularly with his latter customer that I mentioned, where this entity, a known worldwide organization known for its theme parks and related properties, chose to order additional Smart Gateway units to accommodate expansion in its locations. With a planned spring 2026 deployment for a three-year contract worth about $2.6 million in value, we'll increase the Extract 1's global footprint, particularly with Smart Gateway, and further support the entertainment organization's mission to deliver a safer guest experience at all of its venues. Both the Smart Gateway and the One Gateway deliver specific capabilities that are key requirements for unique market segments and their needs. So this is not a one-size-fits-all. It's a perfect fit for each segment. So each of those products is well-positioned to serve their respective marketplaces, and we're very pleased with the response from those markets. This provides balance across our portfolio and more future business predictability as we have different kind of cycles of purchasing across different segments. And of course, delivers a differentiated value that each customer requires out of their screening solutions. Overall as a business, we continue to grow the pipeline of opportunities. We have more than about $100 million U.S. currently in our qualified sales pipeline, customers that we're actively engaged in at various stages of selling cycle. And this is across both product lines. And this number continues to rise due to increasing threats, unfortunately, across the world and in geographies outside of the United States as well as inside of the United States. This improves our positioning and growing brand recognition of who we are and what our technology can actually accomplish. Given the current outlook for these and other opportunities, we're very optimistic about the quarters to come, and we believe the company is on a precipice of a step-level change in terms of the volume and scale of our operations. Therefore, why we continue to do things, like I mentioned earlier, about doubling the capacity to manufacture the one gateways. This obviously leads us to be very positive about the trend towards cash flow neutrality, and we look forward to sharing those updates as we get further into fiscal 2026. I'd like to address some prior comments about revenue delays. We have experienced a handful of customer-initiated delays in their deployments to systems, which have caused one-time delays in our revenue recognition. Let me provide a few examples of these. We've signed a contract and there's a desire for an expanded contract with a major US federal organization that due to federal government optimization activities that have taken place through 2025 has caused a lot of reorganizations of their organizational structure and how different people are responsible for different activities like IT infrastructure, budgets, financing, and these sorts of things. While the contract is still valid, And while that organization has a federal mandate that they will screen for weapons at all of their locations, they've had to pause as they've gone through these reorganization activities. So the requirement is still there and the order is still there and has not gone away, but we're working with that customer as new individuals come into play to start scheduling those deployments. Similarly, a very significant sports venue that we signed a contract with earlier has undertaken a new rebuild of their venue. And they have paused deployment of the systems until such time as they get closer to building occupancy. The good news here is that they've invited us to work closely with them and with the venue's architects for the best placement of systems, where the conduits would go underground, how do they bring wiring in, how they bring power in, and optimize the deployment of the systems into the venue design to ensure the maximum guest experience and deployment of our systems. So I'm pleased that we're working with them closely. I just like the ability to finish that much faster so we can actually convert that order to revenue. On the other hand, we do have scenarios where we're very pleased where things are accelerating. We signed a contract with one of the top five major car manufacturers who wished to protect various venues, and they had delayed their deployments for assorted reasons. However, when we were starting to get a little bit frustrated with the delays, they called us up and said, we are ready to take shipment. And so we shipped those systems this past month. After about a 12-month pause, well, they worked through some entrance redesign activities. So along the same lines, these orders have not gone away. Sometimes a customer needs to pause as they work through some internal activities. The summary here that I'd like all our investors to take from this is the bookings backlog is solid, and we're still actively engaged with all of those customers as well as new customers. At this point, I'd like to turn it over to Karen, who can then provide a little more detailed discussion on our financial results, and then we'll move to Q&A. Karen, over to you.

Thanks, Peter. I'm happy to review the financial highlights for what amounted to a very busy quarter, setting us up nicely for a strong fiscal 2026. Turning to slide seven, total revenue was approximately 3.3 million for the fourth quarter versus 5.6 million in the prior year period, reflecting certain customer initiated delays, which Peter highlighted previously. We've been working with these customers and many of these installations have started to ramp up in Q4 and into fiscal 2026. We have also been instituting a phased deployment schedule for some of our larger, more complex installations. In particular, this is an approach that we use with school districts, delivering first for the high schools, then moving on to the middle schools, and finally elementary schools. While this approach may initially slow down our revenue in the short term, we believe that working with our customers to develop systematic deployment schedules and instituting rigorous training programs are positioning the company for long-term revenue generation and high customer satisfaction. Similar to previous quarters, revenue for the fourth quarter was spread across numerous customers and industries, with the largest contributors being entertainment, education, and healthcare. We've recently made many announcements about various new customer contracts and growing demand for Extract One Gateway, which are expected to possibly positively impact revenue in fiscal 2026. The mix of business will continue to fluctuate and diversify in the coming quarters, given the order acceleration and interest in our products across an expanding array of industries, which I'll elaborate on in just a few minutes. We also remain committed to expanding our channel partner program, which is a valuable contributor to the company's growth. Channel Partners accounted for approximately 52% of deployments for the entire fiscal year, and this is expected to increase in fiscal 2026. Our gross profit margin was a record 71% for the fourth quarter versus 65% in the prior year period. Margins were also higher versus the third quarter of fiscal 2025, with the improvement both sequentially and year over year due to efficiencies achieved in our smart gateway manufacturing and supply chain processes, as well as the use of advanced software tools like our view dashboard that allow for continuous and proactive monitoring of customer environments. We anticipate margins to be slightly negatively impacted in the near term by costs related to the initial production and installation of the extract one gateway. However, we expect that this will improve over time with broader commercial deployment in fiscal 2026. Turning now to slide eight. New bookings for the quarter were a record for the company at 16.1 million compared to the prior year quarter bookings of 5.6 million, of which approximately 74% were upfront contracts, meaning that the majority of these new contracts will translate to revenue relatively quickly. Bookings for the quarter were almost evenly split between direct sales and channel partners, as markets like education and healthcare are well-suited for the channel. Total bookings for the year were $38.5 million, up from $29.8 million in the previous year. Anyone who's been following our story will know that our initial target markets were entertainment and sporting gen use, with a view of further expanding into other markets like schools and healthcare. Interestingly, in fiscal 2025, approximately 33% of our annual bookings were in the education sector, up from 14% in the previous year, primarily due to the recent launch of Extract One Gateway. We are excited to see that several schools are now coming on board, as evidenced by many of our recent customer announcements. Further, healthcare currently represents 17% of our bookings, and we expect this will grow in the coming year given the strong product market fit with our smart gateway for these facilities. With the diversification of our gateway products, we expect our customer base will continue to expand into a multitude of industries in fiscal 2026. Moving on to slide nine, our contractual backlog and signed agreements pending installation rose to record levels as Peter previously mentioned. At the end of the quarter, our backlog collectively totaled $49.5 million as compared to $26.8 million last year, almost doubling the backlog year over year, which we consider to be an excellent indicator of future revenue. The backlog of $49.5 million at year end was comprised of $15.5 million of contractual backlog, with an additional impressive $34 million worth of signed agreements pending installation. the majority of which are expected to be installed within the next 12 months. Given our current total backlog of almost 50 million and a substantial pipeline of opportunities reflecting strong bid activity and expanding interest in both of our Gateway products, we anticipate bookings to continue to increase, putting us on sound footing for fiscal 2026 and beyond. Now let's turn to slide 10, which shows fourth quarter and full year operating costs year over year for each of our key expense categories. Sales and marketing expenses were 1.8 million in the quarter versus approximately 1.5 million in the prior year period, reflecting increased business development initiatives across a wider spectrum of industries, while costs associated with R&D were 1.9 million in the quarter versus 2.3 million in the prior year period, due to streamlined R&D activities. General and administrative expenses were approximately $2.2 million for the quarter in both years. Overall, operating costs were lower year over year, even as we significantly grew our backlog and invested in the rollout of Extract One Gateway. We have consistently managed our operating expenses while growing the company, demonstrating the scalability of our business model as we move forward on our path towards cash flow break-evens. Finally, on slide 11, I'll discuss cash flow. During the quarter, the company had operating cash usage of 1 million compared with 1.7 million in the prior year period, and excluding changes in working capital, we spent approximately 2.7 million compared to last year's 1.3 million. For the year as a whole, we had operating cash usage of 6.5 million versus 8.1 million in fiscal 2024, primarily due to focused management of our working capital. During the quarter, we also completed a successful public offering of a bought deal, including the full exercise of the underwriter's over allotment option and raised just over $8 million to finance working capital requirements and for general corporate purposes. Our fourth quarter has been a busy but productive quarter. With the completion of our financing, the successful launch of Extract One Gateway, and the growth of our bookings and backlog, we are well positioned for growth in fiscal 2026. With that, Peter and I welcome any questions that investors may have at this time.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Amer Azat from Ventum Capital. Please go ahead.

Hi, good morning, Sarah and Karen. Thanks for taking my questions and congrats on the very strong bookings number. I appreciate your comments on revenue recognition, and I think we all get excited with signed contracts, but often forget that customers have challenges as well in taking delivery. I'm just wondering, how do you feel this friction from the customer side is evolving relative to your comments last quarter and, I mean, Q1, which ends next week? Are you guys seeing a bit of easing into Q2?

Yeah, from my perspective, Amar, it's Peter here. We are seeing that easing. We do see that some of the contracts take longer to work their way through from trial to contract signing because they tend to be larger deals that we're dealing with because there's more, let's say, as an example, Fortune 500 companies that we're working with. And then those organizations might have multiple locations that they wish to deploy. Multiple manufacturing plants, multiple high schools and middle schools. And they're not as interested in flash cutting, for example, 12 high schools and 20 middle schools all in one week. It's not the best approach. So we're seeing kind of these phased deployments. And we're actually starting to see things loosen up and accelerate now in terms of those deployments. and in terms of that acceleration. So, you know, I'm feeling much better. We did have these one-time events, but we're starting to see that subside.

Fantastic. But if I'm sort of thinking about fiscal 26, is it fair to assume a stronger second half relative to the first half? Is that a fair assessment?

From my perspective, yes, primarily because we will be, as we've seen, So far, we're seeing some good momentum for the business and for OneGateway. We're also seeing steady, solid momentum for the SmartGateway. And those contracts will start converting over to revenue as we work our way through fiscal 2026. Okay.

On the bookings, like, again, exceptional this quarter, and you did announce a flurry of wins post-quarter. And I'm just confirming, your bookings number – probably doesn't capture a lot of these post-quarter wins that you guys announced. So we should be expecting another strong Q1 bookings print. Then maybe on the $16 million of bookings, if you could walk us through the split between verticals, I believe, Karen, you gave it for the full year.

Yeah, so in general, we're continuing to see the momentum. And to your question about the flurry of announcements, yeah, where we can, as we said earlier, Amar, we are always interested in keeping our investor base aware of the activities in the company as much as we're allowed to do so by the customers. And where we can announce, you know, schools, hospitals, other locations, we will. But the announcements that have been made post Q4 In general, it's a safe bet to say that those are new deals that are occurring post the close of Q4. Some might have been from a Q4 timeframe, but just due to the timing of getting press releases approved, they might have rolled over into Q1.

Then, Karen, I'm not sure if you guys have this handy for the quarter itself between verticals.

For Q4?

Yes, the bookings for Q4, the 16 million.

For sure. So the general split by industry for Q4 was 60% for education in Q4, and entertainment was about 24%. So those were the two big ones. And healthcare came in around 12%, with the rest being some miscellaneous through other industries. So The overwhelming winner for Q4 was definitely education followed by entertainment. And those I think you could evidence towards two of the larger press releases that we did, one for Volusia and the other for an entertainment organization. Those ones both fell within Q4. And so those represented a good portion of the bookings for that period. As Peter said, the deals tend to get larger that we've noticed, certainly with the Extract One Gateway, and that's evidenced in Q4 where we're seeing a number of larger deals come through.

That's fantastic. I was very pleasantly surprised with the gross margins coming in at 71. Can you unpack what drove that? You spoke to, I believe, manufacturing efficiency, and I just wonder... Is that a peak you feel? Then obviously into Q1, what I understood from the comments is that we should expect some step back on one gateway before margin scale again. Just want to confirm if I understood that correctly.

I think you've understood it exactly correctly, which is we have said all along that we continue to bring efficiencies in terms of our BOM, in terms of our support, that we manage for our customers. And we've done numerous things to help improve those efficiencies over time. And so it's really nice for us to see that this is sort of translated into 71% margins, which are frankly quite impressive for our industry. You did pick up correctly on the comments about Q1. this is what happened to us with Smart Gateway. You bring a new product to market. There's things to work out in terms of support. There's little adjustments that we want to make. We want our customers to be completely happy. And this tends to cause some degradation in the gross margin, at least temporarily until we work out those kinks. And so that's what we're anticipating for Q1 is a little bit of a, an adjustment as we get used to the extract one gateway and bringing it to market. And we're also continually already making changes to our BOM and making further efficiencies. It's going to take a few quarters to run through that cycle and get it really running the way that we, you know, similarly to our smart gateway.

Fantastic. Then maybe one last one on OPEX. I think you spoke to what's driving that, but Should we view this as a new run rate going into fiscal 26? Or maybe you could quantify how much of it has to do with the launch of One Gateway?

Well, a lot of the One Gateway charges that were sort of one-off type of expenses, we did capitalize because we felt that there was a long-term future value of those. we'll start to amortize those costs in Q1 as we've brought the product to market. But similar to what we've said in the past, we believe that our operating structure is fairly stable. We have to continue to add to it to some degree to continue to address, for example, business development across more markets than we were initially targeting. And R&D is still going to continue to be a focus for us as we continue to innovate. We're not going to sit on our laurels. So R&D is going to continue to be a focus for us. But these changes are relatively small when you compare them to what we're expecting from top line growth. So I think that scalability, which is really what you're talking about, is, I think, going to continue on. And I think the changes that we have and the growth that we have in the operating base will be quite modest.

Fantastic. Congrats again. I'll pass the mic.

Thanks, Amar.

Our next question comes from Scott Buck with HC Wainwright. Please go ahead.

Hi. Good morning, guys. Thanks for taking my questions. Peter, I was hoping, given the momentum you're seeing in education, if you could give us a bit of a reminder on how big the education opportunity here is in North America, and then maybe touch on some of the other higher growth segments of the business, like health care as well.

Absolutely, Scott. So simple math, Scott. There's 130,000 K-12 schools in the United States. That is a public K-12 that doesn't include private. And if you assume one to two systems per school, depending on the size of the school, depending on the number of entrances, maybe we've got one entrance for bus drop-offs, another entrance for, you know, the main entrance. And we see a variety. Some schools want as many as three systems. So you can argue that depending on the systems, the feature functionality, things like that, for very simple round numbers, 100 to 200,000 a school, for argument's sake. And those are just round numbers for simple math. So multiply that by 130,000 K-12 schools, you're in the range of 13 to, what, $25 billion or so for that marketplace. So I believe that between ourselves and our competitors, we've barely scratched the surface in terms of the numbers of schools and the numbers of opportunities. I think there's some things that take time to work through the schools, particularly budgets. Most of the schools... have to fund these kinds of acquisitions of the systems through grant applications and grant funds, which can be a bit of an arduous process. The money is there though. Recently, Texas awarded several hundred million dollars for school safety and security, which has opened up, for example, the Texas marketplace. So the market is there, the market is large, the market is significant. It doesn't all happen overnight though, depending on grant monies and these sorts of things. What we're pleased with though is For those schools like Volusia County that did extensive testing over a month-long period, and they were previously using one competitive solution and tested a second competitive solution versus us, it was very obvious what the best solution was for those schools. They could choose an x-ray machine and a screening solution and still have issues with with alerts and weapons getting through, or they can walk through the one gateway with kids streaming in at 66 per minute. So we're very pleased with our position that innovation has delivered. We're very pleased to be serving that school industry, that $13 to $25 billion market. And all of our customers that we've deployed with so far are very happy and have become strong references for us.

Great, that's very helpful. Does that answer your question, Scott? Yeah, no, that's perfect, Peter. I appreciate that. You mentioned one example there where you went in and displaced a competitor. Typically in the education space, is that more often than not you're displacing somebody else, or are there a lot of greenfield opportunities in there as well?

I think we've barely scratched penetration in the marketplace between ourselves and all the competitive opportunities. There are some schools you'll see – I think there's higher penetration, quite frankly, Scott, of – walk-through metal detectors that might have been deployed in some inner-city locations five years ago. Think of a place like downtown New York or Detroit or Chicago. But in terms of advanced screening solutions, in the case of this one place where we displaced a competitor, they were using that competitive solution for screening of football matches on Friday evenings. And they had occasionally used it for screening students entering into the school. And I was very pleased to get a call from the Chief Security Officer one day where he said, well, I finally scrapped my last of Product X and thrown it in the dumpster after we've deployed now in six high schools with you.

Great. That's helpful, Peter. And then one last one. I wanted to ask about some of the commentary you had on channel partners and that becoming, I guess, a larger piece of revenue. Are you adding new channel partners at this point, or are your partners just getting better at helping sell the product?

It's a little bit of both, Scott. We are adding new channel partners, but we're very selective of how we do this. Weapon screen solutions need to be deployed correctly. It is a people process and technology question, not just dropping technology on the ground. People need to be trained correctly. You have to get the con ops and the flow right, otherwise it gets a little lumpy. And so we look to, you know, very good channel partners who can essentially replicate what we do with a high quality and a high touch and a high customer focus. So I'm less interested in having 500 partners versus having five really excellent partners. Now, we have more than five, okay, but as an example or an anecdote. And so we're continuously recruiting new partners, but being very selective about who they are. And then what we're finding is our existing partners, as they get their fourth, fifth, sixth deployment with their customers, they as a company are starting to replicate our level of knowledge and our level of engagement. And we're seeing the aperture of their pipeline expand also. So we've got growth with new partners. We've got growth with existing partners become more fluent in the solution.

Okay, and just given the partnership network that you guys have built, we shouldn't expect any kind of deployment delays on your side given any kind of capacity constraints at this point, is that right?

Right now, we don't have any capacity constraints, but as I mentioned in my comments, because of the high demand for the one gateway that outstripped what has our original business plan, We're already in the process of looking to double the capacity that we built into the manufacturing lines so that we can deal with that. So there may be some slight delays until we get that ramped up, but not something that we think is going to be meaningful or significant.

Okay. Good problems to have, right? Yes. All right, guys. I think that's it for me. I appreciate the time.

Thank you, Scott. Always a pleasure.

Again, if you have a question, please press star then 1. Our next question comes from John Hyde with Strategic Investing Channel. Please go ahead.

Hi, Peter, Karen. Thanks for taking my question. Congrats on the bookings, as the other analysts have said. My first question is around contract split between upfront and subscription. I know, Karen, you mentioned I think it was 75% or so was up front in these bookings. Can you give us maybe like let's say like a split between what type of customers are choosing the different types subscription versus up front?

Sure. It was 73% was up front for Q4. And interestingly, for the full year, the upfront came in at 58% versus 42% for subscription. And so, you know, we look to that to see what's going on here. And I think you heard from Amor's question that we had a strong education quarter. And I think that was a main reason for the upfront. So what we're finding sometimes with schools or fairly often with schools is is that they have grant money that comes in and they tend to work on an annual budget. And that lends itself well to the upfront contracts. So we often see upfront when we're dealing with schools. Similarly, when we deal with entertainment or stadiums, arenas, any sporting facilities, they tend to be very highly focused on their P&L and they like to have security as a service. And so that lends itself extremely well to our subscription model, and that's what we often see when we're dealing with sports and entertainment. Healthcare, we find, can go either way. They're often upfront, but at the same time, we do find some of our healthcare facilities do like to use a subscription model. I would say it's perhaps a little bit more leaning towards the upfront, but you're definitely seeing... a preponderance of a market going towards one type of contract versus the other. But that being said, we always have exceptions. And for our standpoint, we're agnostic as to which one our customers choose. We just want to meet the customer with what suits them best for their needs. And that's why we offer that flexibility of both models, whereas some of our competitors in the market are much less flexible in terms of what they offer and they're often pushing customers into a subscription model when they are in fact better suited towards an upfront model. So I think that's the key takeaway from us, which is we're very happy to meet our customer from whichever model suits their purposes. Our margins are comparable on both scenarios and therefore we just do what's best for our customers.

Awesome. Thank you. So, and on kind of that topic, you know, having customers, a lot to offer for the customers. I know, Peter, you mentioned, I think this kind of goes under the radar sometimes. I think you guys are really the only player in the space as far as advanced weapons detection that offers kind of two different tailored products, whereas I think your competitors mostly kind of just take their product and try to maybe add on a metal detector, like you were saying. Is this something that is really kind of driving some of the advantage with having those two products? And if you can talk about maybe which particular customers really do appreciate that advantage.

Yeah, so, John, it's a great question. I guess the easiest way to describe it is, you know, for each market segment, there's certain critical key factors that they're looking for. And, you know, by having more flexibility in the portfolio, that allows us to, you know, be more aligned to what those customers' needs are. And I'll give you some examples in a moment. Versus a kind of a one-size-fits-all. You know, if all you've got is a square peg and you've got to push it into a round hole, a hexagonal hole, a triangular hole of unique needs, you kind of have to hammer it in there and it's not going to fit very, very well. In our case, things are like we have got a solution with a smart gateway and what it does uniquely and the flexibility for various environments to address the needs of the square pegs and the hexagonal pegs and with the one gateway, the round pegs. There are certain things that certain markets want. The number one thing for schools is they want the kids just to flow in. They don't want them to have to divest in their backpacks, their laptops, put them on an x-ray machine, walk on through, all that sort of nonsense. We want the school to be very welcoming. And the OneGateway allows people to do that. In the case of hospitals, the bulk of the hospitals, the majority of them, are very worried about edge weapons. And there's unfortunate incidents like what happened in Nova Scotia in January this year, where three nurses were stabbed and one needed life-saving surgery. And that was from a two-inch blade. And so being able to detect those small edge weapons without alerting on 70% to 80% of the smartphones, like other solutions would do, is it competitive advantage for the smart gateway? And then that applies when you start to think about international markets where the preponderance of the issues are edge weapons. They are not firearms. And so for healthcare organizations or international markets, the ability to detect the smaller knives without the, you know, the untenable numbers of alerts is critical. For other organizations like stadiums and arenas, there's all sorts of other capabilities in the smart gateway. Ease of portability. I just tip it, roll it, drop it on the ground, turn it on, and it works. And it's up and running, self-calibrating, self-managing. I don't have to worry about moving metal doors or rebar on the ground or all these other silly things that make it operationally complex for people. The arenas and stadiums have enough to worry about to get 17,000 excited Billy Joel fans in to go see Billy. and so making our systems very simple to use particularly in an environment where you're using outsourced security guards and who change over frequently now these are the things that we've built into the platform in a manner that makes it very easy for arenas and stadiums and perfect the smart gateway perfects of that very easy for hospitals i was in one hospital location where they were doing a demonstration and the the vestibule between the two sets of sliding doors was about six foot by seven foot, fairly small. And we fit into it perfectly where others couldn't. So the ability to fit and align those different market needs for the different segments is what's giving us competitive advantage.

Awesome. One last question. I know you talked about the advantage internationally with knives. I know that's a big thing, especially with the smart gateway. With schools, though, I know, you know, a lot of the schools obviously in the U.S. have been picking up on these technologies and we kind of only expect it to continue. But internationally, you know, are you guys seeing the same trend with schools wanting to add, you know, security systems like these or is it kind of particularly just certain markets like the U.S.? ?

I think the primary issue in the U.S. is with weapons and firearms. There isn't a week that goes by where we don't hear a story about some child bringing a gun to school. You don't have the same issues outside of the U.S. because there's not the same easy access to firearms. However, there are anecdotally certain locations, like I believe in the south of France, they've now mandated the schools will start screening for weapons. So we are starting to see this. coming a little bit to the forefront, usually driven by some sort of an event. I was in the UK a month ago, and there are certain school districts that are now starting to make it mandatory to start screening for weapons also, primarily driven by some sort of unfortunate event. What we see is in countries outside of the US, when there is an event, there's a much faster reaction and mandate to start driving weapons screening solutions.

Okay, good to hear. Thanks, guys, again, for taking my questions, and congrats on recording.

Thank you so much, John. Always good to catch up with you.

Our next question comes from Jeffrey Bennett, private investor. Please go ahead.

Hi. I just wanted to get some visibility into Europe with Martin's Law coming into effect. I know you just signed Car Law Support Services. and you've done some demos for the Premier Soccer League over there. What kind of revenues are you expecting out of that? I'll put it on mute there. And for Karen, I wanted to know what kind of warrant conversions are currently taking place with your warrants.

So thank you for the question. The UK is a very strong and emerging market for us. We're very pleased with engagements with assorted football clubs, theatre organisations and other iconic venues. Obviously, we can't speak to them specifically because we're under a non-disclosure with those organisations. Until such time as we've either signed a formal contract with them or until such time as we have got their agreement to actually put out a formal press release. So I can't name any specific names. I wish I could, but we can't right now. But the UK particularly is becoming a very nice market for us and we're very pleased with the business acceleration that's occurring there right now. All I can really say is stay tuned. More announcements to come.

Thanks very much for the info. And Karen, for the warrant conversions, what kind of conversions are you seeing?

We have seen some conversions happening in September. We had 2.8, almost 2.9 million of warrants that were exercised and This was exclusively actually related to the financing that we just completed in June. So we've had some additional cash come into the organization from those conversions, and that extended into a little bit more going on in October. In total, 4 million warrants, give or take, have been exercised since year end that has provided additional cash for the company. And I would note that there are a number of warrants that are still in the money and could potentially convert throughout the rest of the year.

Excellent. Thank you very much. Looking forward to a great 2026. Bye. Thank you, sir.

At this point, there are no further questions in the queue. I would like to turn the conference back over to Peter Evans, CEO, for any closing remarks.

Well, first off, thank you everyone for taking the time out of your very busy day to join us today for this presentation. We are very pleased with how we wrapped up the year strongly. There was a few bumps in the road last year, but those were quickly corrected and we feel that we've got our momentum back and we've got that strength back in everything that we're doing. 2026 is looking very, very good. I'm feeling very pleased about it right now. I couldn't be happier. I'm very thankful for our investors who continue to support the company. I'm unbelievably thankful for the employees that we have in our company. We have got a fantastic group of individuals who are all very passionate about what we do. And most importantly, I'm very thankful to our customers who continue to support us, continue to renew with us, and continue to go tell all of their friends about us and why they want to work with Extract One. So with that in mind, I'd invite everyone to stay tuned. You know, we're looking forward to our Q1 announcement coming up very soon, and we will continue the momentum in keeping everyone aware of what we're doing here at Extract One. Thank you, everyone.