Avante Corp. (XX) Earnings Call Transcript & Summary

Thank you, everyone, for joining us today, and welcome to Avante's Fiscal First Quarter Investor Webinar covering the 3 months ended June 30, 2026. My name is Rajan Sohal, and I will be the moderator for today's call. Joining me on the call today are Emmanuel Mounouchos, Founder and CEO of Avante, and Raj Kapoor, the company's CFO. This call is being recorded. [Operator Instructions] I trust that everyone has received a copy of our financial results press release that was issued earlier today. Listeners are also encouraged to download a copy of our interim financial statements and management discussion and analysis from sedarplus.ca. Please note, portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Forward-looking statements that are based on management's current views and assumptions and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements that is appended to our news release. Please review our press release and Avante's reports filed on SEDAR+ for various factors that could cause actual results to differ materially from the projections. We use terms such as gross profit, gross margin, adjusted EBITDA and RMR on this conference call, which are non-IFRS and non-GAAP measures. For more information on how we define these terms, please refer to the definitions set out in our management discussion and analysis. And with that, let me turn over the call to Mr. Emmanuel Mounouchos, Founder and CEO.

Thank you, Rajan, and welcome, everyone. We truly appreciate everyone joining us today. On today's call, our CFO, Raj Kapoor, will review our fiscal first quarter results, and I will provide a general update and business overview of where the company is today and our positive outlook for fiscal 2027. Before we get into the financial results, I would like to begin with a high-level overview of Avante. Avante is a leading provider of security operatives and technology-enabled security solutions to residential and commercial clients. Avante's mission is to deliver an elevated level of security globally with a white-glove mentality to high net worth families and corporations alike. Our platform today spans 5 core areas: security systems, which is our advanced burglar alarms, integrated camera systems and Smartboxx dual-factor monitoring backed by our 24/7 professional oversight from our state-of-the-art control center; Protective Services, which is our full range of physical protection, including highly trained executive security operatives, secure driving, rapid alarm response and mobile patrols; Halo, which is our AI-powered video analytic platform, delivering real-time monitoring, facial recognition and gun detection across residential and commercial spaces; Avante Black, our discreet specialized services delivered worldwide, including secure international and transport travel, complex investigations and covert operations; and Homeworxx, our premium home management offering, including vetted trades and maintenance. Avante is headquartered in Toronto, Ontario, and we have approximately 212 employees in the company. Today, the security landscape for high net worth individuals has become more complex than ever with rising geopolitical tension, increasing incidence of targeted crimes and growing concerns over personal safety, the need for sophisticated security solutions has never been greater. High-profile individuals are no longer just seeking traditional protection. They require comprehensive, proactive measures that integrate advanced technology with expert oversight. At Avante, we understand these evolving risks and are committed to providing elite security services that offer not only protection but also peace of mind. I'm pleased to report that during the fiscal Q1 2027, our teams completed over 182,000 patrols and executed over 600 secure transports. On today's call, we will walk through the following topics. First is our fiscal Q1 2027 financial results, which Raj will discuss shortly. Second, I will discuss a couple of our key catalysts for the fiscal year. And lastly, our positive outlook for fiscal 2027. I would now like to turn it over to our CFO, Raj Kapoor, who will discuss our financial results for the first quarter of fiscal 2027. Raj?

Thank you, Manny, and welcome, everyone. I'm pleased to report another quarter of growth in revenue and adjusted EBITDA at Avante. For the 3 months ended June 30, 2026, Avante achieved revenue of $10 million compared to $8.7 million in Q1 of fiscal 2026, an increase of 14%. Adjusted EBITDA for the quarter was $818,000 compared to $359,000 in Q1 of fiscal 2026, an increase of 128%. Our fiscal first quarter 2027 results are as follows: recurring monthly revenue of $4.3 million compared to $4.1 million in Q1 of fiscal 2026, an increase of 7%; gross profit of $4.5 million compared to $3.3 million in Q1 of fiscal 2026, an increase of 35%; gross margin of 44.9% compared to 37.9% in Q1 of fiscal 2026, a significant improvement of 700 basis points, driven by an increase in higher-margin segments, including Avante Black and NSSG. I'd like to take a moment to highlight Avante's consistent growth profile. On this slide, you'll see our trailing 12-month revenue over the past several quarters. Notably, our TTM revenue has grown sequentially every quarter over this period, highlighting the durability and consistency of our growth trajectory. TTM revenue grew to $38.5 million in Q1 of fiscal 2027 compared to $34.6 million in Q1 of fiscal 2026, an increase of 11%. The company's growth has been driven by the onboarding of new customers through focused sales efforts, enhanced customer support and launch of new services and strategic acquisitions such as NSSG. Our business model remains predictable with a significant portion of our revenue recurring in nature. 43% of our revenue in fiscal Q1 came from contracted recurring revenue, providing strong visibility and predictability for future performance. Recurring revenue increased 7% in fiscal Q1 compared to the same period last year. On a sequential basis, recurring revenue was down slightly quarter-over-quarter, primarily driven by the expiration of several shorter-term international contracts at NSSG. We expect recurring revenue to increase in the coming quarters as contracts are renewed and new ones are secured. Our client contracts are typically 1 year in length, and we maintain a 98% client retention and renewal rate, demonstrating the strength of our value proposition. I'm pleased to report that we have maintained the strength of our balance sheet, giving us the flexibility to fund the company's organic growth initiatives. As of June 30, 2026, Avante had $6.8 million in cash and cash equivalents compared to $4.7 million as at Q1 fiscal 2026, an increase of 44%. We have access to a $12 million undrawn line of credit, which we intend to use to support future acquisitions. Our working capital as of June 30, 2026, was $3.6 million. We remain able to continue funding our growth with cash flow from operations. Overall, the company is operating from a very strong financial position. Revenues are growing, profit margins are increasing and our cash is improving. I will now turn the call back over to Manny.

Thank you, Raj. Our company was founded on the principle of combining cutting-edge technology with the best-in-class security operatives, and innovation remains at the heart of our strategy. I will now discuss what we believe are 2 key catalysts at Avante for fiscal 2027. The first is MAST, which is rapidly deploying across multiple industries and internationally. The second key catalyst I will discuss is Avante Black, which was a significant contributor to our EBITDA margin improvement in this quarter. MAST, our mobile automated surveillance tower, is an unmanned solar-powered wireless communication security tower and has been a significant area of momentum for the business. We have deployed over 30 units to date with additional orders in production. Our partnership with Target Park continues to progress well as we expand deployment across their above-ground parking portfolio, and that relationship has also opened the door to additional conversations, including with a prospective partner in Germany. Internationally, we're pleased to share that NSSG helped secure a contract for 2 MAST units supporting a construction project in Cairo, and 2 additional units have arrived in Athens and are currently being deployed. Closer to home, we continue to see strong interest from rural communities in Northern Ontario, particularly around mining, rail and community safety applications, and we're in active discussions on a number of potential opportunities in this space. Combined with our pipeline across parking, construction, events and law enforcement, we expect this to translate into meaningful ramp-up deployment through fiscal 2027. We are also building out our sales and customer support capabilities to meet growing demand across the platforms. We currently have over 100 units in our sales pipeline. With a substantial design, network architecture and highly flexible deployment model, MAST is well positioned to become a high-growth recurring revenue contributor to our performance as adoption continues to expand. Since its launch in January 2023, Avante Black has rapidly evolved into one of the most strategic business lines and now represents over 10% of the company's total revenues. Avante's adjusted EBITDA margins were extremely strong this quarter at 8%. Avante Black was a key driver of this as it delivered adjusted EBITDA margins exceeding 25%, underscoring its profitability profile and its growing contribution to the company's overall margin improvements. We continue to see a strong and growing pipeline of opportunities for this service, and we expect Avante Black to remain a meaningful contributor to the company's growth growing forward. This performance reflects several powerful tailwinds, including escalating global risk environments, which have increased demand for specialized executive level protection and intelligence support. Our global operating reach, which allows us to serve clients anywhere in the world and our ultra-high-end segment remains largely underserved, enabling Avante Black to build a distinct leadership position in mission-critical risk mitigation. At its core, Avante Black represents the pinnacle of elite risk management, redefining how protection, intelligence and crisis response are delivered. The division was purpose-built by assembling a world-class team, including seasoned experts from former members of elite units who bring unparalleled covert operation experience and precision engineering methodologies to every engagement. Alongside NSSG, Avante Black has been a key driver of Avante's overall adjusted EBITDA margin expansion this quarter, and we'll remain focused on growing these higher-margin offerings as part of our broader strategy to enhance profitability across the businesses. I will now conclude this call with some comments on our positive outlook for fiscal 2027. As we look ahead to the remainder of fiscal 2027, our priorities are as follows: increasing recurring revenues by developing and scaling our Halo and MAST deployments across new verticals; improved consolidated adjusted EBITDA margins, driven by an increase in higher-margin service lines and greater operating efficiencies; take advantage of consolidating opportunities within the fragmented security service industry through disciplined M&A; and continue to expand NSSG international secure transportation investigations and consulting revenues. We expect growth across NSSG, Halo, MAST and Avante Black for the remainder of the fiscal year, and we remain focused on driving organic growth across the businesses. We also see meaningful opportunities to expand our service offering to customers in new industries. We believe we have laid an excellent foundation on the company and have a positive outlook for fiscal 2027. Meanwhile, we are actively seeking new opportunities to expand and enhance our services through acquisitions. Finally, I want to thank our entire team at Avante, including the employees whose hard work elevates the company to higher levels. We want to thank our customers around the globe who trust us and rely on us to manage the risk and provide elevated security solutions and services. Lastly, but not least, I'd like to thank you all for joining us on this call today. We look forward to providing more updates next quarter. I will now hand it back to Rajan for questions.

With that, we will now open the call to questions. [Operator Instructions] We have Gabriel Leung from Beacon Securities on the call. Mr. Leung, please go ahead.

Congrats on the progress. Manny, I got a couple of questions on MAST first. I know it's only been a month since our last conference call update, but have you and Target Park been able to fine-tune what the deployment cycle is going to look like with this particular customer and with MAST?

Well, we met -- we actually met last week to discuss further how we're going to deploy. It is a fairly large project, and it is in the U.S. and Canada. So the plans are to move forward quickly, but we want to do it right. The -- both companies are working hard. Our back end is being deployed so that we could monitor the life of the MAST units, the heartbeat. We're monitoring about 30 points remotely now. But we're -- it's only been a month. So we're really focusing on deploying rapidly. I think we have 2 MASTs being deployed next week for Target and a lot more coming on board shortly.

Got you. You talked about some initial deployments over in Cairo on the construction side and Athens as well. Can you talk about those 2 opportunities and what they could evolve into over time?

The Cairo project is a huge construction project, and we expect more MASTs to be deployed. The client wants to experience what MAST has to offer. And through NSSG, they're really promoting the MAST technology to other countries that they're working in. So it's all very exciting, mostly based around the construction. In Athens, we have deployments of the 2 MAST units, again, paid pilots for more along the coastline and the ports. I can't really say more than that.

Got you. The sales pipeline you're talking about of 100 MAST units, are you able to talk about -- is that comprised of several opportunities, one larger opportunity? And are they competitive in any way?

They're comprised of 2 major opportunities in completely different spaces.

Would you be competing with them? Were they competitive opportunities? Or are you being sole sourced potentially?

No, completely different industries.

Got you. Maybe one last question for me. When we look at the opportunity you've got in the core business, the newer business lines, also Avante Black and NSSG, are you able to set some goalposts on what you would like to achieve from both top line and margin perspective for fiscal '27?