Xtract One Technologies Inc. (XTRA) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to the IAccess Alpha Virtual Best Ideas Fall Investment Conference 2025. The next presenting company is Xtract One Technologies, Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Mr. Peter Evans, Chief Executive Officer with Xtract One Technologies, Inc. Sir, the floor is yours.

Thank you so much, Ali, and good morning or good afternoon, everyone, depending on where you're calling in from and listening to this webcast today. Thank you for taking the time to dial in and listen to what we at Xtract One are doing to change the world and make all of our lives a little bit safer and a little bit more welcoming. At Xtract One, we talk about making a great first impression. And I'll start with an anecdote that everyone of us has experienced. We've all gone to a scenario where it's through the airport, to a sports event or some other activity where they're screening for weapons on the way in the door. In this world that we live in today, unfortunately, there's a continuing and growing threat. And we have a challenge as a society, how do we keep ourselves safe, how do we keep our coworkers, our students and others safe in this world where the historical response to these kinds of increasing threats was a labor-based business model that was populated with adding more security guards or using 50-year-old walk-through metal detector technology. We're in the business of changing that, and we do so by leveraging digital innovation in a manner that has not been previously seen in the physical security world. We can all think about the history that we've seen in the industry where digital transformation has changed fundamental market segments. We've gone from brick-and-mortar bank branches to all of our online banking occurring in a digitally enabled world. Similarly, if we think about how we get educated, how we actually do commerce and purchase items, the world has moved from an analog world to a physical world, but in the physical security marketplace, heretofore, it's still been represented by technologies and approaches that are about 50 years old. Xtract One is out to change that. We're disrupting this physical security industry by leveraging software, AI capabilities and purpose-built sensor technologies to provide a proactive and preemptive approach to reducing the numbers of threats and specifically weapons-based threats in the industry. Let's talk a little bit about more of what we see in the marketplace and why this is becoming a great opportunity for us. Every day, we read more and more about some of the tragic stories about more weapons proliferation, not just here in North America, but also globally. I saw an interesting story yesterday out of Australia, where a local hospital organization was highlighting that they had 5x more workplace violence issues in the hospital with weapons involved than they did in the previous year. This is not just a North American problem or a U.S. problem, it's a global problem. We've also seen, since COVID, a rise in societal unrest and a higher degree of expectations out of individuals and more polarization in society. We've also seen, in many places, a decline in the labor force, particularly those folks in the security industry because it's becoming a more challenging role for people to take on as a career. Amongst all of the perfect storm items that are creating a more risky environment for all of us, we're seeing the rise of pragmatic applications of AI software. In the case of Xtract One, we have purpose-built software solutions that leverage AI to allow us to be proactive instead of reactive when it comes to security, to provide massive scale when it comes to security and to digitally enable security organizations to be able to carry safer environments. What does this mean for the investors? And we'll dig into the details a little bit more, but let's start with the conclusion to begin. Why are investors choosing to invest in Xtract One? First off, like many other vertical marketplaces, we're digitally disrupting an existing market, which has some very, very high barriers to entry. We are bending the laws of physics with what we're doing with sensor technology to be able to allow an individual to simply walk right into a building with their laptop, their backpack, their chargers, their cell phones, all their other metal items and to not alert. While at the same time, if somebody does walk in with a gun or a knife, being able to specifically say that there is a gun in the backpack, a knife in the pocket, all at walking speed. Now I'd invite people to think about the last time that you went through a metal detector going into your favorite sports arena or going through the TSA or other applications like that, where you had to stop, wait, take all your metal objects out of your pocket, put them all in a bin, go through your belt buckle alerted, it's not a very embracing experience and it's not a brand experience that many places want, particularly when places like a hospital or a school are looking to increase the level of protection for their environment. That's not the brand experience of care that a hospital wishes to deliver, and we can change that. As a company, we've developed, over the last 4 years, strong regulated growth and backlog, and we're on an accelerating trajectory as a business right now with increasingly high growth on our top line while keeping our OpEx model growing at single-digit numbers every year. Independently, our technology has been verified and proven by some of the most secure organizations in the world, whether it's the TSA, the Federal Aviation Committee, organizations like the Department of Homeland Security or the MPSA in the U.K. We pride ourselves on taking our solutions and taking it to those third parties who validate technology for its effectiveness in the world in the applications it was meant for. The platform that we've built in the marketplace is playing into a $135 billion marketplace globally, and we've barely scratched the surface in terms of market penetration, whether in North America or globally. As a business model, we're delivering a SaaS-based approach to delivering revenues, which creates a lot of predictable and recurring revenues for our customers and for our investors and for our business. Most importantly to me personally is the key customer wins that we've delivered and the compelling ROI not only for our customers, but for their customers. And we see scenarios where hospitals have deployed our technology and the employee satisfaction shoots through the roof and the caregivers in that hospital are saying, "I feel safe at work for the first time" or when patrons who are attending a concert at their favorite venue, not only at the venue doing very well, getting people in much faster at a much lower cost, but the patrons are having a much better guest experience by simply walking into the venue. Let's talk about this a little bit more on what this means in terms of a solution and experience for everyone on this call and anyone who attends the concert, for example. We've all experienced the obsolete walk through metal detectors as the proxy for detecting weapons. The metal detector was developed 50, 60, 70 years ago and came into its forefront in society about that time frame. It was developed and deployed at a time when the average person walked around with a leather wallet, maybe the keys to the car. That was about it. So metal was a good proxy for a weapon. Today, the average person is carrying 2 smartphones, earbuds, jewelry, tablet, laptop, all sorts of other metallic items and so the experience of going through a metal detector has become more and more onerous. And so instead of the long lines that are averaging 6 people per minute to go through the metal detector, a system like ours can have people just flow in at a natural pace, 50, 60 per minute as if there was nothing there, allowing all those people, as you see this lady on the left -- or on the right, sorry, walking through with her purse, her cell phone, her watch, her keys and all her personal items and the system only alerting should she have a gun or a knife. At this point, typically, what we would do is we'd show a video of what this experience looks like in the real world. Unfortunately, due to the platform where the way we set this up, we don't have the video, but we have lots of case studies on our website for others to look at. So let me describe what you would see if I ran this video. The video shows children going into a school with their backpacks, their laptops, their metal water bottles, they've got these metal lunch boxes, and they're all just streaming in through the front door as if there is nothing there that is slowing them down, causing them to have secondary searches of their backpacks, causing people to look through all of their personal items. It's as if they're just walking to school normally. And then a security guard walks through the system and he has on his flack jacket, he's gone on his communications devices, he's got his smartphone, he's got his walkie talkies, keys, watch, wallet, all sorts of other items, and he has a gun on his left tip. And as he walks through, instantaneously within about seven tenths of a second, the system correctly identifies that there is a gun on his left hip. So when we think about this for all of our schools and all our hospitals, that's a very welcoming experience while keeping the environment much safer. The big difference for Xtract One in this marketplace versus any other potential opportunities or solutions that are out there is we consider ourselves an and, not an or. The choices we made on our architectural design for our solution and the way we developed our software with a single purpose in mind is that we can detect the guns and the knives and have a high ingress speed of people entering in a building, 3,000 people per hour through a door or about as many people as you could get through normally, while having a very low false alert rate. This creates a great ROI for our customers, where, for example, a hockey arena may normally have 42 walk-through metal detectors and 85 security guards and spend about $2 million on the salaries for those security guards versus a scenario today where they're now using 9 of our systems, 27 security guards, and they've cut their spending on OpEx to about 1/3 of what it was before. Most importantly, though, they're keeping out the weapons from the facility while getting the average individual into the arena for their concert in what used to be 17 minutes now to under 2 minutes. And of course, what are those people doing when they're inside the building? They're not only buying merchandise, food, beverage, but having a much better brand experience. So an incredibly compelling ROI for environments like arenas, stadiums and others. We deliver our solutions to the marketplace in 1 of 2 ways. We have 2 solutions that are purpose-built for various market segments. For the past 4 years, we've been delivering the SmartGateway solution to the marketplace. And about 4 years ago in 2021, we did a couple of hundred thousand dollars of business. We've grown the business over the last 4 years. We're now in the tens of millions of dollars of business with the SmartGateway, and that trajectory continues for that product. The SmartGateway serves arenas, stadiums and hospitals very, very well for the objectives that they're trying to achieve, particularly the ability to capture very small knives in the case of hospitals where you want to keep that weapon away from the threat it could provide to a caregiver. We've most recently introduced the Xtract One Gateway, purpose-built for schools and office environments and convention centers, where the average person is walking in the door with a backpack, with a laptop and probably what everyone on this call would be carrying if they were working to their office environment. The Xtract One Gateway has been going through its certifications in the first half of this year. And as of July, we've been shipping it out to the marketplace for a backlog of customers that had already seen the early betas of the product. I'm very, very pleased with the trajectory of what we're seeing from One Gateway and particularly the trajectory that we're seeing in the school marketplace. With the One Gateway itself, the unique capabilities of it, they are purpose-built for the schools, are offering an opportunity for the schools to rethink entry. Previously, the schools would have to set up an environment or an entrance that looked like a TSA checkpoint where they had a separate X-ray machine for screening bags and the children had to go through a separate system to screen the people. So instead of 2 systems and all the footprint and all the software and all the maintenance and the requirement from state or federal inspectors to examine those X-ray machines as is mandated, one simple solution, the One Gateway allows those children to stream in the class without any sort of delay or impediment. What does this mean in terms of the markets we serve with these 2 products? Originally as a business 4-odd years ago, myself and our CFO, Karen Hersh, together, we sat down and took a hard look at the business and where do we want to go with the business and how could we get it on a high-growth trajectory. Our initial target market was to take the SmartGateway into the arenas and stadiums and theater marketplace in North America. This was an obvious choice. These organizations already screened for weapons, they already had security staff, they already had fans who are ready to be screened and they already have budgets. So we can offer a better, faster, cheaper outcome by simply redirecting that existing spend that was budgeted for over to our solution. And that's what created our first wave of trajectory of growth for the business. However, the markets were not willing to wait for us. Hospitals, schools, manufacturing, distribution, organizations like auto manufacturers who are also experiencing weapons threat in the workplace were pulling us into their marketplaces and to come and do demonstrations at their locations. So accordingly, we now play in those 4 big markets: schools, hospitals, manufacturing and distribution and arenas and stadiums as our primary 4 markets, with the SmartGateway and One Gateway each uniquely serving some of those segments. This has had us playing into a $40 billion -- $39.5 billion marketplace as pulled by those customers. Similarly, in the last 18 months-or-so, we're seeing a pull into the international market space with organizations in places like Japan, Australia and Eastern Europe -- sorry, Western Europe, in the U.K., France and other places now deploying solutions where we are known specifically for detecting the knives and not the firearms. Sorry, let me back up, not just the firearms, I'm sorry. Internationally, knives are the primary problem, as mentioned in that story about the hospital in Australia. And when we think about other locations like Singapore, like Japan, like the U.K., their primary focus is making sure they keep those edged weapons out of the facility, and that's where Xtract One has a unique competitive advantage. Any other solution in the marketplace to do so will now start alerting on items like smartphones, and therefore, one could expect an almost 100% alert rate. That does not deliver the value proposition that Xtract One delivers of just walk rate in experience while keeping the weapons out. I mentioned briefly our trajectory financially as a company. And again, going back to early days of post-COVID, in 2021, we delivered a couple of hundred thousand dollars of business for our SmartGateway platform. As you can see here, we've effectively been doubling or greater our revenues over the last 3 to 4 years, and you'll see us announcing our next fiscal year as we move towards the end of October. Our total contract value of new bookings continues to grow, and the booking backlog is a very healthy number that's a predictor of the future for us. Our bookings backlog typically is comprised of customers who have ordered and not yet deployed or customers who have purchased on a SaaS-based business model, where they bought a subscription and we recognize the revenue over time as they continue to progress with us monthly, quarterly or annually through their contract. We believe that we're in a solid position, and there's a lot of tailwinds for our business right now, unfortunately, due to the weapons threats that continue to grow in the world right now, but very fortunately, because we've delivered a solution unlike anything else that's been seen in the marketplace before, and we think we have a unique competitive advantage in each of those 4 big segments that we play into. The validation of all of this in the real world is the customers. And we find that when customers are truly focused on having the highest level of security, iconic venues like Madison Square Garden or the Sphere, NBA teams, NHL teams, well-known hospital organizations like the VA Hospital or well-known entertainment organizations that are global in nature like Cirque du Soleil. We find that organizations who take security seriously and to find that Xtract One is the right solution for them because we can deliver on that security value proposition as well as delivering on the great guest experience. There is no need to trade off one for the other. A organization can have both. So as a business, recapping why investors are interested in us. Again, we're playing in a very large and growing marketplace where we barely scratched the surface on the market penetration so far. This is a very, very difficult problem to solve with the sensor technology that can uniquely identify the characteristics of one item, a gun, versus another item, a smartphone. And we've been able to deliver that value and actually get to the point of object detection, where as people walk through the system, our system can identify that's a gun, that's a laptop, that's a knife, all at walking speed and without the complexity of things like X-ray machines. We find that this is a marketplace that is continuing to grow and grow aggressively for us and that we've got a lot of tailwinds. So as investors see the market opportunity, as they see our growth rate to serve that marketplace and as they see the high moat around our business in terms of what we've done that is very unique, this is all the telltale sign of what we believe is a great investment opportunity. At this point, I'd like to open it up for any questions that might have come in from the line. Karen, are there anything that you've seen on the line so far, please?

Sure, Peter. There have been a number of questions. I'll start with one about our competition. It's a multipart question, so I'll paraphrase here. But basically, the question asks: How do we stack up against our competitors on a system-by-system basis? And do you see the market transforming to the platform? And how is the size of the market? Is there enough for all competitors at this point in your opinion?

That's a great question. So it's a complex question. Let me unpack that a little bit. First off, the easiest way to characterize what we are doing versus the competition is I think of us as an and, not an or. The competitive solutions in order to catch the broad set of weapons, including things like edge weapons and even something like a composite gun, think like a Glock 43, a Glock 27, a Smith & Wesson Bodyguard or something like that. In order for those solutions to capture these types of weapons, they have to turn the sensitivity up so high that the false alert rate goes up very high also. So unfortunately, organizations are left with a decision: Do I turn down the sensitivity and accept missing weapons, as we've actually seen with some public news announcements, but then I have a tolerable guest experience with a lower level of false alerts or do I dial the sensitivity up. And now I've got a terrible guest experience very similar to a walk-through metal detector, but I'm catching the weapons. In the case of Xtract One, where we differentiate is we're an and, not an or. I'm not forcing customers to make a decision to have a great guest experience and missing weapons or not. In our case, we can catch the guns, we can catch the knives, we can have the high ingress speed, a single lane of our system is now equivalent almost to a dual lane of other systems at half the price, and I can have the low false alert rates. So that's the core of where we see our differentiated value versus competition. Or said another way, I think we're truly delivering on the promise of what an AI-enabled system does versus a stylized walk-through metal detector. Thank you. Next question, please, Karen.

Great. Sure. The next question, and I may chip in on this one as well, is where do you see revenues over the rest of your fiscal year? And just to let listeners know, we are into our fiscal 2026 new year, which started August 1. And obviously, while we can't comment specifically on where we think revenue is going, I think there's certainly a number of indicators that would -- that investors should sort of focus in on when thinking about revenue growth. And Peter, could you talk to some of the items like our growth in the target market and our backlog?

Okay. Do you want to answer the revenue question first?

Sure. I'll start. And part of that was my own comment at the end, which is that the indicators are backlog and the growing market. We've certainly seen a growth in our revenue over the last couple of years, and we fully expect this to continue going forward and there are probably a number of factors that contribute to that. I'll start first, Peter, and then certainly feel free to add in. We've got a continually growing backlog, which, in my opinion, is our best indicator of our future growth. We work on a subscription basis with many of our customers. And so you'll see a growing contractual backlog that will be recognized over time. We also have a pending backlog, which is orders that have been signed and have still yet to be installed, and that continues to grow as well. And I think both of those growing backlogs are the best indicator of what's to come in fiscal 2026. The other factor that I would say we should -- that investors should focus in on is the size of our market that we currently address. Peter mentioned in the presentation that we started with arenas and stadiums, that has grown to hospitals and schools. And with the newly launched Xtract One Gateway, we've made great inroads into the education market as well. And I think the fact that, that market is growing is going to help us to have some more predictability and accelerate our growth by having just a larger market that we're able to address with both our SmartGateway and our Xtract One Gateway. Peter, I invite you to add anything you'd like to that as well.

Yes. I think you've hit the key ideas here, Karen. The SmartGateway continues to be adopted by the marketplace at a nice steady pace, particularly with the arenas and the stadiums and the hospitals. And we're finding with some of the hospital organizations, they will make a purchase for a SmartGateway on a hospital-wide network and then deploy over time. It's virtually impossible for someone to flash cut every entrance at every hospital when you've got 14 hospitals in the network. So we'll see that backlog represent the decision by the hospital to select Xtract One and the SmartGateway and then we'll start to see that convert to revenue over time as the hospitals will go through one hospital, then the next, then the next and then the next and deploy. Similarly, we're seeing the same thing with schools, and I could not be more pleased with the uptake that we're seeing from the schools now that One Gateway is out in the marketplace in a way of the larger manner. Every time we do a demonstration with a school, seeing the looks on people's faces as they see what we've achieved is telling me that there's a great future for the One Gateway product, and we expect that backlog to continue to grow. But similar to the hospital analogy I just gave, if somebody -- I think we've publicly announced Volusia County, for example, for 48 systems, they're not flash cutting those overnight. They're working through one school by the next school, by the next school and making sure they're set up for success, all the students are trained, all the teachers are trained and so on. So as Karen pointed out, that backlog is a really good indicator of future health and growth of the business and conversion to revenues. There's a couple of other questions here that I can see have been asked by [ Christopher Meredith ]. Karen, should we address those, too?

Sure. I think we're out of time, but I think we can just ask one more quick question, which is you've talked about hospital systems in Canada and generally larger opportunities. Can you -- do you see larger deal size in your pipeline for other market verticals as well?

I do. We continue to see the smaller theaters and other organizations who might buy 2, 3, 4 systems. But we are starting to see that the size of the average company and the deal, whether it is a manufacturing organization, a retail organization, hospital systems and hospital networks, school organizations, we do start to see the same sort of thing across all verticals. So it's not just schools. Even within schools or within hospital systems, I might look at a hospital organization in, like, for example, Manitoba that we've announced, where the whole province chose us. But there are other organizations or other locations where somebody might be looking at 1 or 2 hospitals or a school system where there have 3 schools in the total district or others where there might be 200 schools. So we're going to see a mix in all vertical marketplaces.

Excellent. I think we're out of time for today.

I believe we are. So for everyone who attended, I very much appreciate it. I see some familiar names on here. [ Kipp ], I hope you're doing well. Thank you, everyone, for dialing in today. If you have any further questions, you can reach us at xtractone.com, and please send a note into the investor channel there, we'd be happy to get on a call and have a further discussion. Thank you so much.

Thank you, ladies and gentlemen. That concludes Xtract One Technologies, Inc.'s presentation. You may now disconnect. Please consult the conference agenda for the next presenting company.