Xtract One Technologies ends fiscal 2024 with record $16.1 million in bookings and a solid $50 million backlog, positioning for strong revenue growth in 2026.

OPERATOR - (00:03:18)

Good day and welcome to the Xtract 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 touchtone 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 Witte, Investor Relations Advisor. Please go ahead.

Chris Witte - Investor Relations Advisor - (00:04:00)

Thank you and good morning everyone. Welcome to Xtract 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 and some of Xtract One's recent milestones, followed by a Q and 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 2, 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's 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 press release issued October 23, 2025, available on the company's website and its SEDAR profile. And now it is my pleasure to introduce Peter Evans, Chief executive officer of Xtract One. Please go ahead, Peter.

Peter Evans - Chief Executive Officer - (00:05:37)

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 Xtract 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. 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 of 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 or 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 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. And 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. Break even 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 Xtrac 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 made over the past few months, particularly in the education marketplace, including organizations and school districts like Manor 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. We 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 Xtrac One 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 Xtract One 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 envision for the first year of deployments for the Xtract One Gateway and accordingly we now have plans in place to double the manufacturing capacity very quickly for the Xtrac One Gateway in fiscal 2026 in order to serve this inbound demand that we're seeing from organizations like schools and others. This to me 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 Xtract One Gateway. It's for these reasons that 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 and a good forward looking indicator of the health of our business and the future success of our business. It's 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 an expanding array 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. I invite anyone on this call to think about your own experience when you have to divest of all those items versus the Xtract 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. This solution. With rapid growth on the horizon, we're planning for the future and expect fiscal 2026 to be a year of significant change here at Xtract One on many aspects complementing this new and accretive growth that we're recognizing with the Xtrac 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 this 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 US$2.6 million in value, we'll increase the Xtrac One'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. Adequorus delivers a differentiated value that each customer acquires out of their screening solutions. Overall, as a business we continue to grow the pipeline of opportunities. We have more than about $100 million US 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 the United States as well as inside 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 of 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'd just like the building to be finished 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 wish 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 their delays, they called us up and said we are ready to take shipment. And so we shipped those months, those systems this past month after about a 12 month pause while they work through some entrance redesign activities. So along the same lines, these orders have not gone away. Sometimes the customer needs to pause as they work through some internal activities. The summary here that I'd like all of 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 over to Karen who can then provide a little more detailed discussion on our financial results and then we'll move to Q and A. Karen, over to you.

Karen Hirsch - Chief Financial Officer - (00:18:43)

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 7. Total revenue is 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've 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 recently made many announcements about various new customer contracts and growing demand for Xtract One Gateway, which are expected to 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 Xtract One Gateway. However, we expect that this will improve over time with broader commercial deployment in fiscal 2026 turning now to slide 8 new bookings for the quarter were a record for the company at 16.1 million 20 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 venues, 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 Xtract 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 2020. Moving on to Slide 9, 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 and D were 1.9 million in the quarter versus 2.3 million in the prior year period. Due to streamlined R and 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 Xtract 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 breakeven 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 Underwriters 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 Xtract 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.

OPERATOR - (00:26:25)

We will now begin the question and answer session. To ask a question, you may press Star then one 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 two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Amer Azad from Ventum Capital. Please go ahead.

Amer Azad - (00:27:07)

Hi, good morning, Peter 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 it's 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 phase 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 one gateway, we're also seeing steady solid momentum for the smart gateway and those contracts will start converting over to revenue as we work our way through fiscal 2026. Okay.

Peter Evans - Chief Executive Officer - (00:29:20)

On the bookings like again, exceptional this quarter. And you did announce a flurry of wins post quarter end. 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 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 timing of getting press releases approved, they might have rolled over into Q1 then. Karen, I'm not sure if you guys have the splits handy for the quarter itself between the verticals.

Karen Hirsch - Chief Financial Officer - (00:30:52)

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.

Amer Azad - (00:31:58)

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. PQ 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.

Karen Hirsch - Chief Financial Officer - (00:32:32)

I think you've understood it exactly correctly, which is, you know, 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 an adjustment as we get used to the Extract One gateway and bringing it to market. 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 similarly to our Smart Gateway.

Amer Azad - (00:33:49)

Fantastic. Then maybe one last one on. On opex. I think you spoke to what's driving that. But are we. 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.

Karen Hirsch - Chief Financial Officer - (00:34:11)

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 and 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 and 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.

Amer Azad - (00:35:15)

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

Peter Evans - Chief Executive Officer - (00:35:19)

Thanks Amer.

OPERATOR - (00:35:24)

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

Scott Buck - (00:35:30)

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 healthcare as well.

Peter Evans - Chief Executive Officer - (00:35:52)

Yep, absolutely, Scott. So simple math, Scott. There's 130,000 K through 12 schools in the United States. That is a public 2 through 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 they got one entrance for bus drop offs, another entrance for, you know, the main entrance. And we see, we see a variety. Some schools want as many as three systems. So you can argue that depending on the systems, the teacher functionality and things like that, they're 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 through 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 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. Excuse me. 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. Now they could choose an X ray machine and a screening solution and still have issues with alerts and weapons getting through, or they could 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 dollars market. And all of our customers that we've deployed with so far are very happy and are, have become strong references for us. Great. That's a question, Scott.

Scott Buck - (00:38:22)

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, you know, more often than not you're displacing somebody else, or are there a lot of greenfield opportunities in there as well?

Peter Evans - Chief Executive Officer - (00:38:40)

I think we barely scratch 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 places 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 school. And I was very pleased to get a call from the chief security officer one day. We said, well, I finally scrapped my last of Product X and thrown in the dumpster after. We've deployed now in six high schools with you.

Scott Buck - (00:39:32)

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?

Peter Evans - Chief Executive Officer - (00:39:50)

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 con ops and the flow right, otherwise it gets a little lumpy. And so we look to very good channel partners who can essentially replicate what we do with the high quality and the high touch and the 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 4th, 5th, 6th 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.

Scott Buck - (00:41:01)

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?

Peter Evans - Chief Executive Officer - (00:41:18)

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 we had, our original business plan, we are 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, get that ramped up, but not something that we think is going to be meaningful or significant.

Scott Buck - (00:41:44)

Okay, good problems to have, right?

Peter Evans - Chief Executive Officer - (00:41:47)

Yes.

Scott Buck - (00:41:47)

All right, guys, I think that's it for me. I appreciate the time.

Peter Evans - Chief Executive Officer - (00:41:51)

Thank you, Scott. Always a pleasure.

OPERATOR - (00:41:57)

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

John Hyde - (00:42:09)

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 upfront in these bookings. Can you give us maybe like. Let'S.

Karen Hirsch - Chief Financial Officer - (00:42:34)

Say like a split between what type of customers are choosing the different types, subscription versus upfront? Sure, it was 73% was upfront 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, you know, what's going on here. And I think you heard from Amer'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 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 and 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, from 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.

John Hyde - (00:45:00)

Awesome. Thank you. So, and on kind of that topic, having 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.

Peter Evans - Chief Executive Officer - (00:45:47)

Yeah. So, John, it's a great question. I guess the easiest way to describe it is, you know, there are, 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 kind of a one size fits all. You know, if. If all you've got is a square peg and you've got to push 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. Think of it 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 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 one gateway 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 2 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 a 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 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 under 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 who change over frequently. Now, these are things that we've built into the platform in a manner that makes it very easy for marinas and stadiums. And the smart gateway, perfect for that. Very easy for hospitals. I was one hospital location where they were doing a demonstration and the vestibule between the two sets of sliding doors was about 6 foot by 7 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 a competitive advantage. Awesome.

John Hyde - (00:49:05)

One last question. I know you talked about the advantage with 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 US 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.

Peter Evans - Chief Executive Officer - (00:49:42)

Think the primary issue in the U.S. is with weapons and firearms. There's been 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 US 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.

John Hyde - (00:50:36)

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

Peter Evans - Chief Executive Officer - (00:50:42)

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

Jeffrey Bennett - Private Investor - (00:50:49)

Our next question comes from Jeffrey Bennett, private investor. Please go ahead. Hi. I just wanted to get some visibility into Europe with Merton's Law coming into effect. I know you just signed Carlos 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.

Peter Evans - Chief Executive Officer - (00:51:12)

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, theater organizations and other iconic venues. Obviously we can't speak to them specifically because we're under a non disclosure with those organizations until such time as we either, you know, signed a formal contract with them or until such time as we have, you know, 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 to close pleased with the, you know, 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 that info and Karen, for the warrant conversions. What kind of conversions are you seeing?

Karen Hirsch - Chief Financial Officer - (00:52:14)

We have seen some conversions happening. In September we had 2.8, almost 2.9 million of warrants that were exercised. And this was primarily, 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.

Jeffrey Bennett - Private Investor - (00:53:02)

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

Peter Evans - Chief Executive Officer - (00:53:06)

Thank you, sir.

OPERATOR - (00:53:11)

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.

Peter Evans - Chief Executive Officer - (00:53:21)

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's 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. So with that in mind, I'd ask invite everyone to stay tuned. You know, we are 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 Xtrac one. Thank you everyone.

OPERATOR - (00:54:35)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.