Earnings call transcript: Xtract One Tech Q4 2025 revenue falls short, EPS below forecast

Xtract One Technologies Inc. (XTRA) reported disappointing financial results for the fourth quarter of 2025, with earnings per share (EPS) of -$0.02, missing the forecasted -$0.0093. Revenue also fell short at $3.35 million, below the expected $5.44 million, marking a significant revenue surprise of -38.42%. According to InvestingPro analysis, the company’s current market capitalization stands at $122.43 million, and its financial health score is rated as "FAIR." Despite these results, the company’s stock price remained unchanged in after-hours trading, closing at $0.71, stable within its 52-week range of $0.23 to $0.56.

Key Takeaways

• Xtract One’s Q4 revenue decreased significantly year-over-year.
• EPS was lower than forecasted, with a surprise of 115.05%.
• The company recorded a strong gross margin of 71%.
• New bookings increased substantially, indicating potential future growth.
• The company raised over $8 million through a public offering.

Company Performance

Xtract One Technologies experienced a challenging quarter with a notable decline in revenue compared to the previous year. The company reported Q4 revenue of $3.3 million, down from $5.6 million in the same period last year. InvestingPro data shows impressive gross profit margins of 61.98% over the last twelve months, supporting the company’s operational efficiency improvements. Despite the revenue drop, the company achieved a record gross margin of 71%, up from 65% a year ago. New bookings surged to $16.1 million, a significant increase from $5.6 million in the prior year, suggesting potential for future revenue growth. InvestingPro subscribers have access to 8 additional key insights about XTRA’s financial performance and market position.

Financial Highlights

• Revenue: $3.35 million, down from $5.6 million year-over-year
• Earnings per share: -$0.02, below the forecast of -$0.0093
• Gross margin: 71%, up from 65% year-over-year
• New bookings: $16.1 million, up from $5.6 million year-over-year
• Annual bookings: $38.5 million, up from $29.8 million

Earnings vs. Forecast

Xtract One’s EPS for Q4 2025 was -$0.02, compared to the forecasted -$0.0093, resulting in an earnings surprise of 115.05%. The company’s revenue of $3.35 million was significantly below the forecasted $5.44 million, marking a surprise of -38.42%. This performance reflects a deviation from expectations, potentially impacting investor sentiment.

Market Reaction

Despite the earnings miss, Xtract One’s stock remained stable in after-hours trading, closing at $0.71. InvestingPro analysis reveals the stock has delivered an impressive 67.5% return over the past six months, with a beta of 1.46 indicating higher volatility than the market. The stock’s stability suggests that investors may have anticipated the earnings shortfall or are focused on the company’s long-term potential. The stock remains within its 52-week range of $0.318 to $0.79. Discover comprehensive valuation metrics and detailed analysis in the Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

Looking ahead, Xtract One anticipates a stronger second half of fiscal 2026, with expectations of revenue growth and continued backlog conversion. The company is on a path to achieve cash flow breakeven and has a substantial sales pipeline of $100 million. Xtract One plans to double its manufacturing capacity for the XTRAC1 Gateway, reflecting confidence in future demand.

Executive Commentary

CEO Peter Evans stated, "We are on a precipice of a step-level change in terms of the volume and scale of our operations," highlighting the company’s growth ambitions. CFO Karen Hirsch emphasized flexibility in contract models, saying, "We’re agnostic as to which [contract model] our customers choose. We just want to meet customer with what suits them best."

Risks and Challenges

• Revenue decline poses a risk to financial stability.
• Market saturation in core sectors could limit growth.
• Macroeconomic pressures may affect consumer spending and investment.
• Supply chain disruptions could impact product availability and costs.

Q&A

During the earnings call, analysts inquired about market penetration strategies and international market opportunities. The company addressed deployment challenges and emphasized its plans to expand in the education, healthcare, and entertainment sectors.

Full transcript - Xtract One Technologies Inc (XTRA) Q4 2025:

Conference Operator: Good day, and welcome to the Extract One Technologies Fiscal twenty twenty five Fourth Quarter Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Advisor. Please go ahead.

Chris Witty, Investor Relations Advisor, Extract One Technologies: Thank you, and good morning, everyone. Welcome to Extract One’s fiscal twenty twenty five 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 some of Exchek 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 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’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 10/23/2025, available on the company’s website and its SEDAR plus profile. And now it is my pleasure to introduce Peter Evans, Chief Executive Officer of Exart One.

Please go ahead, Peter.

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: Well, thank you, Chris, and welcome to all of our investors and analysts joining us today. Let me 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 twenty twenty four with a very strong Q4 that has positioned us well for the immediate and long term future, particularly as our new XTRAC1 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 or 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 $16,100,000 of total bookings during the fourth quarter, we began fiscal twenty twenty six with a solid backlog, including pending installations of nearly $50,000,000 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 onetime 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 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 would like to provide some further commentary on the rollout of the XTRAC1 gateway. The market continues to be very large and growing for this recently prelaunch 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 Xtrak ONE Gateway with multiple customers worth over $13,100,000 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 XTRAC1 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. Resideo is 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 XTRAC1 gateway.

And accordingly, we now have plans in place to double the manufacturing capacity very quickly for the Extract 1 gateway in fiscal twenty twenty six in order to serve this inbound demand that we’re seeing from organizations like schools and others. This 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. 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 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.

I invite anyone on this call to think about your own experience when you have to divest of all those items versus the Xtrak 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 it’s 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 twenty twenty six to be a year of significant change here at Extract One on many aspects. Complementing this new and accretive growth that we’re recognizing the XDRAC1 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 twenty twenty six deployment for a three year contract worth about $2,600,000 in value. We’ll increase the Extract 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. 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 $100,000,000 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.

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 OneGateways. 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 twenty twenty six. 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 demand a desire for an expanded contract with a major U. S. 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 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 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 call us and set it up and said, we are ready to take shipment.

And so we shipped those months those systems this past month after about a twelve 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, Extract One Technologies: 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 twenty twenty six. Turning to Slide seven. Total revenue was approximately $3,300,000 for the fourth quarter versus $5,600,000 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 twenty twenty six.

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 positively impact revenue in fiscal twenty twenty six.

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 twenty twenty six. 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 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 Vue 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 twenty twenty six. Turning now to Slide eight. New bookings for the quarter were a record for the company at $16,100,000 compared to the prior year quarter bookings of $5,600,000 of which approximately 74 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 $38,500,000 up from $29,800,000 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 twenty twenty five, 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 twenty twenty six. 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 $49,500,000 as compared to $26,800,000 last year, almost doubling the backlog year over year, which we consider to be an excellent indicator of future revenue. The backlog of $49,500,000 at year end was comprised of $15,500,000 of contractual backlog with an additional impressive $34,000,000 worth of signed agreements pending installation, the majority of which are expected to be installed within the next twelve months. Given our current total backlog of almost $50,000,000 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 twenty twenty six 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 $1,800,000 in the quarter versus approximately $1,500,000 in the prior year period, reflecting increased business development initiatives across a wider spectrum of industries, while costs associated with R and D were $1,900,000 in the quarter versus $2,300,000 in the prior year period due to streamlined R and D activities. General and administrative expenses were approximately CAD2.2 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 breakeven.

Finally, on Slide 11, I’ll discuss cash flow. During the quarter, the company had operating cash usage of $1,000,000 compared with $1,700,000 in the prior year period. And excluding changes in working capital, we spent approximately $2,700,000 compared to last year’s $1,300,000 For the year as a whole, we had operating cash usage of CAD6.5 million versus CAD8.1 million in fiscal twenty twenty four, primarily due to focused management of our working capital. During the quarter, we also completed successful public offering of a bought deal including the full exercise of the underwriters over allotment option and raised just over $8,000,000 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 twenty twenty six.

With that, Peter and I welcome any questions that investors may have at this time.

Conference Operator: We will now begin the question and answer session. Our first question comes from Amr Azad from Ventum Capital. Please go ahead.

Amr Azad, Analyst, Ventum Capital: 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 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 comment last quarter and I mean Q1, which ends next week. Are you guys seeing a bit of easing into Q2?

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: Yes. 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 I’m feeling much better.

We did have these onetime events, but we’re starting to see that subside.

Amr Azad, Analyst, Ventum Capital: Fantastic. But if I’m sort of thinking about fiscal twenty twenty six, is it fair to assume a stronger second half relative to the first half? Is that a fair assessment?

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: 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 twenty twenty six. Okay.

Amr Azad, Analyst, Ventum Capital: 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. Maybe on the $16,000,000 of bookings, if you could walk us through, the split between verticals, I believe, Karen, you gave it for the full year?

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: Yes. So in general, we’re continuing to see the momentum. And to your question about the flurry of announcements, yes, 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. And 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 time frame, but just due to timing of getting press releases approved, they might have rolled over into Q1.

Amr Azad, Analyst, Ventum Capital: Then Karen, if you I’m not sure if you guys have the split handy for the quarter itself between verticals.

Karen Hirsch, Chief Financial Officer, Extract One Technologies: And for Q4?

Amr Azad, Analyst, Ventum Capital: Yes, the bookings for Q4, the $60,000,000

Karen Hirsch, Chief Financial Officer, Extract One Technologies: For sure. So the general 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 are 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.

Amr Azad, Analyst, Ventum Capital: 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 margins scale again. Just want to confirm if I understood that correctly.

Karen Hirsch, Chief Financial Officer, Extract One Technologies: 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 an adjustment as we get used to the XTRAC-one gateway and bring 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 similarly to our smart gateway.

Amr Azad, Analyst, Ventum Capital: Fantastic. Then maybe one last one 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 twenty twenty six? Or maybe you could quantify how much of it has to do with the launch of One Gateway?

Karen Hirsch, Chief Financial Officer, Extract One Technologies: 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.

Amr Azad, Analyst, Ventum Capital: Fantastic. Congrats again. I’ll pass the line.

Karen Hirsch, Chief Financial Officer, Extract One Technologies: Thanks, Eomer.

Conference Operator: Our next question comes from Scott Buck with H. C. Wainwright. Please go ahead.

Scott Buck, Analyst, H.C. Wainwright: 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 and Director, Extract One Technologies: Yes, absolutely, Scott. So simple math, Scott, there’s 130,000 K-twelve schools in The United States. That is a public K-twelve 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 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 future functionality and things like that, for very simple round numbers, 100,000 to 200,000 a school for argument’s sake. And those are just round numbers for simple math. So multiply that by 130,000 ks-twelve schools,

Scott Buck, Analyst, H.C. Wainwright: you’re

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: in the range of $13,000,000,000 to, what, dollars 25,000,000,000 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 are 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 is, can be a bit of an arduous process. The money is there, though.

Recently, Texas awarded several $100,000,000 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 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 13,000,000,000 to $25,000,000,000 market. And, all of our customers that we’ve deployed with so far are very happy and are have become strong references for us.

That’s Is that a very very Scott?

Scott Buck, Analyst, H.C. Wainwright: No, that’s perfect, Peter. I appreciate that. Ed, 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 I

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: think we’ve barely scratched penetration in the marketplace between ourselves and all those 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 intercity locations five years ago, think of 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 the 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 in the dumpster after we’ve deployed now in six high schools with you.

John Hyde, Analyst, Strategic Investing Channel: Great. That’s helpful, Peter.

Scott Buck, Analyst, H.C. Wainwright: And then one last one. I wanted to ask you 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 and Director, Extract One Technologies: 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 ConOps and the flow right. Otherwise, it gets a little lumpy. And so we look to very good channel partners who are going to 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.

So we’re, 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.

Scott Buck, Analyst, H.C. Wainwright: 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?

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: 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 has our original business plan, we are already in the process of looking to double the capacity that we’ve built into the manufacturing lines so that we can deal with that. 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.

Scott Buck, Analyst, H.C. Wainwright: Okay. Good problems to have, right? Yes. All right, guys. I think that’s it for me.

I appreciate the time.

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: Thank you, Scott. Always a pleasure.

Conference Operator: Our next question comes from John Hyde with Strategic Investing Channel. Please go ahead.

John Hyde, Analyst, Strategic Investing Channel: 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 say like a split between what type of customers are choosing the different types of subscription versus upfront?

Karen Hirsch, Chief Financial Officer, Extract One Technologies: 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 we look to that to see what’s going on here. And I think you heard from Amir’s question that we had a strong education quarter.

And I think that was the 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 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 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 were 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, Analyst, Strategic Investing Channel: 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 and Director, Extract One Technologies: Yes. So John, it’s a great question. I guess the easiest way to describe it is, there are for each market segment, there’s certain critical key factors that they’re looking for. And by having more flexibility in the portfolio, that allows us to be more aligned to what those customers’ needs are. And I’ll give you some examples in a moment.

First is a kind of a one size fits all. 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, 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 from 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 the hospitals, the bulk of the hospitals and the majority of them are very worried about edge weapons. And there’s unfortunate incidents like what happened in Nova Scotia in January, 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 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, 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 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 the things that we built into the platform in a manner that makes it very easy for marinas and stadiums and perfect the smart gateway perfects with that, very easy for hospitals. I was in one hospital location where they were doing a demonstration and 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 or the different segments is what’s giving us competitive advantage.

John Hyde, Analyst, Strategic Investing Channel: Awesome. And 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 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, are you guys seeing the same trend with schools wanting to add security systems like these? Or is it kind of particularly just certain markets like The U. S?

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: I think the primary issue in The U. S. Is with weapons and firearms. We there was in 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 in outside of The U.

S. Because there is 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 U. S, when there is an event, there’s a much faster reaction and mandate to start driving weapon screening solutions.

John Hyde, Analyst, Strategic Investing Channel: Okay. Good to hear. Thanks guys again for taking my questions and congrats on the quarter.

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: Thank you so much, John. Always good to catch up with you.

Conference Operator: Our next question comes from Jeffrey Bennett, Private Investor. Please go ahead.

Jeffrey Bennett, Private Investor: 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?

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: So thank you for the question. The U. K. Is a very strong and emerging market for us. We’re very pleased with the engagements with assorted football clubs, theater organizations and other iconic venues.

Obviously, we can’t speak to them specifically because we’re under a nondisclosure with those organizations. 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, 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.

Jeffrey Bennett, Private Investor: Thanks very much for the info. And Karen, for the warrant conversions, what kind of conversions are you seeing?

Karen Hirsch, Chief Financial Officer, Extract One Technologies: We have seen some conversions happening in September. We had 2.8 almost $2,900,000 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, 4,000,000 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: Excellent. Thank you very much. Looking forward to a great 2026. Bye.

Peter Evans, Chief Executive Officer and Director, Extract One Technologies: Thank you, sir. At

Conference Operator: 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 and Director, Extract One Technologies: Well, 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 bank 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 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 ask invite everyone to stay tuned. We are looking forward to our Q1 announcements 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.

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