Xtract One Technologies Inc. (XTRA:CA) Q4 2025 Earnings Call Transcript
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Overview
The earnings call highlights strong financial performance, with significant increases in bookings and backlog, reduced operating cash usage, and high gross margins. The Q&A section provides reassurance with easing customer friction, strong second-half expectations, and no significant capacity constraints. Despite some uncertainty in international markets, the overall sentiment is positive due to growth in key sectors and strategic expansions, indicating a likely positive stock price movement.
Key Financial Performance
Total Revenue $3.3 million for the fourth quarter versus $5.6 million in the prior year period, reflecting a decrease due to certain customer-initiated delays and phased deployment schedules for larger installations.
Gross Profit Margin 71% for the fourth quarter versus 65% in the prior year period, an increase due to efficiencies in SmartGateway manufacturing and supply chain processes, as well as advanced software tools for monitoring customer environments.
New Bookings $16.1 million for the quarter compared to $5.6 million in the prior year quarter, a significant increase driven by strong demand for Xtract One Gateway and SmartGateway products.
Total Bookings for the Year $38.5 million, up from $29.8 million in the previous year, reflecting growth in education and healthcare sectors.
Contractual Backlog and Signed Agreements Pending Installation $49.5 million at the end of the quarter compared to $26.8 million last year, almost doubling year-over-year due to increased demand and signed agreements.
Operating Cash Usage $1 million during the quarter compared with $1.7 million in the prior year period, a decrease due to focused management of working capital.
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Operating Highlights
Xtract One Gateway: Strong demand across various markets, especially education, with contracts worth over $13.1 million signed in Q4. Plans to double manufacturing capacity in fiscal 2026 due to high demand.
SmartGateway: Continued strong demand with contracts from organizations like Temple University and a multinational entertainment organization. A 3-year contract worth USD 2.6 million was signed for deployment in spring 2026.
Education sector: Significant growth, now representing 33% of annual bookings, up from 14% the previous year. Contracts signed with multiple school districts in the U.S.
Healthcare sector: Represents 17% of bookings, with expectations for further growth due to product-market fit.
Backlog: Record backlog of $49.5 million, nearly doubling year-over-year. Includes $15.5 million contractual backlog and $34 million in signed agreements pending installation.
Gross profit margin: Achieved a record 71% in Q4, up from 65% in the prior year, due to manufacturing and supply chain efficiencies.
Market diversification: Expanding into new industries like healthcare, warehousing, and commercial properties, driven by increasing threats and demand for security solutions.
Path to cash flow breakeven: Focused on achieving cash flow neutrality in fiscal 2026 through revenue growth and operational efficiencies.
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Risk or Challenges
Revenue Delays: Customer-initiated delays in deployments and phased deployment schedules for larger installations, such as school districts, have negatively impacted revenue recognition. Examples include delays from a major U.S. federal organization due to internal reorganizations and a sports venue postponing deployment due to venue reconstruction.
Operational Scalability: The company is planning to double manufacturing capacity for the Xtract One Gateway to meet growing demand, which may strain operational resources and increase costs in the short term.
Cash Flow and Profitability: Despite progress, the company is not yet cash flow neutral and continues to face challenges in achieving profitability, with operating cash usage of $6.5 million for the year.
Customer Dependency: The company relies heavily on large contracts with specific customers, such as school districts and federal organizations. Delays or cancellations from these customers could significantly impact financial performance.
Market Expansion Risks: Expanding into new markets like healthcare and education involves risks, including longer sales cycles and the need for tailored solutions, which could delay revenue realization.
Supply Chain and Initial Costs: Initial production and installation costs for the Xtract One Gateway are expected to negatively impact margins in the near term.
Regulatory and Competitive Pressures: The company faces competitive pressures and regulatory hurdles, particularly in markets requiring advanced security solutions, which could impact its ability to secure contracts.
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Guidance & Outlook
Revenue Growth: The company anticipates higher revenue growth in fiscal 2026, driven by significant conversion of backlog into revenue and continued improvement in bottom-line results.
Cash Flow Breakeven: The company is focused on achieving cash flow breakeven in fiscal 2026, supported by operational improvements and revenue growth.
Xtract One Gateway Demand: The market for the Xtract One Gateway is expected to grow significantly, with plans to double manufacturing capacity in fiscal 2026 to meet increasing demand from sectors like education, healthcare, and commercial enterprises.
Backlog Conversion: The company has a record backlog of nearly $50 million, with the majority expected to be installed and converted into revenue within the next 12 months.
Product Deployment: The company plans to expand deployments of Xtract One Gateway and SmartGateway products, with a focus on education, healthcare, and commercial sectors. A 3-year contract worth USD 2.6 million is planned for spring 2026 deployment.
Pipeline Growth: The company has a qualified sales pipeline of over USD 100 million, which is expected to grow further due to increasing global threats and expanding market opportunities.
Manufacturing Expansion: Plans are in place to double the manufacturing capacity for the Xtract One Gateway in fiscal 2026 to meet growing demand.
Market Diversification: The company expects to expand its customer base across multiple industries, including education, healthcare, and entertainment, supported by the diversification of its gateway products.
Revenue Delays: Some revenue delays are expected due to customer-initiated deployment pauses, but these are not expected to impact the overall backlog or future revenue generation.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:How is the friction from the customer side evolving relative to the previous quarter?
A:Peter Evans, CEO, stated that they are seeing easing in customer friction. Contracts are taking longer to move from trial to signing due to larger deals with organizations like Fortune 500 companies. However, phased deployments are accelerating, and the situation is improving.
Q:Is it fair to assume a stronger second half of fiscal '26 relative to the first half?
A:Peter Evans confirmed that the second half of fiscal '26 is expected to be stronger due to good momentum in the business and contracts converting to revenue.
Q:Does the bookings number capture post-quarter wins?
A:Peter Evans clarified that most post-quarter wins are new deals occurring after Q4, though some might be from Q4 but announced later due to timing of press releases.
Q:What is the split of bookings by verticals for Q4?
A:Karen Hersh, CFO, stated that for Q4, 60% of bookings were from education, 24% from entertainment, and 12% from healthcare, with the rest from miscellaneous industries.
Q:What drove the gross margins to 71% and is it sustainable?
A:Karen Hersh explained that manufacturing efficiencies and support improvements drove the 71% gross margins. However, margins may temporarily decrease in Q1 due to adjustments for the new One Gateway product.
Q:Should the current operating expense (OpEx) be viewed as a new run rate for fiscal '26?
A:Karen Hersh stated that while some one-off expenses for One Gateway were capitalized, the operating structure is stable with modest growth expected in R&D and business development.
Q:How big is the education opportunity in North America?
A:Peter Evans estimated the market size for K-12 schools in the U.S. to be $13 billion to $25 billion, based on 130,000 schools and costs of $100,000 to $200,000 per school.
Q:Are you displacing competitors or addressing greenfield opportunities in the education space?
A:Peter Evans noted that the market is largely untapped, with both greenfield opportunities and cases of displacing competitors, such as replacing less effective solutions in schools.
Q:Are new channel partners being added or are existing ones improving?
A:Peter Evans stated that both are happening. New partners are being added selectively, and existing partners are improving their expertise and expanding their pipelines.
Q:Are there any deployment delays due to capacity constraints?
A:Peter Evans mentioned no significant capacity constraints but noted plans to double manufacturing capacity to meet high demand for One Gateway.
Q:What is the split between upfront and subscription contracts?
A:Karen Hersh stated that 73% of Q4 bookings were upfront, driven by education customers using grant money. Entertainment customers prefer subscriptions, while healthcare varies.
Q:Does having two tailored products provide a competitive advantage?
A:Peter Evans explained that having SmartGateway and One Gateway allows them to address specific needs of different markets, such as schools, hospitals, and stadiums, providing a competitive edge.
Q:Are international schools adopting security systems like in the U.S.?
A:Peter Evans noted that international adoption is slower but growing, often driven by specific events. Some regions, like the U.K. and France, are starting to mandate weapon screening in schools.
Q:What revenues are expected from the U.K. with Martyn's Law?
A:Peter Evans stated that the U.K. is an emerging market with strong business acceleration, but specific revenue expectations were not disclosed.
Q:What warrant conversions have taken place recently?
A:Karen Hersh reported that $2.9 million in warrants were exercised in September, with a total of $4 million exercised since year-end, providing additional cash for the company.
Q:Review of Unclear Management Responses
A:Management avoided providing specific revenue expectations for the U.K. market under Martyn's Law, citing nondisclosure agreements and pending announcements.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Evans
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Slide
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discussion analysis
district
entertainment
entity
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guest experience
individual
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item
laptop
marketplace organization
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metal
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Xtract One Technologies Inc. (XTRA:CA) Q4 2025 Earnings Call Transcript
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The earnings call highlights strong financial performance, with significant increases in bookings and backlog, reduced operating cash usage, and high gross margins. The Q&A section provides reassurance with easing customer friction, strong second-half expectations, and no significant capacity constraints. Despite some uncertainty in international markets, the overall sentiment is positive due to growth in key sectors and strategic expansions, indicating a likely positive stock price movement.
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Frequently Asked Questions
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