Conference Transcript - XTRAF 2026-06-17

Adam, Analyst — Host

Good afternoon, everyone. I want to present Peter Evans from Extract One Tech.

Peter Evans, Other

Well, thank you, Adam. Can everyone hear me okay? Excellent. But I'd like to start today by talking about the number 300. And what's so special about 300? One or two people in the room know. 300 is an interesting number. It actually represents, we just announced our earnings last week for our Q3. and 300% represents the revenue growth year over year from Q3 last year to Q3 this year. Interesting. It's more interesting when it's done when you look at what we've done with cash flow where last year the same quarter we burned about three, three and a half million dollars of cash this year. We're basically cash flow breakeven with our gross margin growing quarter over quarter and year over year sequentially And with our backlog of existing signed customers growing also, so we're sitting at about $48 or $50 million of signed contracts waiting to be installed or recognized on SaaS subscriptions. Good metrics if you're an investor to kind of watch on a company. 300 is also an interesting number because it represents the number of people who were killed last week from gun-related incidents. Not mass shootings, just gun-related incidents. One died earlier this week in Delaware in a hospital where they were trying to go get just care. We have a tragedy that's occurring in North America and actually around the world with gun-related incidents. We haven't had a way to solve that problem here to form. We all know the standard disclaimers. You'll all get this chart presentation if you'd like it later. We're always available to talk more about it. 300 is a very interesting challenge when we think about what's going on in the world today. The weapons issues are not going away. But heretofore, the problem has been solved by more security guards or more metal detectors. Metal detectors and security guards were solving a problem 50 years ago. Think about 50 years ago. We walked around with a leather wallet, maybe a key to our front door if you locked your front door. The world was a very different place. And metal, as a proxy for weapon, was a pretty good proxy. Now I look at my teenage daughter. She's got her Beats headset on. She's got sets of earbuds, two laptops, a tablet, two smartphones. There's more metal than you dig out of a mine in the ground. So metal is no longer a good proxy, particularly in an environment where you have people who have higher expectations. Peter Graham paid $2,000 to go see Taylor Swift. He doesn't want to stand in line at a metal detector for 90 minutes to get in. Society is different today, and we are taking an AI-based approach to digitally disrupt the physical security marketplace. And what do I mean by that? We've all seen digital disruption occur in banking, in how we do online commerce. But the physical security industry has always been characterized by guns and guards and metal detectors. And it no longer is a scalable problem that can be solved. So we've solved the problem differently. We'll talk more about how we've done that. So in society, we all know that we've got this challenge. We've got more and more risk. We've got more and more threat-related issues. We've got more and more weapons issues. The horse has left the barn. We're not going to change gun control. And actually, this is a global problem. It's no longer a U.S. problem. I'm on my way over to Paris after this conference, and then I'm into England. Because they've had similar sorts of issues, as well as Singapore, as well as Australia. And so we've got a lot of demand for technology around the world. We've got a lot of societal unrest. The problems of homelessness, of people who are struggling with mental illness, with drugs and things like this, aren't going away. And most of those people are arming themselves because they have to if they live on the streets. We've also got new ways of applying AI technology in a very pragmatic, purpose-built way. So everyone flew here. Everyone knows exactly the experience of going through a metal detector, taking out your metal, taking out your cell phone, taking out your watch, walking through your belt buckle alerts. The average metal detector, which has been the historical response, is very reactive, and about six people get through it a minute. I can guarantee if I ask the question, everyone in this room is going to say it's not an enjoyable experience to stand in line at the TSA, nor when you're going to go see your favorite Montreal Canadiens go win the Stanley Cup playoffs, which they didn't do. But they were close. So we've created entirely different experiences where instead of six people walking through, 75 people walk in the door, just like you all walk in this door today. If I had a set of systems sitting here, everyone here in this room would fully understand, or I would at least, who's got a gun, who's got a knife. But no one would even know they've been screened. So let's talk about this a little bit more. But first, let me give you the punchline. The punchline is that we built a business around a market that has incredible tailwinds behind it. The weapons are not going away, and it's moving from an environment of a nice-to-have to a must-have to solve this in society. We've got more inbound interest from Fortune 500 companies and Fortune 100 companies, banks, insurance companies, biotech companies, who've now realized that they have to create safer environments for all their employees. It's a requirement, just in the same way that smoke detectors and sprinkler systems have become a requirement because people have done the risk-reward kind of cost analysis. And we're seeing the same thing happens with weapons detection. We built a technology that has very, very high barriers to entry. And I'll explain a little bit more about that in just a moment when we talk about the technology. But it's very difficult to do what we've done. We've got these purpose-built sensors that, together with the AI software, can essentially tell you, that's a gun, that's a knife. That's a smart phone. That's a laptop as someone walks in the door and only alert on the things it's supposed to alert them. There will always be some false positives, but the key idea is instead of 100 of us waiting in line for an hour to get through a metal detector, 95% of the people, 85% of the people are just walking in. Children going to school and enjoying their day will no longer having to have all their bags inspected. The technology has been thoroughly tested and proven. We've taken it to the TSA, we've taken it to the FAA, we've taken it to the NPSA, we've taken it to the Department of Justice, the U.S. federal marshals, and had them verify and validate the technology. Because unfortunately, the physical security industry is characterized by, let's call it exaggerated marketing. So we went the other way. And so let's have the experts test us and validate to give our customers confidence that we can solve their problems and create safer environments. From a business point of view, we're playing into a $135 billion marketplace, again, with great tailwinds. And as we've proven over the last year, we built a very scalable operational model where while our operational costs might be growing single digits, our top line has been doubling and tripling almost every year. And that's why you see the gross margins going the way they are. I'm going to talk a bit about what happens in the security world here. Just a little background. There's this headbutting that occurs between guest experience and between security. We've all experienced it. I don't know if everyone's noticed here when you go online and do your banking, you just have to enter your name and your password. But now you've got to use your thumbprint, your eye print, your butt print, whatever print they want. Captchas, you know, where the bus is on these, you know, these mosaics. We're getting to six, seven, eight factor authentication. And the more that occurs, it's a poor guest experience. The more a place like Madison Square Garden needs to protect their environment while sitting on top of Penn Station in downtown New York, the less of a great experience it is for that Knicks fan to go celebrate the games, the win by the team. And so these two things have always been in juxtaposition with each other. And you see, for example, in an arena like Madison Square Garden, where the guest experience people are saying, let them in. We need the revenues. We don't want them standing outside in January. But security people are saying, we're a target for risk. We're a target for threat. Digital innovation, just like the way it's changed the way we do banking, the way we do commerce, the way our kids all got educated during COVID, It can also change this physical security environment, and that's what we've delivered to our customers like Madison Square Garden and the Sphere here in Vegas and auto manufacturers and schools and hospitals and many others. We're playing in a marketplace that's about $139, $140 billion globally. As a business, when I first came on board, we said, let's just do one thing really well. Let's focus on the weapons in the arenas and replace all those metal detectors, 45 of them with 85 security guards with half a dozen of our systems, one fifth the number of security guards and people getting in five times faster. So instead of the average line of people just waiting and waiting, waiting to get in, everyone's just walking in and going and buying popcorn and having fun. It's a very different guest experience. The market wasn't willing to wait for us. Hospitals started calling, auto manufacturers started calling. One of the largest electric vehicle companies in the world called us, they had a gun incident right in the plant, three of them, and they called us and we were there on a Tuesday. And now every single employee of that company walks through our gear into a safer environment going to the factories. Same thing with many others and many other hospitals. Internationally, investors are always saying, well, what's the full complaint for your company? Is there some sort of impact that's going to happen here that's going to cause breakaway growth? We're already on breakaway growth, but there's two things that have happened to us, those focal points. One is the international markets are where the U.S. was two or three years ago. Our business is being pulled internationally now the same way that we are getting pulled into hospitals, into manufacturing, and into the schools where nobody wants kids to have to worry about guns. We've delivered two or three different pieces of the equation here as a solution. Each product is purpose-built to solve a specific problem for a specific vertical market, and that's where our differentiation comes in. In the schools, let the kids in and not alert on the laptops. All the solutions that are out there, if you have too much metal, it's going to alert on a laptop. If I walked in with this bag, with a laptop, a tablet, a charger, a metal water bottle, headsets, and all those things, imagine yourself going through a metal detector with one of these. How long is it going to take you to unpack that thing and make the TSA happy? In our case, 66 kids walk into school every single day with one of these things as if there was nothing there. But if they have a gun or a knife, it identifies. There's a gun in the backpack, a knife in that pocket, and we're starting to work on the ability to identify different electronics. So you want to keep vapes out of school? We can do that. You want to keep cell phones out of the classroom? We can do that. You want to stop theft of electronics from a fulfillment center, a big distribution center? We can learn on weapons on the way in and electronics on the way out, which is an $8 billion problem to one of the largest retailers in the world. So we're sitting in a very interesting position with the technology, each one purpose-built to solve a problem. Hospitals, the number one issue, catch the knives because of the proximity of the caregiver to the person who's having a drug-related issue. This is not a scenario of one product fitting all markets and jury-rigged. we've actually developed this solution whereby for each market with each unique need we can solve that unique need don't want to learn on the steel toe boots in manufacturing we don't everything else does so we have a competitive advantage here in what we've done with the portfolio this is where a video normally shows but this was uploaded as a pdf so i'm going to imitate a video if you all will bear with me what this video would show is a gentleman taking a backpack loading with a Chromebook, loading with a three-ring binder, loading with a metal water bottle and so on and so on and so on and walking through not alerting and then he takes a Glock 19 he slides it between the laptop and the three-ring binder and walks through and it correctly identifies there is a gun in the backpack. And then we show a video of kids going into school just streaming and streaming and streaming. If you'd like to see those videos you're welcome to give us a call or we'll take you to a custom and show you it live. so on to the next chart here so what does this all meant lots of customers everyone's got their NASCAR chart this looks like a NASCAR car you know with all the logos of all the sponsor things we're very proud of the people we call our customers because they are the people who take security seriously places like Madison Square Garden which is a terrorist target the sphere when it first opened had a lot of threats against it VA hospitals the department of the office of the Inspector General of the United States, the British Museum, which is a terrorist target continuously around the world all the time. People who take security seriously take us seriously. The British Museum is a fantastic example. They did aggressive security screening of everyone who went in, and there was always a line of 2,000 to 3,000 people waiting to go in. On the first day and the first weeks of when they implemented us, that line of 2,000 people was cleared within 40 minutes. I was talking to a security guard, and he said, I've worked here 19 years. I've never seen that courtyard empty. They also got three times more weapons and had people in three times faster than before. So there's this compelling ROI around creating a great guest experience and a safe environment. What does this all mean in terms of our results? I mentioned earlier when I started. This has been about a five-year journey for me. I joined the company about five years ago, and it was a turnaround situation. We had an interesting product that at its core was very good, but it really wasn't deployable. We didn't have a lot of customers, partners. The technology still was a little lumpy. And so in the first year, 2001, 2002, we had about $200,000 worth of business. This last fiscal quarter that we just closed, we did about $10 million of revenue. We were cashflow breakeven. We're running about 20-ish million of OPEX a year. We started the quarter with $15 million in the bank. We finished with $15 million in the bank. Our gross margin went up from this prior year's third quarter from about 57% to 61%. That's the number I'm most proud of because we introduced a brand new product about three quarters ago. This is hardware and software as a business. And with hardware and software, typically when you introduce new hardware, it takes a while to get the critical mass in your manufacturing processes and your installation processes. You start with a very low gross margin, and we've quickly accelerated that with a very scalable manufacturing model. So we're now starting to bang around 61% for a blended average of all of our products. The next thing on the journey here after we talk about this is I think we as a company have, I believe we've hit a new norm where we're kind of moving along around three, four million and taking our time to convert backlog into revenue we've now got the model right where we're now delivering and converting that backlogged revenue very very quickly we're sitting on about mid 40s million dollar backlog roughly broken into two scenarios customers who've signed contracts we've installed but they're on a subscription model so it's going to be recognized revenue over time and that our annual recurring revenue keeps growing we also have customers who we've contracted with, but we're yet to install a good example would be a school district with 12 high schools. They don't deploy all 12 at once. They want to take care of the kids. They want to make sure they're safe, but generally they'll do one school, then the next, then the next, then the next over a 12 to 18 week period. And as we load up more and more of these contracts, we keep seeing that contractual backlog increase and we keep converting that to revenue very, very quickly. I mentioned also a testing and validation. You don't have to believe me. You can believe the TSA. You can believe the FAA. You can believe the Department of Justice and U.S. federal marshals who are worried about perimeter security at very important sites and locations. We took the approach to make sure those folks are validating what we do and that we are, in fact, indeed more secure than some of the current methodologies like walk-through metal detectors. i talked a little bit about our go-to-market model i'll highlight it here too we have a number of customers who you know purchase as an upfront capex type model and those who purchase on a subscription basis frankly i like both and the split is around 60 up front and 40 on a subscription basis i come from a cyber security sas world where we loved recurring revenue just stacking on top of each other more and more and more because it gave you a lot of predictability and your revenue is going forward. And eventually, it covers your OPEX, which is the path that we're on to in a very short period of time where just the recurring revenue covers the OPEX. So very pleased with that. However, many of our customers, like the school systems who want to protect the entire district, they often apply for grant money and they get that grant money and they have to spend it all within the year. So we've got a nice blend because that upfront cash is also keeping us cash flow break even and looking very positive. The headline there is, We don't mind how customers pay us, just pay us. All money's green. The future is what is kind of most exciting to me. While we've got these core products that are continuing to deliver value in terms of keeping weapons out of places like casinos, we started to deliver value-added features on top of the stack that we've delivered. So more and more customers are saying to us, well, can you integrate authentication in this? So when Peter walks into Madison Square Garden to see the NICs play. He doesn't stand in line for a ticket. He doesn't stand in line to have his bag checked. He doesn't stand in line to go through the walking metal detector. Peter just walks from the sidewalk to his seat. And the system goes, this is Peter. He hasn't been kicked out before. He has a valid ticket. He doesn't have a weapon. But Peter's been here five times. Let's send him a text and invite him up to the SVP suite. So we start to think about the end-to-end journey. Very large retail organizations are starting to talk to us about authentication. Should this person be here? Is it their shift? Are they on a performance improvement plan? Are they a new employee? How can I add more to the whole guest journey married with security in an automated manner and remove things like people looking at your badge and your ID like when you checked in here at the desk. So where the company's future starts to lie is we're delivering more software value stacked on the infrastructure, obviously much more recurring revenue at a much higher margin. And the platform is in place for us create that extensibility. I briefly mentioned our ability to do object detection. Large retailers are losing millions and billions of dollars to employ theft every year. Apple watches, smartphones, these sorts of things. In one case of one retailer, it's an $8 billion problem, they told us. And if I can alert on those weapons on the way in, which is the predominant application, but then deliver incremental software value to stop that $8 billion problem, them. We did the math and the ROI is about 17 hours for what it would take for them to deploy our solution and actually stop that theft. So we see a great feature for adding more and more value onto the software stack and continuing that gross margin acceleration in the business. These charts, it might be just, they're as of June 5th. We announced our earnings last week on June 10th. So I'm not sure if these are as current. I think we had to get this in before we actually announced our earnings. We do have about $250 million of shares outstanding. Our market cap here is a little light because the stock took a bit of a pop after we announced our earnings. But we're on a nice trajectory as a business. We're currently publicly traded on the OTC in the US and on the Toronto Stock Exchange. The question we always get is, are you interested in moving to a US exchange? And the answer is absolutely yes, but at the right time. We'll have two, three, four quarters of continued growth, continued profitability, continued top line expansion to show there's a lot of stability and predictability in what we're going to do. So it's a when, not if answer. So in summary, where are we as a company? Huge tailwinds. I don't think anyone would deny the weapons issue is a problem and it's becoming a global problem. Internationally, the problem is knives, not guns. We can uniquely say that's a knife in someone's pocket while not alerting on all the other nonsense they have on them. Significant market, large tab, differentiated value in what we can do for each customer, for each market segment. Huge moat around the technology we've created. It's very, very difficult when people are walking into a building to be able to say, that's what this person has on them, all their electronic componentry. So we think we've got a great compelling advantage here with a very difficult technology to replicate and we're executing. You know, look at our numbers. The operational business has been built to scale very, very cost effectively. I have a few minutes left here. Any questions? Does this make sense? Please, sir. It's a great question. The question that was asked in case people didn't hear it was talk a bit about our manufacturing and our capacity. It's a great question. We introduced a second product. We have our main product line, which is doing very, very well in arenas, stadiums, healthcare, manufacturing. We introduced a new product to serve places like office buildings and schools where people are carrying the large backpack as opposed to going to the Knicks game with nothing on. I had a forecast for what I thought the market uptake would be, and it was about 3x that. So we had a little bit of a challenge to go deal with that and get our manufacturing right. We currently don't have any supply chain problems because a lot of the technology that we use is off the shelf. A few purpose-built sensors, but we have our own supply for delivering those so it took us about a quarter to to kind of step up to meet that market demand we're now at a place that i had a demand for 3x the capacity we could deliver it essentially overnight more importantly we're using some some contract manufacturers who are global in nature so if all of a sudden we wish to do manufacturing in taiwan or singapore or mexico or whatever it's a lift and shift of all those processes that are put in place and that they've got in their ERP systems and everywhere else to just move to another location. It's a great question. Thank you. Other questions, please, sir. In three years, probably standing here at this conference talking to you and saying, I'm glad you bought. The question was, where do we see ourselves in three years? I'm a big believer in, you know, building a great company that has high predictability, high growth, high profitability. I'm not a big believer in building a company to be sold and flipped. If you do the thing right and you build the right company with those kinds of financial metrics, you attract a lot of interest. So would that attract us to potentially move to NASDAQ? Possibly. Do I see growth in partnerships? Do I see growth internationally? Absolutely. Where do I see us in terms of revenue point of view? Wow. I've modeled that three or four different times. There's a clear trajectory for us to continue doubling revenue almost every year. It's going to come down to execution at the end of the day. We have the manufacturing capacity, as this gentleman asked. We have the differentiated value. The market is clear. We're barely 1%, 2% penetrated in the marketplace right now. It's just execution. More headcount? Definitely, because you always need salespeople to absorb the demand and address it, marketing people to create more interest in other countries. And more importantly, we invest a lot of time in the after-sales support. We don't talk about it as customer success or customer support. We talk about it as a customer concierge. security is an industry where it's based on trust and relationship and it will never fail me how many times customers have called us and said i'm calling you because so-and-so recommended you security is a very tight industry of people who all know each other um we're going to run out of time but gentlemen sir you had a question didn't you did you have your hands up somebody did over here tell you what over there yeah but then i'd have to kill you uh i'll give you sort of a the layman's answer. We built some purpose-built sensors that essentially determine that object that walkthrough has a little gold, little platinum, little aluminum, little lithium. That's the make, the amounts and combinations that are characteristic of a smartphone. Oh, the next object has a little gold, little copper, a little silver, more aluminum, more lithium. That's the characteristics of a laptop. The next object has four ounces of steel, two ounces of brass one ounce of lead it's gone so that's that's the layman's way of kind of putting it you're looking at a lot of characteristics around these items I think I'm running out of time here right Adam we're gonna have to wrap here I'm here all this afternoon this evening tomorrow we would love for you to come on by to our booth or look us up extract one technologies thank you