Xtract One Technologies Q2 Earnings Call Highlights

Xtract One Technologies (TSE:XTRA) executives used the company’s fiscal 2026 second-quarter earnings call to highlight a sharp year-over-year revenue increase, a near-record backlog, and improving manufacturing throughput as it ramps deployment of its newer Xtract One Gateway product alongside its established SmartGateway offering.

Management said the second quarter is typically slower due to U.S. Thanksgiving and holiday timing, but CEO Peter Evans described the period as “very busy” for both bookings and deployments. CFO Karen Hersh reported revenue of approximately CAD 5.8 million, up 70% from CAD 3.4 million a year earlier and up 26% sequentially from the first quarter, driven largely by upfront purchases.

Revenue growth and demand drivers

Evans said the company remains on a trajectory for what he called its “very best year ever,” with “record revenue anticipated” as deployments accelerate and backlog converts into revenue. He also pointed to increasing interest across end markets for both the SmartGateway and the Xtract One Gateway.

Hersh said second-quarter revenue was spread across multiple industries, including healthcare, education, commercial, and automotive, and that the company is starting to see a “fairly even split” between revenue from the SmartGateway and the Xtract One Gateway. She added that shipment rates improved over the last quarter as supplier production capacity expanded, and that some initial manufacturing and supply chain constraints for the Xtract One Gateway referenced in the prior quarter “have started to resolve,” supporting higher production levels and faster customer installations.

Evans discussed education as a key market for the Xtract One Gateway and said the company is monitoring weapons-screening legislation, citing measures recently passed in Georgia and Pennsylvania and expectations for similar mandates elsewhere. He also described a typical evaluation period for many prospective customers, including demonstrations, contractual review, phased deployments, and (in education) the process of obtaining grant funding.

Bookings, backlog, and installations

New bookings in the quarter were CAD 8.7 million, compared with CAD 13.5 million in the prior-year quarter. Hersh said 73% of bookings were from upfront contracts, which she said can translate to revenue growth “relatively quickly once deployed.” Bookings were described as relatively evenly split between the two product lines, with orders spread across industries including sports and entertainment, commercial, and healthcare. Hersh said education is “typically very busy in the latter half” of the fiscal year.

The company’s contractual backlog and signed agreements pending installation totaled CAD 48.8 million, up from CAD 37.2 million a year earlier. Hersh broke that total into CAD 13.9 million of contractual backlog and CAD 34.9 million of signed agreements pending installation. She said approximately 83% of the pending-installation contract value relates to upfront deals and spans markets including healthcare, sports and entertainment, and schools. Management anticipates the majority of agreements pending installation will be deployed within the next 12 months.

In the Q&A, management addressed why total backlog declined modestly from the prior quarter. Hersh attributed the change to a higher number of installations during the quarter combined with a lower level of bookings to “backfill” the backlog, noting that some deals that closed in January slipped into February. She also said the company removed one large deal from the pending backlog “in an abundance of caution” because of extended customer deployment timelines driven by external factors; she emphasized the customer “hasn’t gone away” and said management remains confident in the current backlog composition.

Evans provided additional detail on the Xtract One Gateway rollout, stating the company already has orders for almost 150 units totaling roughly $21 million, with approximately one-third delivered and installed by the end of the second quarter. He also said the company is ramping manufacturing and deliveries in a phased approach to match demand, manage cash flow, and align installation forecasts.

Margins and path toward profitability

Gross profit margin was 54% in the second quarter, down from 70% in the prior-year period. Hersh said margins have been pressured by higher expenses tied to startup costs and the production ramp for the Xtract One Gateway. She said SmartGateway gross margins remained “healthy in the mid to high sixties,” while management expects the Xtract One Gateway margin profile to improve in the latter part of fiscal 2026 and beyond as deployments scale and supply-chain and field-installation efficiencies improve.

During the Q&A, Evans and Hersh said they expect the Xtract One Gateway’s margins to follow a similar trajectory to SmartGateway over time, noting early-deployment “choppiness” in cost of sales. Hersh characterized SmartGateway margins as in the “higher 60s” during the quarter, while the Xtract One Gateway was in the “very low 50s,” and said management does not expect that level to persist. Evans estimated SmartGateway took about 18 months to reach a high-margin position, adding that timing for the Xtract One Gateway could take “a handful of quarters” to longer, depending on scaling. When asked whether the second-quarter gross margin represented a trough, management responded affirmatively.

On profitability trends, Hersh said the business model shows scalability given relatively stable operating expenses, and suggested that improving gross margin is the “number one indicator” for better bottom-line results. Evans said the company has built a scalable operating model but expects operating costs to grow “single digits over time” because hardware businesses are not infinitely scalable, adding that early-stage costs tied to deploying a complex product can be higher until field learnings are incorporated.

Manufacturing scale, sales investment, and international traction

Asked about manufacturing bottlenecks, Evans said the company is monitoring metrics week by week and has built flexibility with its subcontract manufacturer to scale production up or down quickly. He noted a few longer-cycle components, but said the company is buying safety stock to avoid delays if demand spikes, and stated there is not a “major gating factor” in manufacturing “right now.”

Evans also said the company is investing more in sales and marketing following strong market response to the Xtract One Gateway, including adding sales resources domestically and internationally and expanding channel partnerships selectively. When asked about channel contribution, he said partner-led or partner-originated deals have ranged roughly 25% to 35%, though results can vary by quarter and deal mix.

Internationally, Evans said the Xtract One Gateway is attracting inbound interest outside the U.S., including in the U.K., where he was traveling during the call, and he also cited increased interest in Mexico. He pointed to a recently announced win with the British Museum as an example of expansion, describing it as a high-profile venue with stringent security standards. In response to analyst questions, he said the company has other museum customers, though “nothing as iconic” as the British Museum.

Evans also discussed the company’s R&D approach as “customer-backed,” describing areas of customer feedback such as theft prevention (screening for stolen electronics on the way out), detecting potential loss of intellectual property on thumb drives, and integrating credentialing/authentication capabilities. He said the company will prioritize R&D investments that address significant market opportunities rather than one-off custom development.

Hersh said the company ended the quarter with CAD 15.7 million in cash and cash equivalents. She also referenced a bought-deal financing closed in December that raised approximately CAD 11.5 million in gross proceeds, including full exercise of an over-allotment option, which she said strengthened the balance sheet and supported production expansion and working capital needs.

Operating cash usage in the quarter was CAD 4.2 million, compared with CAD 0.2 million in the prior-year period, which Hersh said primarily reflected increased working capital investment as the company ramped Xtract One Gateway inventory. Excluding working capital changes, she said cash usage was approximately CAD 1.4 million, roughly in line with the prior year.

Looking ahead, management reiterated expectations for stronger revenue in the second half of fiscal 2026 as manufacturing capacity improves and backlog converts to installations, while continuing to build the pipeline and manage expenses as it scales.

About Xtract One Technologies (TSE:XTRA)

Xtract One Technologies is a leading technology-driven threat detection and security solution leveraging AI to provide seamless and secure patron access control experiences. The Company makes unobtrusive threat detection systems that enable venue building operators to prioritize and deliver improved patron experiences while providing unprecedented safety. Xtract One’s innovative multi-sensor Gateway product enables companies to covertly screen for weapons at points of entry without disrupting the flow of traffic.