All right, good morning, everyone, and welcome to day one of our MicroCap Virtual Conference. My name is Stefan Guillaume, and I'll be your moderator. It is my pleasure to welcome Peter Evans, CEO, and Karen Hersh, CFO of Xtract One Technologies, ticker XTRA. We will have a total of 30 minutes, including Q&A, at the end of the presentation. We greatly appreciate the participation, so please submit your questions at the bottom of your screen. With that, I'll turn it over to you, Peter.
Thank you, Stefan. It's always good to catch up with you. It's been, I think, since September of last year since we last did this conference. To everyone who's attending today, I really appreciate you taking the time out of your day to hear a bit more about the Xtract One story. I'm gonna start with one of my favorite videos from a demonstration to give people a little bit of a sense of what it is we do and how we do it. For those of you who can see the screen, this was a demonstration that we did with a professional sports organization sometime back at the tail end of last season.
As a quick example of what we do, normally, this entrance would be protected by 12 walk-through metal detectors, the very traditional metal detectors that we're all familiar with when we go through the airports or when we go to sports stadiums. Now, for this demonstration, what the team did was they removed six of those walk-through metal detectors on the right of this white line here, or the white chain, and they left six on the left. And I'd invite you to keep your eyes on this gentleman in the North Face hoodie. A single lane of the Xtract One SmartGateway was placed here. Our solution is a weapons detection solution, not a metal detector, and I use the words metal and weapons intentionally.
We use purpose-built sensors, excuse me, as well as with AI software to detect when people walk through, exactly what they have on them, and to the best of our ability to discern, is this a knife? Is this a gun? Is this a cell phone? Is this some other benign object? And consequently, we don't have the hassles of people having to divest of all their personal items, stand in line for a long line for a long time. People simply walk right in. I'm gonna run the video and let people have a little bit of a, an experience about what it is working with Xtract One and what that experience looks like. So as you can see here, the people on the left carrying their purses, their, their clutch purses, small, light backpacks, jackets, and whatnot, they just walk in one at a time.
Now, this was a demo, so this is normally a slower pace than normal. And we have a gentleman about to walk through here with a blue shirt, and the system here detects that he actually, in fact, I was at this event, has a knife in his right front pocket. This system will actually identify who the individual is. It'll take their picture, and we have the ability, whether displayed on this tablet, as you can see here on the screen, on the towers, or to a separate tablet or a smartphone that's co-located or anywhere within the building, the actual location of the weapon on the body. Now, we're running this demo a little bit slower than normal pace.
We can change the pacing of the system to allow it to go faster or slower, excuse me, depending on the venue's staff capabilities and other things like the ticketing lines. In this case, we're running over 29 seconds. About 19 people, if you fast-forward through this, about 19 people walk through in that 30-second period, and the gentleman on the left here, waiting for any one of 6 walk-through metal detectors, has not moved a step. So on average, in this case, in this example with this customer, about 40 people through per minute. We see higher numbers, we see lower numbers, depending on the demographics. But more importantly, we detected the broadest set of weapons as verified by organizations like the TSA, the FAA, the DHS, NPSA, and others. So let me stop sharing this video.
Hopefully, that gives everyone a little bit of a taste test of the kind of the innovation that we're bringing to patron screening and patron security when entering venues like hospitals, schools, manufacturing centers, distribution centers, arenas and stadiums, and other venues. I'm going to go to our presentation now, and I'm gonna select out a number of charts here for the purposes of this presentation for this group today. These materials, this presentation specifically, as well as the recording of this video, will be available on our website. When we look at what's happening in the world today, we see... Let me just shrink this a little bit for ease. There we go. We see that then we've got this perfect storm of situations occurring within society right now. The weapons proliferation issue continues to grow.
Just a few weeks back, there was an attempted assassination of one of the presidential candidates, you know, which made headline news. What didn't make news that morning was there was 59 other events that were categorized as mass shootings, four people or more, that occurred within North America. This has become so commonplace in society that I think we as a society have become a little bit numb to it. But I think we're all concerned and all scared about the continued shootings on places like subways, in schools, in shopping malls, and other locations. We also see a significant increase in societal unrest. More and more people are becoming agitated out in the society, which is creating a lot more risk for individuals, and we're looking for more solutions that are scalable.
There's a decline in the labor force right now, and that's unfortunate because historically, physical security has been served by people. It's a labor-based business model. If you're more worried about security, you hire more security staff, more law enforcement staff, but there's only so many, and those staff can only be in so many places at so many times, and so they can't proactively see every event before it occurs. Oftentimes, it's a reaction after an event occurs. The opportunity here is, with the same sort of digital transformation technologies that have changed the way that we do online banking, online retail. In fact, this conference that we're all participating in right now, we're anywhere in the world, we can be having this conversation.
Pragmatic AI is part of that digital transformation engine and toolkit, along with machine learning, offers us the opportunity to have massive scalability and proactive protection to solve some of these physical security problems, and particularly the weapons problem that many people are looking to solve at places like schools and hospitals. So we at Xtract One are in the business of digitally disrupting what has historically been a labor-based physical security marketplace, to allow people to have a fantastic guest experience when they enter into a venue and not have to wait a long time, at the same time, catching the broadest set of weapons. Now, why do investors look at us as a potential investment opportunity? There's a number of reasons for that, and I'm gonna hit these headlines, and then we'll go into a little bit of detail.
The first is, as I said, we're digitally disrupting an existing marketplace, where billions of dollars are being spent to protect venues, venues like Madison Square Garden, Radio City, as an example, or schools. But the technology required to solve this problem requires bending the laws of physics to be able to discern the characteristics and attributes of an item that passes through a doorway, and being able to apply AI engines to that to discern with a high degree of accuracy, this is a weapon, while having a very minimal level of false alerts or annoyance alerts and allowing for that fast ingress. There are very, very high barriers to entry into the marketplace that we think will bring some unique innovation to the market. As a company, we've got strong revenue growth and backlog.
Fiscal 2022 was a 370% growth over Fiscal 2021, and 2023 was another 250% growth over 2022. That trajectory and that vector that we're on as a company is not going away, primarily because we're playing into a marketplace that's only getting worse, it's only getting larger, and it's got a global opportunity for it. And again, our unique capabilities allow us to serve not only the domestic markets, but the global market very well. Consequently, over the past two or three years, since we've introduced our flagship product, the Smart Gateway, we have built a booking backlog of over $20 million of opportunities waiting to be installed or as SaaS recurring revenues, and that number continues to grow every quarter.
Our technology that I briefly mentioned earlier has been independently verified by organizations like the TSA, like the FAA, like the NPSA, and like the DHS. We're very pleased with those results that we are now included on the majority of those organizations' security screening product catalogs. The nice thing about our business model, too, is we've set it up in a manner that we can serve the customer in the way they wish to be served. Some organizations wish to pay us an upfront model, but the bulk of our customers are looking to buy security as a service and benefit for the continuous innovation that we're providing to them. So we have a predictable revenue model with a lot of SaaS recurring revenues.
Most importantly to me, though, is we've got key customer wins, and we have a compelling ROI for not only our customers, but a great experience for our customers' customers. And we'll talk a little bit more about the ROI in a moment. So let me move forward a little bit and just highlight the market size and opportunity, and then we'll talk about some of the customer segments. Initially, as a company, when we reinvented the company and relaunched it back about three years ago, our target market was for stadiums, arenas, theaters, casinos, primarily in North America. Places that were already screening individuals, and we could provide a better opportunity for them to shift their spend to a much more effective solution. However, the market was not willing to wait for us.
While we got hyper-focused on doing arenas and stadiums very, very well, hospitals, manufacturing, and distribution centers and schools later started to grab us and pull us into those marketplaces. As we continue to serve those various vertical markets, we're now bridging into international marketplaces, with presence and opportunities in Eastern Asia and Western Europe, with some of the largest arenas and some of the largest organizations in those marketplaces. A brief smattering of who some of those customers are, those that we've publicly announced. We're not able to announce every customer because, quite frankly, this is security, and many of them have a no announcement policy around publication of security strategies in order to keep the venues safe and protected.
We're very pleased, though, that organizations like Madison Square Garden, the Chicago Theatre, The Sphere in Las Vegas, the KC Current, which is a purpose-built sports stadium, soccer stadium for women's soccer, the first of its kind, Total Mortgage Arena in Connecticut, and many, many other arenas, such as the Florida Panthers and all of their properties, are now customers of Xtract One. On the other side, with the expansion of marketplaces now contributing more than 50% of our pipeline and our revenues, we're seeing ourselves in health organizations like Community Health Network out of Indianapolis, Sentara Healthcare, the largest not-for-profit healthcare organization in the Eastern US. Organizations like Kia, Hyundai, the Veterans Admin Hospital, Co-op Live Arena, the largest arena in Western Europe. We're very pleased with the growth of the business. We're very pleased with validation by these well-known, solid, professional organizations.
So a little bit more about what it is we deliver at its simplest form, and we'll talk a little bit about the ROI. We're all familiar with going through walk-through metal detectors. We're all familiar with the experience going through those metal detectors, of having to divest of all your personal items and waiting in a long line. And quite frankly, if I paid $2,000 to see Taylor Swift playing at The Sphere in Las Vegas, for example, I don't want to wait outside in the hot Vegas sun for 90 minutes while everyone else figures out how to get their metal out of their pockets. There's a lot of frustration, there's a lot of delays, and there's high security costs for the staff to manage hundreds and hundreds of these metal detectors for different venues.
This is also a scenario where this is not digitally enhanced or enabled. You're simply getting a beep, metal or not, without having digital insights that allow you to innovate further and optimize your security operations further... With a SmartG ateway, people simply walk through, like we saw in the video. Just keep going, just keep going, just keep going, and if someone does have a knife or, or, or a firearm on them, the system will alert and identify the individual, identify where the weapon is on that individual, and allow everyone to keep on flowing in. In different venues, depending on the number of systems deployed and the ConO ps for the venue, sometimes we see two or three times faster improvement for the patrons. Sometimes we've seen as much as seven, eight, or nine times. It really depends on the demographics.
In terms of OpEx efficiencies, one of my favorite case studies is with one of the arenas. This arena had 42 walk-through metal detectors, 85 security staff to run those for 250+ events every year. Their overall spending on security staff salaries was about $2 million per year. Replacing that with a SmartGateway solution, about nine systems overall, and about 30 security staff, they've lowered their security staff spending from about $2 million a year to around $600,000. Now, they have to pay us, but let's, for argument's sake, assume that they're taking $1 million of what would've been OpEx costs, and they're pushing that now to the bottom line as EBITDA.
More importantly, though, what we're finding is, in that scenario, with the number of systems they've deployed, the average fan is into the arena in about half the time they were previously, and you don't have the backlog and the traffic jam of people. So the lines are much shorter, and people flow right in. And then finally, we've seen in most of these arenas where we've deployed, we're able to start tracking the increased revenue from people being inside. And while not everyone will buy more beer or pretzels or hot dogs when they get into a stadium, what we're finding is, on average, the average person spends more than $5. And so if you think of 17,000 fans going to 250 events per year, multiplied by 5, multimillion-dollar increases in revenues.
So lower OpEx costs, increases in revenues, happier fans who just walk right in without the annoyance and get in in twice the speed, and then the digital insights to allow the arena to fine-tune their operations for future events. Overall, a very compelling ROI that we deliver to most of our customers. Looking forward a little bit, and let's talk a little bit about the history of the business. Now, this chart is a couple of months old, and we will update it as we announce our fourth quarter earnings, which is coming in October. If I dial the clock back a year, or if I even to dial it back two or three years, we're essentially doubling our business every year.
Where we may have had 40+ customers a year ago, we're now in excess of 100 customers, and we might have had $1 million of backlog. We're in excess of almost approaching $30 million of backlog. The backlog is for signed contracts where we've yet to deploy or where we have deployed, and we recognize the current revenue over a 36-month period for the typical contract. More importantly, we continue to refill the pipeline of highly qualified opportunities. Our people who are doing demos, people who are in an RFP stage.
We've announced a number of strategic partnerships, most notably with Oak View Group, which is a preeminent provider of not only their own venues, such as the Moody Center in Austin, Texas, UBS Arena, the home of the Islanders, or Climate Pledge Arena, the home of the Seattle Kraken, but they also manage 350 venues around the world on behalf of their customers. And so that strategic partnership for us was a validation of our technology. We've created another strategic partnership with the American Association of Professional Baseball, and we continue to look at more and more of these as we go forward. I mentioned briefly the validation of the technology. This is something that we're very proud of. Unfortunately, the physical security marketplace is, characterized by a lot of aggressive marketing and advertising, trying to drive business. Security can be a tough sell.
Oftentimes, there's not an ROI associated with it, and it's like buying insurance. People never quite know how much do they really need it. What if an incident doesn't really happen for me? So we took a different approach. Instead of saying, "Let's just overly aggressively market this like the rest of the industry, let's look to recognize third parties who objectively will take the technology, put it in their labs, and test it for days, weeks, or months on end," in some cases, as long as 10 months of rigorous, hands-on testing. We're very pleased to say that working with the DOJ, we've had certifications from them around their standards, the NIJ and NPSA standards for the technology validated by third parties.
We're very pleased that TSA has completed their analysis of us at one of the West Coast airports, and we're now in the TSA's catalog of products that have been tested and verified. Similarly, with the Department of Homeland Security and others, we will continue down this, repeating these kinds of tests every year as we continue to innovate the product and deliver more and more value to our customers. Looking forward just a little bit, what does the future hold for us?
For myself, personally, I joined this company just a little over three years ago, and what appealed most to me, as someone who's been in the software industry for a very, very long time, is the platform extensibility and the ability to think about the future and not be just a one-trick pony that delivers one of the best weapons detection solutions on the planet, but also to think about the guest journey. Whether that's a student going to school, whether that's someone going to a Knicks game in New York, whether that's a factory worker going in to go build cars for Kia Automotive, the guest journey or the patron journey starts long before they get to the doorway, and the safety and security information starts long before they get to the doorway.
With the platform that we've created, we can think about, how do we ingest insights from the first touch with a person when they're starting to purchase tickets online? And what can I gather about that if, that information about that person? As they approach the building, with AI software sitting on top of cameras that give us further insights, and we can start to do credentialization. Is this Stefan coming into the building? Has Stefan been banned before? Does he have a valid ticket? And as he walks through the entryway, does he have any weapons? And then once he's inside, tracking the movements of people to provide further insights for the venue and a great guest experience. So we look at these as continuous value that we can deliver to each of our customers, specific to their vertical market requirements.
Whether I'm in manufacturing, I have specific needs, or whether I'm in the stadium and arena business, and I have specific needs. Being able to layer more and more recurring revenue value on top of the incumbency that we're building with our customers. Our journey has been a long one, and it's been a very successful one, and so far, I'm very pleased with what we've been able to deliver to our customers, as well as our shareholders and stakeholders in the company, and particularly our investors, who are seeing more and more return on value for their participation in the journey that we're on as Xtract One. At this point, Stefan, what I think I'd like to do is stop. We have about 10 minutes left before the end of the presentation, and allow anyone who's listening in to ask any questions if they would like.
All right, thank you, Peter, for your presentation. As a reminder, if you do have a question, please submit it into the Q&A box at the bottom of your screen, and I'll be more than happy to ask on your behalf.
Yep.
I guess, first question that I have is, it looks like there's a significant momentum. Are there any particular, areas that you're especially hopeful about in the near term, and what dynamics are contributing to that outlook?
Yep. Well, that's a great question, Stepfan. I'm also gonna add to that, there's another question here about what kind of leverage do we have in our model as you scale up. I failed to mention that while we're seeing this doubling and tripling of top line every year, we've been doing so while keeping OpEx generally flat. Over the first two, three years, between 2001 to 2003, we actually declined and drew down our OpEx by about 5%. We will continue to invest, and we do see OpEx increasing, probably range single digits per year. So simple math, OpEx grows at single digits per year, top line is doubling and tripling, and while we're throwing off, let's call it mid-sixties GP.
You know, that shows a very profitable opportunity for us, a very scalable business model that we've been able to put in place, and we see that as a, you know, a simple equation that anyone can do that starts to lead us towards cash flow break even.
Thank you. When do you anticipate to turn profitable?
Well, that really depends. We've not given specific physical guidance or, detailed guidance on that. If you do the math, could I see that occurring within a 12-month period? Potentially. However, this is a very fast-growing marketplace, and we've got customers who are putting great, ideas in front of us about things they would like to do that'll make us unique and specific to their vertical marketplace. So we will judiciously, as we have before, continue to invest if we see there's an opportunity for accelerated growth and accelerated return of shareholder value. So that could push out that cash flow break-even period, but right now, the math tells us that's probably something that could happen within the fiscal year.
Oh, thank you, and we have another question from the audience. Have you broken out the upfront cost and recurring portion?
We do not break out our costs. I think if I understand the question correctly, we do not break out our costs and present those to the marketplace. That is something that is within our broader financial statements.
Can you touch on how long it takes from signing a contract to having the product installed at the venue?
That really depends on the customer. We have some customers who call us up, and they wanna have delivery within two weeks. We can deliver that. We have the manufacturing capacity to deliver that. We've created a very, very flexible manufacturing capacity, so we can spike up and down on... as demand rises. We have other customers, such as Co-op Live Arena, who signed their contract a year before going live because they wanted us to physically participate in the architectural diagrams, so we could design where the systems would go to be fully optimized for the crowd management, crowd flow, and guest experience, placing things like conduit under the ground. So it really depends on the customer, but if the essence of that question is, "How quick can I serve demand?" Within about two weeks, we can be up and running with a customer.
Then we do have another question. Where do you stand regarding capacity and your ability to deliver on backlog?
Well, right now, I'm very pleased that about a year ago we put an objective in front of us to double the capacity of manufacturing by January, and then double it again by July, which has just passed. We've completely hit those targets and, in fact, exceeded those targets, delivering that capacity growth ahead of plan, based on the demand that we are seeing from customers. The nice thing about this is we're really only running one shift, so if I wanted to double capacity again, I just need to add another shift to the existing manufacturing line. So we've got a lot of flexibility in terms of growth.
Can you also talk about your margin, gross margin opportunity?
Well, right now we're sitting sort of, you know, 60%-65% gross margin. That will vary slightly, depending on the nature of the contracts with the customer. But where I see the gross margin opportunity presenting itself is, as I mentioned earlier, we're have various vertical markets coming to us and asking for vertical market-specific capabilities that sit on top of the platform, so they can do more as that person enters the door. A simple example, can I also verify that this is the worker who's supposed to be coming here, and they don't have a weapon in one step versus two that they currently do? We can deliver that software on top of our platform fairly easily. It's very extensible.
All that will be delivered as software that stacks on top of the existing revenue streams from those customers, and that's gonna create more and more high profit, which I think is just gonna drive the gross profitability up overall, as we deliver more of that, that software value.
Is there potential for you to expand internationally?
Absolutely. We already have done some international expansion, but our, our strategy there is to be very, very judicious. Most of the startups that I've experienced tend to go hire half a dozen people and throw them into Dublin and say, "Grow business in Europe." This is a bit of a fool's errand. There's a lot of work and a lot of cost to doing that. You've gotta set up business, you've got tax laws, you've got certification processes. There's many, many things to do that. Our approach has been to ride on the back of very large customer wins, which then fuel the growth in those, those international marketplaces. We're well-established in places like Japan, and the U.K., and other countries in Europe, and that's based on winning large co-anchor accounts, and then using those as our base for further expansion and for profitable expansion.
Thank you. And, given your current momentum, how do your current deals differ from your past ones? Are they, like, more significant or longer term?
Yeah, I think that's a very good question. When you're a startup and you don't have a lot of brands behind you, you don't have a lot of reference ability, oftentimes you're winning smaller deals. People will buy a couple of systems. They might do one doorway. They wanna take you for a little bit of a test drive, and oftentimes there's a lot more activities in terms of demonstrations and testing the products and things like that. Now, when you have an organization like Madison Square Garden, who's been using you for more than a year, and they tested you extensively over a 12-month period through 24 different test scenarios against all the competitive solutions, you have great reference ability that gives a lot of people confidence.
Similarly, when you've won business or when you've got your designation award from the DHS, and similar awards from other organizations, that gives a lot of the customers a lot of the confidence they need in order to be able to make a buying decision. That has accelerated our selling cycle, and that's actually expanded the typical deal size.
I would add to that as well, Peter. I agree completely that we've definitely seen an increase in the size of the deals that we've had over the last couple of years. We're also seeing a lot of repeat business-
Yes
Where, customers have come back and said, "We've got the ConOps right. We're happy with the install. Now we wanna do these other three locations." And so what we're finding is that a big part of our sales funnel and our backlog consists of customers that are coming back for repeat business.
Agreed. Let me add two more thoughts to that, Karen. Thank you. You triggered two good thoughts.
Sure.
The first one being what I'm very pleased with this conversation, as an example of many, many conversations, I had with the CSO of an incredibly large, healthcare organization. They'd already deployed 12 of our systems, and we were talking about a next phase, and he essentially said, "I don't have to sell this anymore." As we all know, healthcare is a place that's got the largest amount of workplace violence in the marketplace, and his 17,000 caregivers were very, very concerned about their safety at work. All of the managers, presidents of all the different healthcare buildings and hospitals, had all heard about our system, had all seen the satisfaction levels for all the healthcare workers accelerate and grow. They were very happy at work. They're feeling very safe. They said, "I don't have to sell this. The ROI is compelling.
I've got every single president calling me up and saying, "When can we get more?" So we're seeing that, kind of, that snowball effect growing with us. Second key point, very pleased to say that after three years of delivering the SmartGateway, some of those contracts are coming up for renewal. 100% of our customers are renewing and expanding business with us.
If you're interested in learning more about that healthcare scenario, we just issued a case study that you can catch on our website. That gives a very good walkthrough of what it means for a healthcare facility to install our product and the benefits that they are able to achieve from that installation.
Oh, well, thank you so much, and it looks like we've run out of time. Do you have any closing remarks before we wrap it up?
Well, first off, Stefan, it's always good to see you. Thank you for inviting us to present again. I love what I do. This is a fantastic company, a fantastic business with a great team of people, incredible customers, and I'm very, very appreciative to all the investors and shareholders in the company who continue to support what we do.
Well, thank you, Peter and Karen, for being here today, and I'd also like to thank our audience for their questions. Everyone, please enjoy the rest of your day. Take care now.