Xtract One Technologies (TSX:XTRA) reported fourth-quarter financial results on Thursday. The transcript from the company’s fourth-quarter earnings call has been provided below.
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Summary
Xtract One Technologies reported record revenue of $28.8 million for fiscal 2026, a 108% increase from the previous year, while operating expenses rose by only 13%.
The company’s SmartGateway and Xtract One Gateway products drove growth, with significant uptake in healthcare, entertainment, and education sectors.
Future strategic priorities include expanding sales in education, healthcare, and international markets, focusing on R&D for product innovation, and leveraging customer advocacy to drive growth.
The contractual backlog increased by 66% to $25.6 million, indicating strong future recurring revenue, with $10.5 million scheduled for recognition in fiscal 2027.
Management highlighted low churn rates and a growing pipeline of qualified opportunities, while maintaining a focus on managing operating expenses relative to revenue growth.
Full Transcript
OPERATOR
Good day, and welcome to the Xtract One Technologies Fiscal Year 2026 Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mark Camarosa, Investor Relations of Xtract One. Please go ahead.
Mark Camarosa (Investor Relations)
Thank you, and good morning, everyone. Welcome to Xtract One’s fiscal 2026 fourth quarter and annual conference call. Joining me today are the Company’s CEO, Peter Evans, and CFO, Karen Hersh. Today’s call will include a discussion of the state of the business, financial results for the quarter and the full year, and the Company’s priorities for fiscal 2027, followed by a question-and-answer session with covering analysts. This call is being recorded and will be available on the Company’s website for replay. The presentation that accompanies today’s discussion is also available on the website.
Before we begin, I would like to note that all dollars are Canadian unless otherwise specified, and to provide a brief disclaimer which is shown on slide 2. Today’s call contains supplementary financial measures including total contract value of new bookings, agreements pending installation, and adjusted EBITDA. These measures do not have standardized meanings prescribed under IFRS and therefore may not be comparable to similar measures presented by other reporting issuers.
They are defined in the Company’s filed Management’s Discussion and Analysis, and a reconciliation of adjusted EBITDA to net loss is included in yesterday’s press release and in the appendix to this morning’s presentation. Today’s call may also contain forward-looking statements that are subject to risks and uncertainties which could cause actual results, performance, or developments to differ materially from those contained in these statements. These statements are not guarantees of future performance, and no assurance can be given that any events anticipated by the forward-looking statements will prove correct.
Today’s call should be reviewed together with the Company’s audited consolidated financial statements, Management’s Discussion and Analysis, and the earnings press release issued October 2026, all of which are available on the Company’s website and under its profile on SEDAR Plus. Now it’s my pleasure to introduce Peter Evans, Chief Executive Officer of Xtract One Technologies.
Peter Evans (Chief Executive Officer)
Well, good morning, and thank you very much, Mark, and everyone who’s joined us. We welcome all of our investors, our analysts, and everyone else who’s joining us today. Let’s start with slide number three. Fiscal 2026 was a record year for Xtract One. Overall revenue of $28.8 million was up 108% from fiscal 2025. We did that while only increasing our operating expenses by 13%. Overall, adjusted EBITDA improved by $5.1 million for the year to negative $3.5 million for the entire year, and our net loss narrowed to $7 million from $11.9 million over the course of the year. We’re very pleased with these results, and I’d like to talk a little bit more about them, and Karen will go into more details.
Also, let’s get to the next slide. First, though, we consider ourselves an innovation-first company, and this success has been driven by our two key solutions which are purpose-built and tailored to address the unique needs and priorities of each market segment that we serve. We are not a one-size, force-fit, all solution, but one that aligns to the customer’s highest priorities and needs. We innovate to deliver each segment’s key priorities and have these market-specific must-have capabilities built into each of the platforms.
The SmartGateway is the right fit where individuals arrive with fewer personal items and where the priority is throughput and small-blade detection, amongst other items like firearms. We also deliver segment-specific features which best serve stadiums, arenas, theaters, manufacturing organizations, and hospitals, and most importantly the international market where edged weapons, not firearms, are the priority. On the other hand, the Xtract One Gateway is purpose-built for medium-clutter environments where you have a medium amount of personal items—individuals carrying backpacks, laptops, tablets, phones, and other such items. The previous industry response was extra machines, bag searches, and long lines. The new Xtract One Gateway is a perfect fit for environments like schools, workplaces, and convention centers where the average person is carrying that bag or backpack with that laptop and other items.
Each solution also delivers further unique software capabilities and features that serve each market for their priority needs. Having a product that serves those unique problems for each different buyer is a foundational part of our growing success for this year and for the future. On the SmartGateway side, sales were led by customers in the healthcare and entertainment space. This year, hospitals across Canada and the United States chose the SmartGateway for the same key reasons—detecting those small blades without alerting on every smartphone, every purse, and other items—while also fitting seamlessly into, for example, an emergency department’s very small vestibules. In places like California, the healthcare systems are buying ahead of the mandated March 2027 weapons screening requirement under Assembly Bill 2975.
Other states that we engage with are investigating similar sorts of legislation. In the entertainment space, existing customers returned with expansion orders, and we added one of the world’s most storied football—football as in the global definition of football—clubs, and one of the most iconic and most visited museums in the world. With almost 7 million annual visitors, this museum selected the SmartGateway for every entrance after a very extensive on-site and rigorous testing.
For context, the British Museum—for those who are unfamiliar—the British Museum has twice the visitors of Madison Square Garden annually, twice the visitors of the most visited parts of the Smithsonian Institute, and houses the history of mankind, and as such it’s a target for protest and terrorist activities. When organizations like the British Museum prioritize security first, they choose Xtract One. On the Xtract One Gateway side, we completed our first successful year of commercial rollout deployments. There has been an incredible uptick in interest from the education space, with Xtract One Gateway being deployed in a number of school districts and with other schools across five states in the U.S. over phased deployment approaches. In its first full commercial year, the Xtract One Gateway accounted for over a third of our revenues and roughly half of our bookings.
The logos on this slide are some of the wins that we are approved to name publicly. There are many more customers who would prefer to remain unnamed but are just as engaged in our business activities. They take reference calls, they host site visits for prospects, and they recommend us to their peers. At Xtract One, it’s our philosophy to not believe in customers—only in creating advocates for our business model and the solutions we provide. Let’s move on to the next slide. I want to take time to talk about the commercial and manufacturing market segments, both of which are becoming increasingly exciting business opportunities for us. These are not new markets—we’ve been protecting manufacturing facilities for some of the largest car manufacturers for some time. What changed this year, though, is that the Xtract One Gateway arrived, and it fits some exact security and screening needs of many of the commercial customers.
Enterprise buyers have a chief security officer, multiple sites and locations, they have rigor around activities like cybersecurity and IT integration, and they have employees who arrive every single morning with a laptop and a bag and other personal items. Xtract One Gateway screens them without creating a bottleneck of long waiting lines and bag searches, and office workers just walk into the office building transparently, as if there was no screening at all.
The Gateway screens them without creating the bottlenecks of those long waiting lines and those bag searches. And this year we found ourselves entering into two new markets within the office spaces, such as pharmaceutical manufacturing, with a multi-site deployment that spanned across facilities in California, Arizona, and Ohio, and plans for other locations globally. We’re now protecting commercial offices for large insurance, healthcare, data center, and technology companies. Additionally, a leading U.S. airline expanded its deployment across three airports for its employees, and the Metro Toronto Convention Centre, as a good example of convention centers, selected the Xtract One Gateway for its screening requirements.
Commercial customers now represent about a quarter of our bookings this year in a segment that previously had no satisfactory screening solution but pent-up demand to create safer environments for the office workers. Let’s now look towards our next slide and start to take a look into our fiscal 2027. We have four key operating priorities for the year. First, continued sales expansion with a specific focus on four areas: education, healthcare, commercial, and international. These are where we see the largest growth trends and opportunities for our business, and we see the strongest solution fit and competitive advantages. Secondly, focused R&D. The Xtract One Gateway is a great example, and it was built in response to a problem we heard from customers over and over and over again—what many school superintendents described as solving the, air quotes, backpack problem. The Xtract One Gateway has solved that problem, and that’s what gave it a very strong first year of deployment. Our focus this year is the same: continue to listen to our customers, lead with the innovation that creates differentiated value for them, and solve the problems that matter to them most.
The third priority is to continue to deliver on our highly scalable operating model—hold the growth in our costs below the growth in our revenue. As stated last year, we delivered an operating expense line with an increase of about 13% against revenue growth of 108%. Our focus is to continue to drive this operating leverage into ongoing and sustained profitability. And fourth, but most importantly, customers as advocates. This is the goal that I personally care the most about because this is how we win.
A hospital network in one province leads us to a health authority in the next. One school district in Texas strongly advocates to another school district that the solution they deployed last year is the only solution that they should be considering for their deployment. This referenceability from district to district, healthcare organization to healthcare organization, creates the advocacy that we want within our business and that is trusted across the security industry.
A very happy museum in London that tested every alternative has now become a proactive reference for all the other venues within their network of connections, and those individuals are now calling us directly. Our goal this year is to continue to be to drive strong advocacy from our customers to their peers in every market we serve. With that, I’m going to turn it over to Karen to dig into the financial results in a little more detail. Karen, over to you.
Karen Hersh CPA,CA (Chief Financial Officer)
Thanks, Peter. I’m happy to review the financial highlights for our fourth quarter and for fiscal 2026, a year of strong growth and performance. Let’s start by turning to Slide 7. Total revenue was $8.2 million for the fourth quarter versus $3.3 million in the prior-year period, representing an increase of 144%. For the full year, revenue was $28.8 million versus $13.9 million in fiscal 2025, an increase of 108%. The increase in revenue this year is primarily from the successful commercial rollout of our Xtract One Gateway which, as Peter mentioned earlier, makes up over a third of total revenue, along with the continued growth year over year for the SmartGateway product. Fourth-quarter installations were similar to the previous quarter. However, revenue for the quarter was lower than the third quarter, primarily due to the installation contract mix, with a greater portion of the fourth quarter’s installations represented by subscription contracts.
As previously discussed on other calls, the total contract value for subscription contracts does not immediately show up as revenue when the installation takes place. Rather, it goes into contractual backlog and becomes revenue over the life of the contract. Let’s move to Slide 8. Our contractual backlog was $25.6 million at year-end, up 66% from $15.5 million just a year ago, marking a significant growth in our installed base as we continue to build predictable recurring revenue. During the quarter, we successfully completed the installation of the previously announced US$2.6 million SmartGateway expansion for a major international entertainment venue, which will provide recurring quarterly revenue over the next three years.
Of the total contractual backlog, $10.5 million is scheduled to be recognized in the next 12 months. This amount represents revenue already under contract for fiscal 2027 before any new bookings, installations, or renewals, and it’s ultimately the best indicator for assessing the growth in our installed base and the resulting recurring revenue. Turning now to Slide 9, we’ll talk about bookings. Total contract value of new bookings was $32.2 million for fiscal 2026, compared with $38.5 million in fiscal 2025. The fiscal 2025 figure included a single record quarter of $16.1 million in the fourth quarter, which carried the first wave of Xtract One Gateway orders and several large education awards landing at once. Bookings in this year’s fourth quarter were $6 million, and while down from last quarter, it’s important to note that historically our quarterly bookings are often lumpy due to customer buying cycles.
We’ve also experienced an increase in the average size of our customer contracts, with some of them extending over multiple phases, meaning that contract timing, be it positive or negative, can have a material impact on any given quarterly bookings. In fiscal 2026, our bookings were well diversified across verticals, with commercial and manufacturing accounting for notably 37% of our total bookings for the year, while health care and education represented 20% and 15% respectively. We also saw a well-balanced split between the Xtract One Gateway and the SmartGateway contracts, as well as between upfront and subscription contracts.
Turning to Slide 10, Slide 10 shows both halves of our backlog over the past five quarters, the black representing the contractual backlog, or installed systems under contract. The orange is signed agreements pending installation, or contracts that we’ve won but have not yet installed. Agreements pending installation ended the year at $18.4 million, down from $34 million a year earlier, as the manufacturing improvements we made in the first half let us accelerate deployments through the second half of the year.
This resulted in higher revenue and a higher contractual backlog balance than a year ago, and for the first time the value of what we’ve installed and have under contract is larger than what is waiting to be installed. Moving to Slide 11, gross margin was 57% in the quarter compared to 71% in the prior-year quarter. For the full year, gross margin was 58% versus 66% in fiscal 2025. We are now a two-product company and the two products are at different stages in their commercial journey. SmartGateway is a product with a longer history of deployment and a mature margin, whereas the Xtract One Gateway is in its first year of production and with that comes more variability and higher production and installation costs that every new hardware product carries.
SmartGateway had a similar path with margins initially in the low 50s, which improved as we refined the bill of materials and the installation and service experience. And Xtract One Gateway is expected to follow a similar path. Because of the split between products, we will continue to have some margin variability driven by product mix from quarter to quarter. We expect over time the margin gap between the two products will narrow, reducing volatility and trending upwards.
Moving on to Slide 12, which shows operating expenses by quarter. For fiscal 2026, operating expenses were $24 million, up only 13% against revenue growth of 108%. Selling and marketing was $8.2 million, up 31%, a deliberate investment in business development initiatives. General and administrative expenses were $8.6 million, up 13%, and research and development was $7 million, flat year over year. Overall, while operating expenses were slightly higher compared to the prior year, the increase relative to revenue shows a consistent effort to manage our operating expenses while still strategically investing in key areas like selling and marketing to support our continued revenue growth and leveraged business model.
Moving to Slide 13, adjusted EBITDA was negative $0.7 million for the fourth quarter, compared with negative $2.7 million in the prior-year quarter. For the full year, adjusted EBITDA was negative $3.5 million, an improvement of $5.1 million from the negative $8.6 million in fiscal 2025. This is operating leverage, and it’s worth putting numbers on it. Revenue grew by $14.9 million this year, while operating expenses only grew by $2.8 million, driving a $5.1 million improvement in adjusted EBITDA.
This means that about a third of every incremental revenue dollar reached adjusted EBITDA. And finally moving on to Slide 14, we ended the year with cash and cash equivalents of $17.3 million, compared with $8.2 million a year earlier. Cash used in operating activities was $3.5 million for the year, compared with $6.5 million in fiscal 2025. In the fourth quarter, the company generated approximately $1.9 million of operating cash flow, including working capital, and our cash balance rose by $1.7 million from the previous quarter.
With no financing activity, excluding working capital, the fourth quarter was within half a million dollars of operating cash break-even, following a strong third quarter in which we generated cash on that basis of $0.7 million. In closing, fiscal 2026 delivered what the plan called for: a record year of revenue, pending installations converted into installed systems and contractual backlog, and controlled operating expense growth of only 13% while revenue more than doubled. We’re highly focused on continuing this work into fiscal 2027, and with that, as always, Peter and I welcome any questions that investors may
OPERATOR
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Amer Izat with Canaccord.
Please go ahead.
Amer Izat (Analyst)
Good morning. Thanks for taking my questions. My first one is on replenishing the top of the funnel. Bookings were $6 million, and I understand these can be rock and roll Q2Q. Then when I look at the signed agreements pending installations, they declined to $18 million as deployments progressed, which is great. But can you update us on your qualified pipeline and how it’s evolving? Are bookings and the opportunities you see in front of you running at a level that could sustain your growth ambitions?
Peter Evans (Chief Executive Officer)
Yeah, Amer, I’ll jump in on that one. It’s always good to hear your voice. Thank you for joining the call. The first thought is our qualified opportunity pipeline continues to grow. I would have to double-check the numbers, but right now, the last time I looked at it a few days ago, we are in the range of about US$122 million of qualified opportunities in our pipeline. For clarity, these are not leads. They’re not just names. These are organizations that we’re engaged with, and they have, you know, buying intent.
Timing is always something to work our way through. Different organizations move faster and others move slower depending on their requirements to go approve a solution, for example, cybersecurity analysis. But I’m very comfortable that we have a continuously growing pipeline of opportunities. And what is most encouraging to me is that’s very diversified across all of our market segments, as well as we’re starting to see significant growth outside of North America.
Amer Izat (Analyst)
Fantastic. So you guys aren’t seeing any changes in win rates or sales cycle length or anything like that?
Peter Evans (Chief Executive Officer)
No, yeah. It’s really just lumpiness. A little bit of, you know, sometimes we see a little bit of slowdown during the summer months due to the schools being out. So it’s really just a little bit of the lumpiness, quarter to quarter.
Amer Izat (Analyst)
Fantastic. Then maybe one for Karen back on the margins. My understanding last quarter was that the Gateway margins started to improve significantly, especially as volume sort of scaled. So I’m wondering for this quarter specifically, the decline in margin is just based on lower sales and, you know, like you’re still comfortable with the underlying Gateway margin? There’s no, like, real step back outside of scale?
Karen Hersh CPA,CA (Chief Financial Officer)
No, thanks, Amer, that’s a great question. From our standpoint, it’s really a question of mix, and that’s going to vary from quarter to quarter depending on the mix between the SmartGateway and the Xtract One Gateway. But we have not seen any systemic issues in terms of our margin for the Xtract One Gateway. It’s moving along nicely. It just takes some time to be able to make the optimization changes. There is a complex supply chain out there, and we are making progress.
So that will happen, we believe, over time, but it’s going to take some time to be able to make those changes. But there has not been any fundamental change in what we see in terms of our margins by product line.
Amer Izat (Analyst)
Fantastic. That might be a harder one or you might not have the number, but would you know what percentage of your 2026 bookings came from existing customers?
Peter Evans (Chief Executive Officer)
We don’t have those exact numbers. It’s certainly a big part of what we do. And we see it, you know, especially now having two products where often we’ll have a customer that’s been using the SmartGateway and now is very excited to bring on the Xtract One Gateway as well. And so we’re often seeing customers that are actually doing both products now. But we don’t have the exact number of the breakdown. But it’s key to us in terms of, you know, we continue to build new logos, particularly with the Xtract One Gateway being a new product, but we also have, again, that recurring revenue that’s starting to grow as well.
Amer Izat (Analyst)
Fantastic. Then maybe one last one that’s not related to the quarter. I’ve been doing a lot of reading of board minutes of schools and so on. And you know, like one of the challenges that always comes up is maintaining a low secondary screening rate with fully loaded backpacks. And you know, like some of the competing solutions address that with a separate bag screening system, which obviously you guys don’t do. I’m just wondering if you have any stats for us, whether it’s clear rates or alert rates you’re seeing with the Gateway in real world deployments relative to the competing product.
Peter Evans (Chief Executive Officer)
Yeah, so I can give some thoughts anecdotally here, Amer, but it’s somewhat dependent on the environment. An office building is a little bit different than a convention center, which is a little bit different than a school. And then there’s even variability between some of the schools. If you think about high school students with everything such as a Nintendo Switch to elementary school students. So you’ve got some variability in the demographics.
We see alert rates vary from as low as 4% to mid-teens. What is most compelling though is when you start to look at the total cost of ownership and you start to think about the cost of having a secondary system like an X-ray machine or additional staff. We replaced a competitive product at one school and they had to have eight staff doing secondary searches on backpacks due to the high alert rates from people or students walking through with laptops. So you start to think of the total cost of ownership model and the cost of those eight security staff at every single entrance.
It changes the dynamic significantly. So we’re pleased that we’re providing, you know, very low false alert rates. We’re pleased that we’re providing fast ingress for all of the students, and we’re pleased that side by side, the total cost of ownership numbers are significantly better for Xtract One.
Amer Izat (Analyst)
Fantastic. That’s very helpful. I’ll pass the mic.
OPERATOR
The next question comes from Gianluca Tucci with Haywood Securities. Please go ahead.
Gianluca Tucci (Analyst)
Good morning, Peter and Karen. Perhaps just a question on the pipeline. How’s the Fortune 100 pipeline activity these days? And a secondary question is, as you guys shift into schools, hospitals and industrial sites, how does that impact average deal sizes going forward?
Peter Evans (Chief Executive Officer)
It’s a great question. And you know, from a pipeline point of view, we do see that there is very, very strong fit for particular markets where we have differentiated value. We just talked about the schools, for example, and the alternative is a one gateway or deploying people screening systems, X-ray systems, and all the staff that goes along with that. Those deal sizes do tend to be larger because they’re buying for a school district or a hospital system.
And so there’s, from my point of view and from a strategy, larger deal sizes where we have significant competitive advantage becomes a good place to go, double down on and spend more time. In terms of the pipeline itself, and your question around more kind of enterprise and Fortune 500 type companies, I think we are seeing a lot more of that. I was recently at one of the large security trade shows and what was fascinating to me was the number of large enterprise customers who are intentionally seeking us out. And these are interesting in that they typically have many locations. They focus on security first as a priority, not cost or sponsorships or these sorts of things, but security first.
And they take their time to do their due diligence correctly, not only thinking about the individual technology we bring, but how it integrates and streamlines and further improves the overall flow of their business and their business operations. So we’re seeing more of those enterprise customers actively seeking us out. And we’re pleased that they’re the type of folks, like the British Museum, who will focus on security as a priority and therefore find Xtract One.
Gianluca Tucci (Analyst)
Okay, that’s helpful. I appreciate the context there. So, is it fair to say then that in your Fortune 100 cohort in the pipeline, are the sales cycles a bit longer than what you’re used to or how would you categorize that?
Peter Evans (Chief Executive Officer)
It’s an interesting—there’s a yes and no answer there. The sales cycles may be a little bit longer because they will go through other steps around looking at things like IT integration and cybersecurity, making sure they have their policies and their training programs correct. But once they make a decision, they make a decision fast. And then things accelerate very quickly and we start to see things then move in a phased rollout manner from one location to the next to the next.
I referenced earlier a biotech manufacturing company. You know, it was an average sales cycle. They have multiple locations, but they then start rolling out one, then the next and the next and the next in a very phased manner. So, you know, I like the model of these companies. I like that they find us because they see the value of our solution to improving their overall business operations. And a little bit of extra time on the front end is creating a nice, almost recurring revenue with repeat deployments into different locations.
Gianluca Tucci (Analyst)
Excellent. Very good. Thank you, Peter. Perhaps a question for Karen. The OPEX growth is quite impressive given the revenue scale that you guys are experiencing. How should we think about OPEX growth this fiscal year? Are there any planned investments we should be thinking about in fiscal 27?
Karen Hersh CPA,CA (Chief Financial Officer)
Sure, and thanks for the question. Our goal is definitely to keep cost growth below revenue growth like we did in fiscal 2026, having just 13% versus 108%. But there are exceptions for areas where we really do want to focus on sales and marketing. As I mentioned during the earnings call, my comments were definitely an area where we wanted to focus on to make sure that we’re addressing the healthcare and commercial and other key markets that we’re focused on.
So this is an area we’re focused on. We’ll continue to invest in research and development. But I think what you’re asking really is there—there’s nothing that’s a plan that requires a step change into, you know, a significantly higher OPEX cost. And we see that that leverage is going to continue going forward into fiscal 2027. We have, you know, we have, you know, that difference in that leverage model will certainly continue into 2027. That’s
Gianluca Tucci (Analyst)
Okay. Thank you. I’ll pass the line.
OPERATOR
The next question comes from Shervin Zand with Ladenburg Thalmann. Please go ahead.
Shervin Zand (Analyst)
Hey guys, good morning. Thanks for taking my questions. So, just wanted to follow up on that selling and marketing comment. Obviously a massive step up in the quarter. But I was just curious if you could maybe quantify some of the initiatives that you guys are doing to capitalize on those active social and legislative demand tailwinds and when you would expect to see some of the benefit of those moves. And is this quarter’s level for selling and marketing specifically the new norm, or can we even see a further step up from here as you guys look to capitalize on the market?
Peter Evans (Chief Executive Officer)
Yeah, it’s a great question. Thank you for that, Shervin. As March approaches in California—yeah, it’s always a bit of a humorous thing where for the past year we’ve been engaging the hospital systems in California, as you would expect, through direct selling activities, demo days, marketing activities, attending all the right trade shows, all the normal things you’d expect us to do. And no matter how often you tell customers, look, March is coming fast, they always seem to wait a little bit to the last minute because they have to deal with internal activities such as policies and unions and things like this.
But we have seen quite a nice step up in activity. We start to see some now inbound from all those outbound activities that we executed over the past year. And I do expect that we’ll see a lot more activity in California, for example, in healthcare. We’re definitely seeing it in the UK with the pending Martyn’s Law. And that’s where, as I referenced, organizations like the British Museum, who are very, very well connected and become very strong advocates, are helping us to take advantage of that accelerating interest as those pending legislations start to get towards their deadline.
Shervin Zand (Analyst)
Thank you. And then the next question would be kind of in regards to mix. I mean, the Xtract One Gateway really took off and I was just wondering in the fourth quarter specifically if you would quantify the mix of new bookings and what was installed, so I can just kind of understand on a go-forward basis what the gross margin path will look like.
Karen Hersh CPA,CA (Chief Financial Officer)
So I understand what you’re trying to do, but I think it really does vary from quarter to quarter when you’re looking at revenue, because you’ve got the SmartGateway that’s been installed for quite some time. There’s obviously a bigger portion that’s coming from that number. But again, as we mentioned in the call, a third of the revenue came from Xtract One Gateway. And so that mix is going to vary from quarter to quarter depending on which product gets installed in a quarter.
And so we really can’t—I think the historical is not the best indicator of what’s to come. And in fact, maybe bookings might be a better way and certainly what we look to, to understand that mix better, and in fiscal 2026 they were pretty much 50/50. And while that’s only one, you know, one metric to consider, I think you have to really accept that we’re going to have that variability between the products from quarter to quarter depending on what’s installed.
But that margin mix is going to start to reduce as we continue to make those improvements in the Xtract One Gateway. Hopefully that helps you.
Shervin Zand (Analyst)
Yeah, that’s helpful. And just one quick last question. I think one of the strong parts of your story is how churn is essentially non-existent and the land-and-expand kind of motion that you guys have with your clients. Can you just mention a little bit something on that? I know you said that you don’t quantify how many of your customers are return customers, but are the churn rates consistent with what my understanding is?
Peter Evans (Chief Executive Officer)
The industry standard for our kind of technology tends to be in sort of the 8% level of churn. We’re running significantly lower than that. We’re very pleased. Where there has been churn has tended to be either customers who did not get further grant money and they were unable to continue, or in some cases for other business reasons, they had to, you know, move to more traditional screening mechanisms. But our churn is very low. And from my perspective, I’m actually interested in—and we’ll get those numbers for you, Shervin—around how many customers are repeat customers and expanding customers and what that looks like.
Shervin Zand (Analyst)
Great. Thank you so much, guys.
Peter Evans (Chief Executive Officer)
Yes, Corey. Karen, you were going to say something?
Karen Hersh CPA,CA (Chief Financial Officer)
No, I think you covered it all. Thank you, Peter.
Peter Evans (Chief Executive Officer)
Thank you, Karen.
OPERATOR
The next question comes from Emma Feng with Ventum. Please go ahead.
Emma Feng (Analyst)
Hi, good morning, Peter and Karen, thanks for taking my question. Regarding the recent Willis ISD contract, could you confirm whether that would be primarily an upfront purchase or subscription arrangement? And also following the Manor and Willis wins, are you seeing increased inbound interest from other Texas school districts, particularly in light of HB2 funding?
Peter Evans (Chief Executive Officer)
So a couple of questions. Yes, it is. Or responses. It is an upfront arrangement with Willis and there will be, however, future recurring revenues for ongoing annual maintenance that we will be conducting with the customer. In terms of increased interest in Texas schools? Absolutely. And not only in Texas, but across multiple other states. Right now there is, you know, continued unfortunate incidents across the US. There was just one in California, of course, Eden Prairie and other schools, Bend, Oregon, and there’s a tragedy that’s occurring across the US, and we’re seeing as a result of that, significant interest in what we do with one gateway.
OPERATOR
The next question comes from Scott Buck with Titan Partners. Please go ahead.
Scott Buck (Analyst)
Hi. Good morning, guys. Thanks for the time. Peter, I’m curious. Can you provide us a bit of an update on the channel partner strategy and what you’re seeing there?
Peter Evans (Chief Executive Officer)
Yes, Scott, it’s a good question. We’re seeing results kind of fall into sort of three different camps. We have a quality set of partners who are actively out marketing, promoting, selling our solutions into their installed base of customers and keeping their ears and eyes open. And we like that they’re leaning into the opportunity, into what they see as a market opportunity that they too wish to take advantage of and position themselves strongly.
And so we spend, we double down on our time with those partners. They’re bringing us not only opportunities domestically but also internationally. We have a second tier who are a little more opportunistic, and we continue to nurture those. They tend to do smaller deals, spread throughout the year, and we’re very pleased to serve those. And then there’s a group which is more where we’ve got them in kind of a marketing mode, keeping them aware of all of our updates. They tend to be even more opportunistic.
We’re finding that we’ve hit a nice sort of steady state with the partners. They’re contributing to our business and our business growth, but they tend to be more aligned to the segments of customers who don’t have a chief security officer and don’t have all the infrastructure. And they rely heavily on their partners to provide that expertise and objective recommendations about the right solutions to meet their business needs. So different segments tend to want to always work directly.
We’re happy to serve them. Different other segments tend to rely very heavily on the partners. And what we’ve done is made sure that we’re aligning with those partners who understand the uniqueness and complexity of our solution, as well as the fact that it requires people and processes to be engaged correctly. And those partners are serving us very well right now, as well as the customers.
Scott Buck (Analyst)
Great, that’s helpful. And then I want to ask about international expansion. I’m curious, are you seeing similar trends internationally as to what you’ve seen as the company has developed here in North America? I mean, is it the same, the same track? I guess
Peter Evans (Chief Executive Officer)
Very much so, Scott. I think here in North America, we saw the first early adopters tended to be in the sports stadiums, arenas, and live entertainment environment. And then the next markets to kind of pull on us were the healthcare organizations and manufacturing organizations, followed by the schools. We’re starting to see the same thing internationally, whether it’s Asia or Europe or the UK. It seems that the primary interest and those with buying intent are in the sports stadiums and arena environments.
But we’re now starting to see that shifting a little bit towards more office locations, manufacturing locations particularly, and to a lesser degree some healthcare. So we’re seeing that same sort of wave of segment by segment, in terms of their maturing from interest to buying intent, working its way through the segments in the same pattern as we saw in North America.
Scott Buck (Analyst)
Okay, perfect, Peter. And then last one just on school safety, what are you seeing in terms of federal or state grant programs? Directionally more of them, fewer of them. And how do they impact deal timing either positively or negatively?
Peter Evans (Chief Executive Officer)
I think it’s, we do see, for example, Texas, you know, passed a funding program about $430 million following the unfortunate Uvalde event for school safety. Now that’s not, it’s not calling out our technology specifically. That could be cameras, it could be locked doors, it could be bulletproof glass, it could be any one of a number of different items associated with school safety. Pennsylvania recently had a couple of hundred million dollar application.
Georgia of course is working its way through actually legislating that, you know, all schools be protected. And recently a law passed in Virginia that made it illegal to carry a weapon into a healthcare organization. So various types of funding activities or legislative activities are all starting to move towards making this a mandatory thing versus, you know, an afterthought. And so that legislative tailwind is really pushing on a lot of opportunity for us. What we find is when the grant monies are applied, more often than not, that puts the schools in the position of selecting the right technology, then getting the right quote from that vendor and then using that quote to apply for the grant money.
And so it becomes less of a price sensitive scenario versus if the school has to self fund. So we applaud those states who are putting grants in place to protect the schools, but also allows us to put our best foot forward with our right solution for the customers.
Scott Buck (Analyst)
Great, that’s very helpful. I appreciate the added color, guys. Thank you very much.
Peter Evans (Chief Executive Officer)
Always a pleasure. Scott.
OPERATOR
Again, if you have a question, please press star then 1. Our next question comes from Alex Latimore with Northland. Please go ahead.
Alex Latimore (Analyst)
Hi Peter and Karen, thanks for taking my questions here. I was curious on what the product versus subscription mix was in the quarter and then also the year, and then on the subscription side, what is the typical payback period to Xtract One Technologies on those?
Peter Evans (Chief Executive Officer)
Karen, I’ll let you take that one.
Karen Hersh CPA,CA (Chief Financial Officer)
Hi, Alex, nice to hear you. Thanks for joining the call. So the mix has changed quite a bit throughout the year. We tend to look at bookings as the best indicator rather than from a revenue standpoint because it’s sort of diluted by the contractual backlog moving over. But from a booking standpoint, we had quite a bit of variation throughout the year. How we ended up the year was around 70% upfront and 30% subscription. And the main reason that we think that’s driving that is the industries that we’ve been dealing with throughout the year.
Peter mentioned the scenario of schools and the government grants. Those deals tend to be upfront deals because of the grant funding that’s available. Same with a lot of commercial opportunities. They tend to pay for them up front, whereas sports and entertainment tends to be subscription. And so I think that that was. We weren’t particularly surprised by that split for the year, although there was quite a bit of variation throughout the year. Going forward, I think we’re going to see similar trends and we’re going to continue to deal with that variation up front. But I think it’s important for us to meet the customer where they’re at. And offering two solutions or two business models is really the way to go. And it has a big impact on the success of the deal. And so we will continue to do that going forward.
Alex Latimore (Analyst)
Awesome. And then another question on the California mandate. It might be hard to quantify, but what percent of hospitals would you say have implemented weapons detection screening to date? And then I imagine we should witness maybe an acceleration of purchases through March instead of earlier.
Peter Evans (Chief Executive Officer)
Well, I think, you know, if the world was perfect, we might see that acceleration. But sometimes some of these organizations have to work through many different policy activities or budgeting activities. They may be mandated to do something, but they may not have the budgets in place. And so there are. There might be some cases where there’s exceptions. In terms of the percentage who have already deployed, I don’t have an exact number, but based anecdotally on all the engagements that we have.
I’ve been out to California several times myself. We’ve got a team that’s very focused there. I would estimate that we’re probably under 10, 15% penetrated or deployed across the, across all the healthcare organizations. But it’s really hard to know because not everyone wants to announce publicly what moves they’ve made.
Alex Latimore (Analyst)
That makes sense. One final question. So as you scan more people, you’re going to amass more data. Is there a simple way to think about how that data improves your models and systems? And they might be granular, but I’m curious if you could paint it with broad strokes. You know, for example, 1 million people scanned is maybe a 1% increase in capability.
Peter Evans (Chief Executive Officer)
It doesn’t quite translate that way. There isn’t a direct correlation. You have to be intentionally gathering the data for the purpose of improving the models. And just saying it bluntly, Alex, that, you know, any organization that says the systems are self-learning is lying. So let’s just get that on the table. An individual walks through a system with a tuba and somebody walks through with a machete. The system, unless it’s got cameras that actually can see those items out in the open and it’s doing object recognition, won’t understand that there was a machete in the backpack or a tuba in the backpack.
So there is a degree of human involvement required to categorize the items and create that data collection model. And then of course, you want to integrate that into your overall AI algorithms so you don’t have each individual customer with their own orphan software load based on who walked through their system and who didn’t. You know, that keeps your operating model very simple. Your support model is very simple. And everyone’s on a common load and benefiting from the same AI software.
So there is an ability to gather data. There is an ability to gather data on a continuous basis, but you have to understand what that data is. Is the data related to benign objects or is it related to weapons? And then categorize. And that requires some human activity in the process.
Alex Latimore (Analyst)
Understood. Thank you guys.
Peter Evans (Chief Executive Officer)
Thank you.
OPERATOR
Showing no further questions in the queue. This will conclude our question and answer session. I would like to turn the conference back over to Peter Evans for any closing remarks.
Peter Evans (Chief Executive Officer)
Well, thank you everyone for joining us. As always, it’s a pleasure to be doing these calls with the team and provide an update on everything we’re doing in Xtract One Technologies. Our fiscal 2026 was a great year for the company and we’ve proved that we could scale with a record 28.8 million of revenue. And of course, the second half, most importantly to me, was essentially adjusted EBITDA break-even. We have a great backlog of pending installations.
We’ve got a great set of converted installs for customers that will take advantage of that pending installation to drive future revenues. And we saw doubling of our revenues over the past year while controlling our ongoing operating expenses, which is a leverage model that we’re very proud of. Most importantly, we’re very, very proud of the customers that we serve who’ve become strong advocates for what we do and are becoming our greatest source for growth for the company. I’d like to thank everyone for joining us today, our investors, our team at Xtract One, and particularly our customers for their ongoing support of what we’ve done. Thank you so much.
OPERATOR
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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