Xtract One Technologies Inc.

Good morning, everyone, and welcome to Xtract One's Fiscal 2026 Second Quarter Conference Call. Joining me today is the company's CEO and Director, Peter Evans; and CFO, Karen Hersh.

Today's earnings call will include a discussion about the state of the business, financial results and some of Xtract One's recent milestones, followed by a Q&A session. This call is being recorded and will be available on the company's website for replay purposes.

Please see the presentation online that accompanies today's discussion. Before we begin, I would like to note that all dollars are Canadian unless otherwise specified and provide a brief disclaimer statement as shown on Slide 2.

Today's call contains supplementary financial measures. These measures do not have any standardized meanings prescribed under IFRS and therefore, may not be comparable to similar measures presented by other reporting issuers.

These supplementary financial measures are defined within the company's filed management's discussion and analysis. Today's call may also include forward-looking statements that are subject to risks and uncertainties, which may cause actual results, performance or developments to differ materially from those contained in the statements and are not guarantees of future performance of the company.

No assurance can be given that any of the events anticipated by the forward-looking statements will prove to have been correct. Also some risks and uncertainties may be out of the control of the company.

Today's call should be reviewed along with the company's consolidated financial statements management's discussion and analysis and earnings press release issued March 4, 2026, available on the company's website and its SEDAR+ profile. It's now my pleasure to introduce Peter Evans, Chief Executive Officer of Xtract One.

Peter?

Well, thank you, Chris, and thank you, and welcome to all of our investors and analysts that are joining us today. Let's start by opening up with Slide #4.

With Slide 4 here, I'm pleased to say that we start off by saying that we had normally expect the second quarter to be relatively slow, typical slowdown to American Thanksgiving people slowing down as they head to the holidays as they're waiting for new budgets in January. However, our second quarter turned out to be a very busy one for us for both bookings and deployment of our product lines.

Which comes as no surprise to me given that our current commitment to deliver on our backlog and continually convert that over to revenue and onboarding new customers. We remain on a solid trajectory for this to be our very best year ever with record revenue anticipated as growth continues into the second half of fiscal 2025.

Revenue in the second quarter rose by 70% year-over-year, and our backlog remains strong at a near-record level of around $49 million or so. This reflects the demand for both of our innovative product lines, both the SmartGateway and the One Gateway across a wide variety of end markets.

And we believe that we're well poised to see a continued influx of new orders and increased numbers of installations. And I'm pleased that we continue to see that to this day.

As we turn the corner into spring, we see more and more opportunities in front of us. Alongside the successful deployment of numerous Xtract One Gateway systems, we also continue to see a healthy interest for the SmartGateway, right, purpose-built for particular markets and particularly those markets being health care and entertainment sectors.

Our production levels continue to grow, matching our demand from the marketplace as we'll discuss in a moment, which leaves us feeling very upbeat about the coming quarters. Given the size of our backlog, given the improved pace and growing pace of deployments, and a strong balance sheet, along with expanding our manufacturing capabilities on a continuous basis, we have better visibility than ever before into our fiscal 2026, which has been as categorized previously a transformational year for us and for the company.

Let's move on to Slide 5 a little bit and dig into the details on the Xtract One Gateway. The Xtract One Gateway continues to gather momentum in North America and is now garnering interest outside of the United States.

As our bookings and total backlog indicates, we are very pleased with the rollout of this exciting new product and the overall success we're seeing across a number of markets. I'm in the U.K.

right now, and we're starting to get inbound interest on the One Gateway as an example from the U.K. It's an all-important education sector, though is where we're really making our mark with One Gateway.

Given the ongoing threat level that unfortunately exists in the world today, which we read about almost every single day. It should come as no surprise that more and more institutions are reaching out to us for information about these groundbreaking AI driven innovations and applications of both of our solutions.

The heightened interest has been steady and sometimes, quite frankly, overwhelming. That said, there is usually a period of test and evaluation that goes into reviewing our technology.

Many of the customers who are inbounding to us and many of the school boards. Those customers tend to be Fortune 500-type companies and they take the time to meet and make decisions and run demonstrations of the products and look through all the contractual terms, scheduling phased deployments as well as in the case of schools obtaining grant funding.

This takes time, but we're very pleased that we're seeing positive impacts to our pipeline and to our average deal size overall. This quarter, we actively engaged with numerous schools and other customers to deploy Xtract One Gateway continuing to ramp that backlog to revenue.

And with the additional institutions and installations who are looking for the next phases that they're planning for this fiscal year. We already have orders for almost 150 Xtract One Gateways with roughly $21 million with approximately 1/3 of that already delivered and installed by the end of Q2.

Our products can now be found spread across almost every state and in numerous school districts throughout the country. And although we believe that this is just the tip of the iceberg for this product.

As we benefit from word of mouth from one school district to another, as an example, and that strong referenceability from the positive impact that we're having on those students and those school environments, we continue to get more and more increased exposure and more inbound interest for the solution. And we're seeing much higher demand throughout North America, including with larger metropolitan school districts that sometimes comprise dozens of buildings or more.

We're also tracking legislation, a question that's often asked of the company, such as the legislation that recently passed in Georgia and Pennsylvania and is expected with similar mandates in other states. This legislation is key.

It mandates that schools will be required to screen for weapons. Similar to how building codes require mandate sprinkler systems or smoke detectors and other systems and where people have done the risk-benefit analysis, we're seeing the same thing applying to weapon detection.

And we believe it will become a similar standard mandating weapon detection in every building in every school district and every hospital across the country. We look forward to the continued contracts and the rollout of Xtract One Gateway, which we see accelerating as the year progresses.

Just when we thought we couldn't get busier, the demand continues to increase more and more. And particularly, we see that expanding as we continue to expand our production capabilities accordingly.

As a reminder, we are ramping up manufacturing and deliveries in a very efficient and phased approach in order to match client demand manage our cash flow and also to manage the installation requirements and forecast that we get for each of the future coming quarters. Let me add that our suppliers are on track with regard to expanding increasing the product throughput and as evidenced by our increased deployment of record revenue for this quarter, and though we expect this trend to continue as we move further and further into the second half of fiscal 2026.

As we see the ramp in demand, we are also investing in ramping our sales channel and support channels in both North America and markets like the U.K. and Mexico, where we're seeing a tenfold increase in inbound interest in those regions for both of our solutions.

We're ramping through both experienced sales staff and selectively chosen partners who are leaning into the market opportunity versus waiting for it to come to them. An example of this expansion that we're seeing was recently announced with our win with the British Museum.

For those who are unfamiliar, this is one of the world's most iconic venues. It's not a stuffy dusty museum, but a venue that greets almost 7 million visitors from all over the world.

And to put that in context, that is 2x more than what Madison Square Garden does in the year in terms of patronage and almost as much as a major Disney theme park. It is also because of who they are, the British Museum is a target for both terrorist and protector activities, and as such, has some of the most stringent security standards.

When organizations actually care about security or innovation and ongoing innovation, they choose Xtract One. This landmark win sets a stage for more wins that we believe will follow the British Museum's leadership not only throughout the U.K.

but throughout the world. We now have over USD 105 million in our qualified sales pipeline across both product lines, amount that continues to grow and that amount is approximately split evenly between our two solutions, the SmartGateway and the Xtract One Gateway.

Given increasing traction with our innovative AI-driven systems and the expanding market demand and our ongoing and continuously improved production capabilities, we remain very upbeat about the outlook for fiscal 2026 and beyond. We are very well positioned to make this year the best ever for Xtract One.

I could not be happier about the trajectory we're on, and it's putting us on track for even better results thereafter. With a strong balance sheet, near record-breaking backlog, increasing demand and accelerating production, we are truly, as I said earlier, in a transformational year for the company.

Now I'm going to turn it over to Karen to provide more details around the financial results. Karen, over to you.

Thanks, Peter. I'm pleased to review the financial highlights for our second quarter of fiscal 2026, which, as Peter just mentioned, points to a strong year ahead.

Turning to Slide 7. Total revenue was approximately $5.8 million for the second quarter versus $3.4 million in the prior year period, up 70%.

Sales rose not only compared to fiscal 2025, but we're also up 26% from the first quarter of this year. Much like prior periods, a majority of revenue was from upfront purchases, resulting in a healthy boost to current quarter revenues.

As Peter indicated, we remain on track for a record year of top line performance in fiscal 2026 with revenue expected to continue to increase as the year plays out, largely reflecting new and expanded customer bookings and deployments, the continued fulfillment of our backlog and phased installations of our larger, more complex deployments. Our rate of shipments has also improved over the last quarter due to expanded production capabilities of our suppliers.

Many of the initial manufacturing and supply chain constraints that we mentioned last quarter for our Xtract One Gateway has started to resolve, resulting in an increase in production levels and accordingly, an acceleration in customer installations. In terms of key markets, revenue for the second quarter was once again spread across numerous customers and industries, including the health care, education, commercial and automotive sectors.

Additionally, we're starting to see a fairly even split between our two gateway products being SmartGateway and the Xtract One Gateway. Our gross profit margin was 54% for the second quarter versus 70% in the prior year period.

As previously stated and expected, margins have been negatively impacted by the higher expenses related to initial start-up costs and the ramp up of production levels for the Xtract One Gateway. With commercial deployments increasing, we expect margins will improve for the Xtract One Gateway in the latter part of fiscal 2026 and beyond, following the same path as the SmartGateway.

Reflecting greater operating leverage and efficiencies in our supply chain and installations in the field. Gross margin for SmartGateway remains healthy in the mid- to high 60s as we continue to drive efficiencies in our production processes and support capabilities.

Now turning to Slide 8. New bookings for the quarter were $8.7 million compared to the prior year quarter of $13.5 million.

And as we've seen from trending in recent periods, a good portion of these were upfront contracts. Specifically, in the second quarter, 73% of our bookings were from upfront contracts, meaning these contracts will impact revenue growth relatively quickly once deployed.

In addition, Q2 bookings were relatively evenly split in terms of our products as both systems benefited from broad market acceptance and solid demand. From a market perspective, orders this quarter were once again spread across a variety of industries with a substantial portion coming from sports and entertainment, commercial and health care sector.

We're pleased by the continued expansion and diversification of the markets we serve and anticipate strong growth in these areas as well as in education, which is typically very busy in the latter half of our fiscal year. As a reminder, some sectors such as sports, entertainment and health care, have a perfect product market fit with the SmartGateway application.

While others like education, commercial and convention centers are better suited for the Xtract One Gateway. Moving to Slide 9.

Our contractual backlog and signed agreements pending installation collectively totaled $48.8 million versus $37.2 million last year. The fiscal 2026 backlog was comprised of $13.9 million of contractual backlog with an additional $34.9 million worth of signed agreements pending installation.

Of the latter, approximately 83% of the total contract value relates to upfront deals and cover a multitude of customer markets, including health care, sports and entertainment, schools and other target markets. We anticipate the majority of agreements pending installation to be deployed within the next 12 months.

Given what we see as a strong pipeline of opportunities going forward, we expect our bookings and our backlog to grow further in the quarters to come. This, along with the faster conversion of backlog into revenue makes us confident in the outlook for fiscal 2026 and beyond.

Now let's turn to Slide 10, which shows second quarter operating costs year-over-year for each of our key expense categories. Sales and marketing expenses were $1.8 million in the quarter versus approximately $1.2 million in the prior year period reflecting increased business development initiatives across a wide array of industries through campaigns, trade shows and other marketing initiatives while costs associated with R&D were flat year-over-year at $1.6 million.

General and administrative expenses were approximately $2 million for the quarter versus $1.6 million in fiscal 2025, of which around $200,000 relates to foreign exchange movements. Overall, there was a modest increase in total operating costs year-over-year as we grew and replenish the backlog, invested in the commercial rollout of Xtract One Gateway and adjusted to higher production volumes.

We'll continue to actively manage operating expenses going forward, which should lead to improved results as we grow the top line, keeping us on track towards profitability as we scale the business. Finally, on Slide 11, I'll discuss cash flow.

During the quarter, the company had operating cash usage of $4.2 million compared with $0.2 million in fiscal 2025, largely reflecting a notable investment in working capital year-over-year as we ramped up production of our Xtract One Gateway inventory. Excluding such changes, we spent approximately $1.4 million relatively unchanged compared to last year's $1.2 million.

Also, as previously discussed in our last earnings call in December, the company closed on a bought deal that raised aggregate gross proceeds of approximately $11.5 million, including the full exercise of an over-allotment option. Such funds have strengthened our balance sheet and have provided fuel to accelerate the company's growth trajectory, including the expansion of our production capabilities and investment in working capital.

We ended the quarter with $15.7 million in cash and cash equivalents on hand. In closing, we remain on track for record top line results this year as our manufacturing capabilities increase, we look forward to stronger revenue in the second half of the fiscal year.

We will continue to work on building the backlog, investing in strategic business development activities to increase our market penetration and pipeline and anticipate improved operating results in the quarters to come. And with that, as always, Peter and I welcome any questions investors may have at this time.

Just back on your prepared remarks, you mentioned the orders will get increasingly stronger, can you give us more color on the cadence of fulfilling your backlog into revenues over the next couple of quarters? And I know you won't give us exact numbers, but we already saw a nice uplift in revenues in Q2.

So I just wonder, are the constraints in getting your products installed and in customer hands easing in Q3 even more so than Q2?

Amr, it's Peter here. First off, it's great to hear your voice.

Thank you for joining us as always. Yes, I think like any new product when you first bring it to market, you intentionally take a little bit of time about some of your installs.

The last thing you want to do is flood market with 50 new units and then find out that there's an issue in the field that's going to cost a lot of time and money to correct. So you ramp slowly, you get market feedback ramp a little faster, get market feedback and keep on going that way.

And we're on that trajectory right now. So I expect the trend that we're seeing to continue as we have further building confidence in not only demand for One Gateway, but its performance in the field and its predictability in the field.

Then maybe switching gears to margins. Can you give us a rough margin delta between SmartGateway and the One Gateway at the current stage?

And where do we expect One Gateway margin to land once you guys are steady state? I believe in the past, you guys have said it would be a similar sort of margin profile.

So can you guys confirm that then directionally, how long until you guys get there?

Yes. From my perspective, and Karen, I'd invite you to jump in also, from my perspective, Amr, again, the first quarter or 2 when you're deploying a new product, your cost of sales sometimes have some choppiness to them.

There's new things that we've learned about deploying to a school versus deploying to a different type of a customer as an example. And so as we understand those and as we start to build out and scale, we expect that a lot of those costs of sales to reduce.

I do expect the One Gateways margins to follow a similar trajectory as the SmartGateway. How long that takes?

That's a good question. It could be handful of quarters, it could be a year, 1.5 years.

I think it took us about a good 18 months to really get SmartGateway to a high-margin position.

I would add to that, and I think specifically what you're asking in terms of the relative range, as I mentioned in my speaking notes that the SmartGateway was sitting in the higher 60s this quarter, whereas the Xtract One Gateway are in the very low 50s. We don't believe it will stay in that at all, and we've already seen improvements subsequent to year-end.

So a question of timing, as Peter mentioned, and I think we hesitate to say over what period of time. But I think it's a question of quarters.

We've already got plenty of improvement that we've seen subsequent to year-end. So ultimately, we hope to be in the 60s.

That product is very important to us and has great potential. And so we fully expect it to follow that same journey that SmartGateway did.

Hopefully, that gives you a bit more insight, Amr.

It does. And it does -- is it too far for me to read into this that your -- the quarter you just reported like Q2 would be the trough gross margin?

8 Absolutely.

Yes. 100%.

Fantastic. Then maybe one more.

You guys have talked about scaling manufacturing capacity to meet demand [ for the One Gateway ]. I just wonder if you could somehow quantify or maybe let us know what -- where you are today versus where you expect it to be?

And what is sort of the next bottleneck as volumes rise, final assembly or software or anything like that?

It's a good question, Amr. And hard to sort of put guidance out there because very much of it is based on the demand.

We don't want to overbuild capacity and have hundreds of systems sitting in inventory. But at the same time, we want to be able to serve that demand very, very quickly.

So we're kind of watching all the measurements and all the metrics very, very closely on a week-by-week basis. I expect that -- and the nice thing is how we built out the manufacturing capacity with our subcontract manufacturer is we have the ability to scale up or scale down very quickly in terms of the manufacturing process itself.

If there's any bottleneck, there are a couple of components that are a little bit longer cycle, but there are some things that we're doing with buying safety stock so that if all of a sudden, we do have a spike up in demand. We've got the safety stock to deal with it, and we won't be waiting months for that components to be able to come in the door to deliver on that demand.

So right now, if there's any bottleneck at all, maybe a couple of components, but we've addressed that. And then it's just how fast we can move to go start getting as many orders in the door as possible.

Okay. So what I'm hearing is there isn't a major sort of gating factor when it comes to manufacturing.

Not right now, no.

Okay. Fantastic.

Then maybe one last one. Can you maybe like speak to how the competitive environment is evolving.

I mean, I think everybody understands the demand picture and you guys have painted a pretty rosy picture, but on the competitive side, I'd appreciate some color.

From my perspective, every market has always got different players who serve different needs in different ways. They have different strategies.

There will always be people who want to buy the low-cost provider and essentially check mark a box. And that's okay.

There's a market for McDonald's hamburgers and [ Yugo ] cars. There's other strategies which are around what do we do to manage the channel as much as possible, and that can be done through sponsorships and things like that.

Our competitive advantage is all about innovation and continuous innovation. Each of the individual market segments we serve, whether it's the industrial sector like manufacturing and, distribution, schools, health care, you name it, they all have specific unique needs and there's the one must have or two must have to reach those markets.

Our platforms are such that we can deliver the innovation where we can uniquely address those unique market needs. Hospitals, you have to catch the knives.

In places like schools, don't alert on the laptops without the need for a secondary platform. And so we can uniquely do that and our platform that allows us the extensibility to say yes to more customers who may have those unique needs.

I'm curious, besides the kind of ramp in inventory, are you able to use the new kind of fortified balance sheet to invest more on the growth side in terms of sales. I mean are you increasing marketing expense?

Are you adding salespeople, more trade shows, et cetera?

Yes. Scott, it's good to hear from you, too.

We are investing in more on the sales and marketing side to ramp that up, particularly now that we've tested the market aggressively with the One Gateway and the market response has been outstanding. So based on that market response and that demand, we are investing not only in more sales resources, both domestically as well as internationally.

But we're also investing in more channel partners while being very, very selective about those channel partners. People are leaning in and creating opportunities just versus tactically reacting to the market.

So yes, we are investing to drive more growth.

Peter, can you give us a sense of what percentage of maybe new bookings is coming in through channel partners versus your direct sales efforts?

Interesting question, Scott, because it does have a little bit of choppiness because there is a little bit of seasonality to some of the segments. And so we have seen different quarters vary.

We had one very nice deal come in from a one channel partner, that was a multimillion dollar deal. Other times, we'll see two lane deals.

So it does depend a little bit on the deal mix. Order of magnitude, partner-led partner originated deals tend to be in the range of about 25% to 35%.

Okay. Perfect.

And then I wanted to ask about the backlog. I mean, I think you came in a little bit this quarter versus the previous quarter.

I know we have the holidays in there, and that may slow some of the sales opportunities, or is this more just kind of general lumpiness? I mean -- I guess, what decline it...

Why the backlog declined a little bit?

I just want to clarify, are you talking about the backlog? Or are you talking about the bookings in the quarter?

The backlog, right? Didn't we go from low 50s to high 40s.

Yes. So Scott, a large portion of that decrease in total backlog is due to a couple of things.

First off, we had a high number of installations that took place in the quarter with, frankly, a lower number of bookings to backfill the decrease. We had some nice deals in January that actually slipped out to February.

And so we didn't quite backfill the backlog as much. But additionally, we made some what we believe were the right decisions to remove one large deal from our pending backlog which was taking an overly extended period of time for the customer to actually deploy due to a number of external factors that they couldn't necessarily control.

And so we did remove one deal just in the abundance of caution. Customer hasn't gone away, but we felt it was the right thing to do because of their extended time lines and the circumstances surrounding that customer.

We're confident -- in the current backlog composition that consists of customers who are interested who signed deals who have plans for deployment or are already in phases of deployment and they're eager to deploy.

Awesome. And Peter, I'm curious, British Museum, is that your first museum contract?

Or are you working with any other museums. And then more broadly, what are the trends you're seeing outside the U.S., specifically Europe and maybe the Middle East and Asia?

Yes. Good question.

We have signed up other museums. Nothing as iconic as the British Museum.

Scott, I don't know if you've ever been in the British Museum, but I highly recommend it. It's a wonderful place.

But we've never seen -- we have other museums but nothing of that size or that stature. In terms of trends that we're seeing outside of North America, I think as I alluded to, I'm a bit surprised, but pleasantly surprised by the volume of inbound interest that we're seeing, particularly in the U.K., a lot of new interest in Europe right now and particularly in Mexico.

Those markets seem to be moving very, very quickly, and we're very pleased to be a part of that.

So year-over-year, we can see that 70% increase in revenue, but we also see the year-over-year increased costs negated that kind of entirely so that comprehensive loss for this quarter is higher than the same period in the prior year. But then alternatively looking at this quarter compared to the last few quarters, we've seen revenue grow significantly.

And quarter-over-quarter, that revenue growth has been higher than the cost increases. So comprehensive loss has been decreasing.

So in light of those two comparisons, my question is this, are the last few quarters of top line growth, which we're exceeding the cost growth, are those the product of sustainable and structural factors in the company's business? And what is the company's strategy going forward to maintain that momentum towards cash flow breakeven and profitability?

I'll start with the mechanics and you can talk a little bit more about the market side of it, Peter. I think the comments are exactly right.

We've had this top line growth. It hasn't necessarily reflected itself in the bottom line this particular quarter.

And I think that, that is a factor of our gross margin. That is the #1 indicator.

Our operating expenses are relatively stable as they always have been and show the scalability of our business model. But the reality is we're bringing a complex product to market, and we did experience some of those short-term onetime hits to our cost of sales, and that has impacted our margins for the Xtract One Gateway.

As we resolve those, and we feel positive about the direction we're heading with that. I think you're going to see quite a change in terms of the outcomes to the bottom line, and that will show some more trending that great trending that we've been showing in terms of reducing our cash burn and our move towards profitability.

So I'll turn it over to you, Peter, if you want to add anything to that as well.

Yes. I think you hit the key points, Karen, but to kind of reiterate a few things, Steve.

We have built a highly scalable operational model. but we will have to continue to invest in it.

Our expectation is that our operating costs will grow single digits over time. because there is not infinite scalability when you have a hardware business.

And as Karen pointed to, we've got lower gross margins, which has impacted our bottom line. Bringing a new product to market, particularly one that has some 800 or 900 components in it, is a complex thing.

And what we're doing is we're bending or breaking the laws of science and physics or with what we are doing. And there's always that scenario where you start putting a product out in the market.

and customers use it in ways you didn't quite expect. And still you might have some things that are learned some things you've got to correct some ways that the technology has to be improved.

And so there's higher cost for that first handful of systems you put out. It's why I mentioned earlier that you don't necessarily want to shove 100 systems out the door and have to go correct 100 systems.

You ramp cautiously and get that market feedback. And so with that, we've had lower gross margins because of those initial cost of sales.

But now we still worked all the bugs out of the system, we feel that we're on a really good trajectory. Does that help answer your question, Steve?

I have a few questions. First, a couple of years ago, you had a cash infusion and sold some stock to the Madison Square Garden Group.

Are those people still involved? And if so, has that relationship been helpful, resulting in additional clients and completed installations?

Yes. Let me answer that.

And I'm sorry, I didn't catch your name, I'm sorry. But it has.

And our relationship with Madison Square Garden could not be better. We closed a deal in Q2 which the customer visited Madison Square Garden and spent a good day with them and their executives not only listening about how the product works, but also learning the best practices around training, around deployment around the concept of operations and things like that.

I could not be more pleased with the relationship with Madison Square Garden. They continue to be a great advocate for us and a great supportive.

Great. Given the current circumstances, are there any military applications for your products?

It's a great question. But right now, it is not our primary focus for the segments.

The four segments that we've got our primary focus on is in education, in hospitals and health care, in arenas and stadiums and in manufacturing and distribution. The primary reason there is the sales cycle is less complex than trying to sell into, for example, the military or into international embassies and things like that.

But we do find that there are certain organizations because of the state of the world, are accelerating some of their activities around hardening up their security. And so while I'd say it's not sales to the military organizations, but commercial office buildings, for example, who are concerned that they may be -- there may be a heightened level of concerns who are now accelerating some of their deployments.

Okay. And last question.

I know that some of your clients don't want it advertise that they have your systems, but are you able to do more press releases about threats that you've prevented to promote more visibility to your successful deterrent?

We are updating various case studies. There should be an update to a couple of them coming out.

As we get more and more data from the customers, about the weapons they stop, the weapons they prevented. We had one customer share with us the first two systems that they deployed prevented about 1,600 weapons coming into their facility in the first half a dozen months or so.

And so that's a great case study, but it also -- there's a lot of information there about best practices. So we try and wrap that in for the betterment of all of the operators in the industry.

So yes, you'll see more case studies with more information when we're allowed to publish it.

Could you perhaps speak to the sales cycle on the Xtract One and how you see these trending over time? And as a follow-up to that, how are you thinking about R&D in terms of the pipeline for when it comes to next-gen iterations of the gateway.

Excellent. So I will say that there is some variability in the sales cycle and how long it takes to close a deal.

We have one customer that we closed in Q2, who only saw the system over a Zoom call. They loved it and placed their order.

Other customers are more meticulous because they particularly have larger deployments. And if they're going to make an investment in a larger deployment, particularly something that is the first time that they're going to screen and so there will be an impact to their employees.

There's a lot of things to work through, they have to think about privacy issues. They have to think about the employee reaction, how they position what they're doing, testing, verification, going and seeing customers who already use the system getting their ConOps correct.

So sometimes larger organizations are more thoughtful about all elements of a successful deployment. And we can help them with that.

We bring our expertise to the table and we bring other experts who had successful deployments to the table. In general, the average sales cycle for the average deal is probably in the range of about 4 to 5 months or so, but it can vary wildly depending on various other contributing factors.

And I'm sorry, the second part of your question was?

The R&D pipeline.

Yes. Where do we go next with innovation -- thank you.

As people have heard me talk about on these calls, I'm a big believer in being a customer-backed, not a product forward organization. And so as we deploy more and more technologies like the One Gateway, we're getting some very interesting feedback from customers about the kinds of things they would like to see.

Because we have the ability to do object detection, a key focus is on theft prevention. I had an interesting conversation with the gentlemen this morning about exactly that, where you're screening for weapons on the way in you're screening for stolen electronics on the way out with the same platform and being able to identify, for example, on the way out, I want to make sure that smartphones, Apple watches, et cetera, are not leaving the building.

We've had similar requests around loss of intellectual property on thumb drives. We've had interesting requests around integrating in credentialization and authentication capabilities into our system.

So I'm managing the whole end-to-end journey for individual as they enter into a facility. So there's a lot of these areas that we're exploring but we will always make sure that when we go invest in the R&D to do something, it's not a one-off or a bespoke custom develop thing.

It's something where there's a significant market with a multibillion dollar impact that we can uniquely play into.

Okay. And then just lastly, given the state of affairs globally, like are you seeing customers being more receptive to outreach?

In other words, like could sales cycle shorten as a consequence of the tailwinds out there globally from a security perspective.

I think we are seeing a shortening sales cycle and heightened interest in certain market verticals. I think organizations like health care, for example, we're not seeing a change to the sales cycle.

Other organizations, I mentioned the British Museum, who because of their iconic nature are unfortunately the targets of malicious activities. We're seeing more inbound from those types of organizations.

Well, thank you very much, everyone, and thank you for the very rich and robust questions at the end. There was a lot of participants with a lot of very good questions.

So thank you for that. We -- I could not be happier right now.

And hopefully, you can all hear in the tone of my voice. I personally love what we're doing.

I love our customers, our investors are being very, very supportive, and we have a great team of people at the company, and there's only goodness to come right now. So I'm feeling very, very good about where we are.

I want to thank everyone for their time today to listen in hear about how we're doing and where we're going next. Thank you very much.