RE:RE:Echelon management video Watch List Coverage: We are adding
Xtract One Technologies Inc. (“Xtract One” or “the Company”) to our
Watch List coverage. While we have no formal recommendation, forecasts, or price target at this time, we believe the Company has demonstrated that it is
firmly entrenched in a robust growth trajectory and is showing no signs of slowing down. Xtract One is competing in the
highly lucrative weapons detection industry, mostly
comprised of outdated infrastructure and
ripe for disruption, while we believe the Company is
wielding superior technology than its few competitors. With reinforcement of the most recent superb quarterly results, which served to recalibrate the Company’s scale, we anticipate having greater confidence building out near-term forecasts – a prerequisite to a
formal rating and
price target.
Xtract One is an advanced technology company that is disrupting the
physical security market with the commercialization of its integrated, layered,
artificial intelligence (AI)-powered threat detection gateway solution with the goal of enhancing public safety. Its marquee
SmartGateway delivers
fast, reliable, and accurate patron screening for high throughput venues, aiming to replace antiquated metal detectors. The Company’s mission is to create transformative technology solutions to deliver
exceptional experiences,
safer environments,
operational efficiencies, and informed
insights for customers and their patrons.
Watch List Thesis: We highlight the following key reasons why investors should keep a close eye on Xtract One as a company with considerable upside.
- Heavyweight Validation: Despite operating in the early innings of a growth trajectory pursuing significant scale, Xtract One has managed to forge partnerships with industry heavyweights in Oak View Group (OVG) (Private) and Madison Square Garden Sports (MSGS) (MSGS-NYSE, NR) across the past year-plus. Both relationships bring instant credibility and validation to the Company in staunch support of its innovative technology, along with considerable resources and networks to accelerate scaling. Notably, MSGS attested its conviction by making a $13.4M investment into Xtract One in early C2023. Alongside this strategic support, the Company’s SmartGateway has also been included in the Transportation Security Administration’s (TSA) security screening product list after a lengthy series of rigorous testing – a feat not matched by Xtract One’s key competitor.
Exhibit 1: Marquee Strategic Partnerships 
- Hyper Growth Mode: The Company’s recent FQ124 record results on December 7 revealed extraordinary y/y revenue growth from $0.4M to $3.0M (i.e., $12.0M run-rate) within the core Platform segment (~96% of total revenues), which also reflected an 82% q/q increase from FQ423’s prior record. Perhaps a better forward indicator, the Company’s total contract value (TCV) of new quarterly bookings saw triple-digit y/y growth of 231% to $9.6M.
Exhibit 2: Platform Segment Quarterly Revenues ($000) and CAGR 
Exhibit 3: Xtract One’s Robust Growth from March 2021 to October 2023 
- Compelling Industry Dynamics: Competing in an industry with high barriers to entry, Xtract One considers just two peers as competition for a target addressable market (TAM) exceeding $100B. The Company’s eight-year head-start on new entrants includes total invested capital of $70M+ on technology and research and development. Leading with its core vertical (North American stadiums and arenas), swelling demand has pulled Xtract One into broader domestic markets involving schools and facilities spanning distribution, manufacturing, and healthcare – with each vertical now housing several anchor customers. Moreover, these markets are dwarfed by international opportunities where the Company’s recently announced record US$5.1M contract represents just the tip of the global iceberg.
Exhibit 4: Total Addressable Markets 
SmartGateway vs. Traditional Metal Detectors: We summarize the many benefits Xtract One’s SmartGateway holds over traditional metal detectors.
- Throughput: Xtract One claims its Gateways can speed up ingress by up to five to seven times compared to metal detectors, enabling up to 3,500 patrons through per hour per lane versus metal detectors allowing roughly 500 people through per hour.
- Staffing Costs: Given the much faster throughput, customers don’t need to deploy nearly as many security lanes compared to when using metal detectors. As a result, the customer doesn’t need to hire nearly as many security personnel to monitor the entry into facilities.
- Patron Experience: Patrons spend much less time outside the venue in lineups and are not forced to remove valuables that would otherwise set off metal detectors. The result is much less entry friction and frustration, while it also helps reduce the risk of any violence outside the arena as time spent congregating in lineups is reduced.
- Customer Revenues: As a byproduct of patrons spending much less time outside of venues and more time inside, there is more aggregate time and opportunity for guests to make purchases within the venue.
- Installation/Relocation: Xtract One’s SmartGateways are sleek, lightweight, and easily moveable via the wheels on the bottom of each unit. Metal detectors are much larger and less mobile.
- Integrations: SmartGateways can integrate with other technologies such as CCTV, thermal screening, ticket scanning, etc. The Company has high aspirations for eventually adding new services and revenue streams to the platform’s capabilities.
Exhibit 5: Customer Case Study: Moody Center 
Exhibit 6: Summary Historical Financials 
Relative Valuation: Given that Xtract One remains in the early innings of a lofty growth trajectory that is pursuing significant scale, along with the fact that we have not made any financial forecasts within this piece, which would generate forward valuation multiples,
we do not place undue significance on relative valuation. We note that our
Physical Security Solution Provider comps table below does not include Xtract One as we do not make any forward forecast assumptions and thus, the Company does not have C2023/C2024 financials/forecasts; we believe the LTM valuation would not be relevant considering Xtract One’s growth. For what it’s worth, if we take Xtract One’s current
enterprise value of
~$156.8M along with its
FQ124 annualized revenue run-rate of
$12.5M, the Company is trading at a
F2024 EV/revenue multiple of
~12.6x while
growing well north of 300% y/y, while Evolv is currently trading at 5.3x C2024 revenues while being forecasted to grow at 49% y/y. However, the bottom line is that with the Company’s currently towering growth rates,
we believe near-term valuation multiples hold little relevance considering that the multiple is rapidly compressing with every quarter. Exhibit 7: Physical Security Solutiuon Provider Peers 