On Thursday, kneat.com (TSX:KSI) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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The full earnings call is available at https://edge.media-server.com/mmc/p/i2anv3qc/

Summary

kneat.com reported a 22% year-over-year increase in revenue for Q1 2026, with annual recurring revenue growing 20%.

The company highlighted significant customer expansions and emphasized the shift from paper-based to digital validation processes.

Management noted improved gross margins due to better cloud hosting economics and earlier completion of service projects.

Operating expenses rose 32% year-over-year, driven by increased R&D spending and a change in capitalization strategy.

Cash balance at the end of the quarter was $51.5 million, up from $48.7 million at the end of 2025.

The company is optimistic about macroeconomic conditions and anticipates stronger customer engagement and expansion.

Management reiterated a commitment to becoming cash flow positive in 2026 and highlighted a robust pipeline of new logos and strategic partnerships.

The strategic review process is ongoing, driven by inbound interest, but no guarantees or timelines were provided.

Full Transcript

OPERATOR

Good day and thank you for standing by. Welcome to NEAT's first quarter 2020 conference call. this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you'll need to press star 1-1 on your telephone. You will then hear an automated message. When your hand is raised to withdraw your question, please star 1-1 again, please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today. Katie Keita, IR Lead for NEAT. Please go ahead.

Katie Keita (IR Lead)

Thank you operator and welcome everyone to NEAT's earnings conference call for the first quarter of 2020. Today's call will be hosted by Eddie Ryan, NEAT's CEO and Dave O'Reilly, NEAT's CFO. Please note the safe harbor statement on slide 2 in the forward looking statements Disclosure at the end of the earnings release informing you that some comments made on today's call contain forward looking information. This information, by its nature is subject to risks and uncertainties, so actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult our relevant filings which can be found on SEDAR and on our [email protected] also during the call we might refer to certain supplementary and financial measures as key performance indicators. Management uses both IFRS measures and supplementary financial measures as key performance indicators when planning, monitoring and evaluating our performance. Management believes these non IFRS measures provide additional insight into our financial results and certain investors may use this information to evaluate our performance from period to period. I will now pass the call to Eddie Ryan, CEO of neats.

Eddie Ryan (Chief Executive Officer)

Good morning everyone and thanks for joining us today. I'll keep things brief so we can get to your questions quickly. I'll cover the key highlights from the quarter, Dave will walk through the financials and then we'll open it up for questions. Overall, we're pleased with how we started 2026. The quarter brought us a step closer to our strategic goals. We saw solid revenue growth and a stronger cash position. Revenue was up 22% year over year in line with expectations and annual recurring revenue grew 20%. As I mentioned in my shareholder letter, customer transitions to full digital validation take time. While we're confident in our strategy and execution and both are very well aligned with what the market NEATs, timing on the customer side can vary. That said, what gives us real confidence in expansion is what we've seen time and again. Customers recognize the value NEAT delivers and they want to build on this in fact, two significant expansions we had expected in quarter one actually closed in early April. We're also seeing this reflected more broadly in our annual State of validation study. 87% of respondents are still relying heavily on paper based processes and the 80% say their validation workloads are increasing. That's simply not sustainable. The efficiency gains from digitization are clear, but what's really important is that the benefits go much further than that. And we heard this directly from customers at our user conference Validated. They talked about the NEAT for a single trusted system of record with high quality compliant data, especially as they move toward AI and greater automation. As we've evolved our platform from being document centric to data centric, we're increasingly becoming the partner of choice for these kinds of workflows, including computer system assurance. As we continue to build out our data centric capabilities alongside what we already do on the document side, customers are getting what they've been asking for. One platform they can trust, easy to use that helps them connect processes, collaborate more effectively and reduce repetition and errors. At validate, several customers also spoke about the importance of connecting what's happening digitally with what's happening on the factory floor. Keeping those environments in sync is critical. And importantly, the message from our customers was very clear. They're all in on NEAT. They're aligned with our roadmap and are excited about what we can achieve together over the long term as we continue to modernize validation in life sciences. With that, I'll hand it over to Dave to take you through the numbers.

Dave O'Reilly (Chief Financial Officer)

Good morning. As I take you through the numbers, a reminder that our results are presented in Canadian dollars. As Eddie mentioned, revenue came in at about where we expected it to. $18 million was 22% higher than the $14.7 million we posted for Q1 a year ago. Annual recurring revenue grew 20% over the same period to $76.1 million. Relative to December 31, FX was a tailwind to our Q1 ARR of about $900,000. Conversely, year over year, FX was a headwind of $950,000. Customers expanding their use of NEAT drove most of this growth. With new customer ARR making up the balance incremental ARR is historically back end loaded and we expect that pattern to hold for full year 2026. So Q1 growth isn't a read through to where we expect to land for the year Year over year. Gross margin expanded in Q1 for two reasons. First, we're getting better cloud hosting economics as we scale and secondly, services revenue grew Compared to last year, services typically run at lower margins in SaaS,. But with disciplined delivery and continued improvements in how we execute meant that we completed some projects sooner, which in turn lifted the service margin. This quarter, operating expenses increased 32% over last year's Q1. A substantial contribution to the growth was R&D and a reduction to what we capitalize as we are capitalizing a smaller percentage of our RD costs. In the past, this has translated to more of the R and D expense running through the income statement. In Q1, we have capitalized about $750,000 less than we would have done in our previous approach. Of course, we have also made investments in R and D and sales and marketing over the past 12 months to develop our product capabilities as well as our sales and marketing reach, especially as our customers base expands. Being first and being integrated builds a durable competitive edge. Close Q1 with a cash balance of $51.5 million, compared with $48.7 million at December 31, 2025. With that, I'll turn it over to you for your questions.

OPERATOR

Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. You'll hear the automated message advising your hand is raised. If you would like to withdraw yourself, please press Star one again. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment for the first question. Our first question will come from the line of David Guang of TD Cowen. Please go ahead.

David Guang (Equity Analyst)

Good morning. I was wondering if you guys have seen any material change in the sales cycles and deployment times over the last few months here, particularly since the start of the geopolitical tensions.

Eddie Ryan (Chief Executive Officer)

Hi David, Eddie here. Thanks for your question. I would say that, you know, through 2025, the sales cycle slowed down a little bit in places in through the year. I think we're seeing more stability now going into 26 over later 25, but it's hard to measure it and it's an ongoing thing, but deployment times are not affected. But I would say the sales cycles and the budget approvals probably had been slower last year, but they're improving a bit this year.

David Guang (Equity Analyst)

Well, that's helpful. Thanks, Eddie. And at the Validate conference, can you maybe talk about some of the more common things that customers were talking about as to what they want you to help them with?

Eddie Ryan (Chief Executive Officer)

Yeah, it was a great conference, David, and it's a conference we use every year to make sure we're aligned with our customers. The first day of the conference, which only takes on board Our customary advisory board, which is a lot of our key customers, are invited to that and they share all the details around what they want, what they would like. We share what we have, where we're going in detail with them. And I would say the one thing that I've taken away from this conference is we get stronger every year. Our alignments with our alignment with our customers, we're listening obviously through the year, but also once a year. And our alignment with our customers is really great. And this year we had the ability to show them where we are with AI, what we're doing in the product today, what we have today, what we're bringing forward in the next release and subsequent releases. I must say I really feel positive about the alignment. Also we talked to them about the ability for our customers to do more data centric workflows in parallel with the doc centric workflows, which is one of our key strengths, being flexible to allow either a doc centric process or a data centric process. They're really buying into that. We even had one customer come back and do a presentation of what he had done with our data centric capabilities of his own accord. And it was really impressive. We had some of our big customers really talking about how they're getting deeper into need and how they're rolling need out to more and more sites and plans are really very good to hear. So we're very happy with the validated conference, David, and we're delighted to have that conference. It's a key conference for the company and we learn a lot from it and we get really aligned with our market. And I think the market continues to show why they like NEAT so much.

David Guang (Equity Analyst)

No, that's great to hear. Thanks, Eddie. And maybe one question for Dave just on the accounts receivable, saw a big jump there. I don't know if that was just a timing thing, maybe a lot of billing late in the quarter, but any commentary you can provide?

Dave O'Reilly (Chief Financial Officer)

Yeah, thanks, David. Q1 and until end of Q4 is when we do a lot of our large billing. It coincides when we see our large accounts receivableR growth. So what you will see is you'll see a spike in our accounts receivable balance, but you'll also see a spike in our deferred revenue or contract liability balance as well. That accounts receivable balance will be then cleared down in Q2. So one of the things that we continually reference is that the first half of the year is typically where we see a lot of our cash inflows from our customers. This is just a timing aspect of when we bill and when we get the cash receipts. Yeah, it was just a lot bigger this year than what we've seen in prior years. So I didn't know, like I said, if there was something specific going on. It isn't really the timing of those buildings, it's purely timing. So, like, if you compare our AR balance from Q1 25 to the Q1 26, it's substantially higher. But that's literally just due to a handful of customers that are due to pay us. And we're expecting that payment to land into Q2. Some of that has already been cleared down.

David Guang (Equity Analyst)

That's great. Thank you.

OPERATOR

Thank you. One moment for the next question. And our next question is coming from the line of Aaron Kyle of cibc. Please go ahead.

Aaron Kyle (Equity Analyst)

Hi, good morning. Thanks for taking the questions. On the adjusted EBITDA side, the number in the quarter came in a bit below our expectations. And I know, Dave, you spoke to some elevated expenses in the quarter tied to R and D spending and sales and marketing, but maybe you can expand a little bit more on that. And then how are you thinking about balancing profitability with the free cash flow break even objective that you've called out in the past? And are you still aiming to hit that in 2026?

Dave O'Reilly (Chief Financial Officer)

Thanks, Aaron. Great question. Just to answer the latter part of that question first. Yes, we're still planning to be cash flow positive for the year in terms of adjusted EBITDA to the point that I made earlier around our R and D. We're capitalizing a little bit less now in 26 than we had done in prior year. So we're roughly seeing 750k in Q1 that would have been typically amortized or capitalized if we kept the same ratio as we did in 2025. So if I look back onto 2025, we capitalized on average 52% of our overall RD expense in Q1. That dropped to 44%. As you know, from a cash flow perspective, regardless of where it sits within the income statement or on the balance sheet, it's not going to ultimately impact the cash flow. It's purely just, you know, the recognition between the income statement and the balance sheet addition.

Aaron Kyle (Equity Analyst)

Thanks. The G and A expense was a bit elevated in the quarter as well. So just wondering if you could kind of expand on that as a percentage of revenue. It was quite elevated versus Q1 last year as well.

Dave O'Reilly (Chief Financial Officer)

Sure. The G and a in Q1 includes roughly a one time professional fee adjustment of about 300k. We don't expect that to continue.

Aaron Kyle (Equity Analyst)

Okay, thank you. And then Maybe just on the professional services side, Revenue was higher in the quarter than it's been in the past. Just wondering if you can speak to what's driving that. Are you seeing, you know, partners doing less implementation work is neat, doing more of it. Just what's driving the elevated professional services revenue

Dave O'Reilly (Chief Financial Officer)

niche is doing more professional services. We're not outsourcing our professional services to partners. The goal is that we complete that internally. We also delivered on some of our projects a little bit sooner than even we would have anticipated. So we're seeing improvement in delivery. We're also seeing discipline management there by the professional services teams and that's contributing to our increased gross margin.

Aaron Kyle (Equity Analyst)

Okay, and do you expect a similar level? I guess not quite as high as Q1, but how should we expect the cadence for the rest of 2026 to look?

Dave O'Reilly (Chief Financial Officer)

Yeah, I would suggest that the professional service is going to be higher in 26 than we would have seen in 25. Gross margins should continue roughly around this level. But yes, from a professional services perspective, I would assume that it's going to be higher in 26 than we'd seen in 25.

Aaron Kyle (Equity Analyst)

Thank you.

OPERATOR

Thank you. One moment for the next question, please. Our next question is coming from the line of Gavin the Weather of ATB Capital Markets. Please go ahead.

Gavin (Equity Analyst)

Oh, hey. Good morning. Good afternoon. Maybe just on your comments on the macro kind of improving so far in 26. Haven't quite seen it yet, showing up in ARR bookings and other seasonality there. But maybe we could just characterize kind of your pipeline of expansion versus this time last year, which was maybe at the height of the trade uncertainty and how you found that your tenor of client conversations has shifted.

Eddie Ryan (Chief Executive Officer)

Yeah. Hi, Gavin. So correct. I would say that the macros are definitely. I guess the world has probably become more used to them. And I think that the sales cycles would have been longer, budgets getting delayed and put off. We saw quite a bit of that at the end of last year. It's a bit early to judge the year right now, but I would say there's definitely a more positive posture coming from the customers on the cycles and on the budgeting. And, you know, a lot of this knowledge is based on our conversations with our customers. And as I say, you know, we did have slippage last at the end of last year. Those deals are still in. You know, some of them are over the line and some of them are still in play. And I would point out a couple of deals that just barely missed a quarter. Dave is tough on the closing off the Quarters and the sales guys are not happy. But a couple of deals went into Q2. But yeah, generally speaking, I think I'd be more optimistic about the macro. Having said all that, we never know which way it goes.

Gavin (Equity Analyst)

Appreciate that. And in your CEO's letter you called out, I think it was the strongest new logo pipeline you've ever had. So maybe you can just comment on that a little bit and if there's any particular regions or segments where you're seeing an uptick in traction.

Eddie Ryan (Chief Executive Officer)

Yeah, we had a strong new logo pipeline last year, Gavin. We have the same one again this year. Our marketing team is doing a great job at filling the top of the funnel and that takes a year for it to kind of filter down to deals and stuff like that. So, yeah, we definitely have that strong pipeline and it's very enterprise and strategic orientated, the pipeline, because that's what we focus on with our sales team and our marketing team. So, yeah, I'd say if you look at quarter one, we had another good quarter of new logos and within our expectations internally and trending to what it was last year.

Gavin (Equity Analyst)

Appreciate that. And then you chatted a lot with clients on AI over the past month or so, given the conference. I'm curious what you're hearing in general in terms of the client readiness for AI and if you're hearing from any of the customers that they might want to accelerate the rollout of digital to prepare.

Eddie Ryan (Chief Executive Officer)

Yeah, I think that's a very good point. And I think customers are beginning to think, you know, how do we make effective AI and how do we get effective AI input in our business? And I think they're focused on data digitalization to make sure that they have the process and the connected systems that they can get at the data and stuff like that. I would say that our customers definitely want to see AI in their business. They want to see more of it, but they're cautious, especially the larger companies, they're cautious about implementing native AI features. I mean, they have to assess it quite clearly and they won't turn on features if there's any sort of risk to data integrity or potential patient safety. We've seen a warning letter in the marketplace as well from the FDA on some company that used AI to, to generate a batch record, stuff like that. So there's going to be a lot of caution here. But the companies are going there and I think what I, you know, really excited about is our customers are very aligned with us. They see what we brought and what we're bringing and they're very, they're very happy with it and they think it's being brought in a thoughtful manner, aligned with the way they think and the way they want to move.

Gavin (Equity Analyst)

That's great. And then just lastly for me on the strategic review, we'll see if you answer, but I'm curious if there was something which kind of catalyzed that strategic review. Whether it was an inbound bid or just maybe your perception that the stock wasn't properly discounting the value of the business that you're building. Any commentary on that front would be helpful.

Eddie Ryan (Chief Executive Officer)

Well, I like to think of it like this, Gavin. Great companies get a lot of attention. That's the way I see it and that's the way our people internally see it. You know, we've been getting inbound inquiries for quite some time and, you know, obviously, you know, it's culminated in where we are today. I would say that there's no guarantee of anything. You know, there's, you know, discussions ongoing, there's strong interest. There's no, you know, obviously, like we said in our letter, there's no guarantee of anything happening. And, you know, we have a strong vision for the company and any partner that, you know, getting involved with NEAT will be aligned with that and all stakeholders will benefit to the maximum. That's the way we see it. But it's very early days and no, it's totally inbound driven. Thanks so much to Pascaline.

OPERATOR

Thank you. One moment for the next question. Our next question is coming from the line of Justin Nook of Citi. Please go ahead.

Justin Nook (Equity Analyst)

Good morning. Thanks for taking my call. Maybe just a follow up on the strategic review first. Any indication of timing on when it could conclude?

Eddie Ryan (Chief Executive Officer)

We don't have any timing on it right now, Justin, other than, you know, it's, you know, you know, earlyish in the process.

Justin Nook (Equity Analyst)

Understood. And then just in general, the pharmaceutical space has been pretty active as far as ma, including some of your customers acquiring other companies. Does this impact neat's profile at all? Like, is it a tailwind or, you know, potential headwind as far as onboarding new seats?

Eddie Ryan (Chief Executive Officer)

Absolutely, it's totally a tailwind. The tailwind may take a little bit of time to materialize in the sense that they have to, you know, if they acquire a company that may have an alternative product, you know, and they already have NEAT and you know, the acquiring company already has neat, then, you know, it just takes a bit of time to transition. But it's definitely, if our customers are acquiring others, it's definitely and has proven all the time to be a tailwind for neat. Good to hear.

Justin Nook (Equity Analyst)

And then are we able to have any color on the net retention rate in Q1? I know it's disclosed annually, but just trying to see if there's any context for how existing customers are expanding with neat.

Eddie Ryan (Chief Executive Officer)

Well, just at the top level there, I would say that it's trending similar to last year at this time. And I will point out, Justin, that you know, like, you know, we're in the enterprise software business as you know and it's usually quarter four is usually when we see a lot of our expansions and stuff. Right. And the growth. So you know, we're for most of the last years, you know, most of our growth, our increased revenue comes in, in quarter four. But I will say that, yeah, we're trending as we were last year.

Justin Nook (Equity Analyst)

Great to hear. And just a question for Dave on the ar. Is there any concentration in that or is it diversified among your customer base?

Dave O'Reilly (Chief Financial Officer)

It's diversified. It's usually going to be, you know, like our top customers make up a reasonably good portion of our revenue. It's linked to those customers, but there's never any issue with those. It's purely a timing relationship point at the end of Q1.

Justin Nook (Equity Analyst)

Good to hear. Thank you very much.

OPERATOR

Thank you. And there are no more questions in the queue. I would like to go ahead and turn the call back over to Eddie Ryan, CEO for closing remarks. Please go ahead.

Eddie Ryan (Chief Executive Officer)

Thank you. Every quarter that goes by is getting us closer to our goal. Even if our goal of digitizing life sciences can be as efficient as possible, is an ongoing journey. NEAT is and always has been resilient and executes to a long term vision. They say discipline is remembering what you want. We will maintain that discipline and continue to get bigger as we get better. Thanks to everyone for your support of NEAT on our journey.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.