kneat.com Q1 Earnings Call Highlights

Key Points

• Q1 results were solid and in line with expectations, with revenue up 22% year over year and annual recurring revenue rising 20% to CAD 76.1 million. Management also said the company ended the quarter with a stronger cash position of CAD 51.5 million.
• Expansion timing was uneven: two expected customer expansions slipped from Q1 into early April, and management said incremental ARR is typically weighted toward the back half of the year. Despite that, the new-logo pipeline remains strong and largely enterprise-focused.
• Digital validation demand remains a long-term growth driver, as Kneat says most life sciences customers still rely heavily on paper-based processes while workloads increase. Management also sees growing interest in data-centric workflows, AI readiness, and stronger compliance systems, though customers remain cautious about implementation.

kneat.com TSE: KSI said its first quarter of 2026 was in line with expectations, with management highlighting year-over-year revenue growth, higher annual recurring revenue and a stronger cash position, while cautioning that customer expansion timing can vary.

Chief Executive Officer Eddie Ryan said the quarter brought the company “a step closer” to its strategic goals. He said revenue increased 22% year over year and annual recurring revenue rose 20%. Ryan said customer transitions to full digital validation “take time,” but added that management remains confident in the company’s strategy and market positioning.

“Customers recognize the value Kneat delivers, and they want to build on this,” Ryan said. He noted that two significant expansions the company had expected to close in the first quarter instead closed in early April.

ARR rises as management points to expansion activity

Chief Financial Officer Dave O’Reilly said annual recurring revenue reached CAD 76.1 million, up 20% from the prior year. He said most of the ARR growth came from existing customers expanding their use of Kneat, with new customers contributing the balance.

O’Reilly said foreign exchange had a mixed impact on ARR. Relative to Dec. 31, foreign exchange was a tailwind of about CAD 900,000 in the first quarter, while year over year it was a headwind of CAD 950,000.

Management said incremental ARR has historically been weighted toward the back half of the year and expects that pattern to continue in 2026. O’Reilly said first-quarter growth should not be viewed as a direct indicator of where the company expects to finish the year.

Ryan also said the company’s new logo pipeline remains strong, describing it as “very enterprise and strategic oriented.” He said the pipeline is similar to last year’s and that the first quarter included another solid period for new logos relative to internal expectations.

Digital validation demand remains central theme

Ryan pointed to the company’s annual State of Validation study as evidence of continued opportunity in life sciences validation. He said 87% of respondents are still relying heavily on paper-based processes, while 80% said their validation workloads are increasing.

“That’s simply not sustainable,” Ryan said. He said the benefits of digitization extend beyond efficiency, particularly as customers seek a single trusted system of record with compliant, high-quality data to support AI and greater automation.

Ryan said customers at Kneat’s VALIDATE user conference emphasized the importance of connecting digital workflows with activity on the factory floor. He also said customers are aligning with the company’s evolution from a document-centric platform toward a more data-centric approach, including workflows such as Computer System Assurance.

Asked about AI, Ryan said customers are interested in bringing more AI into their businesses but remain cautious, especially larger life sciences companies. He said customers are focused on data and digitization as prerequisites for effective AI use, while also being careful about data integrity and patient safety risks.

Margins, expenses and cash flow in focus

O’Reilly said gross margin expanded year over year in the first quarter, driven by improved cloud hosting economics as the company scales and by growth in services revenue. Although services revenue typically carries lower margins than software-as-a-service revenue, he said disciplined delivery and faster project completion helped lift services margin in the quarter.

Operating expenses increased 32% from the prior-year quarter. O’Reilly said a substantial portion of the increase was tied to research and development, including a reduction in the amount of R&D costs the company capitalizes. He said Kneat capitalized about CAD 750,000 less in the quarter than it would have under its prior approach.

O’Reilly said the company capitalized 44% of overall R&D expense in the first quarter, down from an average of 52% in 2025. He said the accounting treatment affects the income statement and balance sheet presentation but does not change cash flow.

Asked about adjusted EBITDA and profitability, O’Reilly said Kneat still expects to be cash flow positive for the year. He also said general and administrative expense included a roughly CAD 300,000 one-time professional fee adjustment that management does not expect to continue.

The company ended the quarter with CAD 51.5 million in cash, up from CAD 48.7 million at Dec. 31, 2025.

Professional services expected to be higher in 2026

O’Reilly said Kneat is doing more professional services work internally and is not outsourcing those services to partners. He said stronger execution and disciplined management by the professional services team contributed to the company’s improved gross margin.

He said professional services revenue is expected to be higher in 2026 than in 2025, with gross margins expected to remain roughly around current levels.

O’Reilly also addressed a rise in accounts receivable, saying it reflected billing timing around the end of the fourth quarter and first quarter. He said large billings typically occur during that period, with related cash inflows coming in the first half of the year. He said the higher receivables balance was “purely timing” and that some payments had already been collected in the second quarter.

Sales cycles, M&A and strategic review

Ryan said sales cycles slowed in parts of 2025, particularly around budget approvals, but that management is seeing more stability entering 2026. He said deployment times have not been affected.

On the broader macro environment, Ryan said customers appear to have a “more positive posture” on sales cycles and budgeting, though he cautioned that it is still early in the year.

Ryan also said mergers and acquisitions among pharmaceutical customers can be a tailwind for Kneat. If an existing customer acquires another company using a different product, he said it can take time to switch systems, but historically such activity has benefited Kneat.

Asked about the company’s strategic review, Ryan said it was driven by inbound interest. He said there is “strong interest” and ongoing discussions, but no guarantee of any transaction and no timing for a conclusion. He added that any potential partner would need to be aligned with Kneat’s long-term vision.

“Every quarter that goes by is getting us closer to our goal,” Ryan said in closing. “Kneat is and always has been resilient and executes to a long-term vision.”

About kneat.com TSE: KSI

Kneat Solutions provides leading companies in highly regulated industries with unparalleled efficiency in validation and compliance through its digital validation platform Kneat Gx. As an industry leader in customer satisfaction, Kneat boasts an excellent record for implementation, powered by our user-friendly design, expert support, and on-demand training academy. Kneat Gx is an industry-leading digital validation platform that enables highly regulated companies to manage any validation discipline from end-to-end.

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