kneat.com (TSE:KSI) executives used the company’s fourth-quarter 2025 earnings call to emphasize customer expansion potential, accelerating product development with artificial intelligence, and a path toward cash flow breakeven in 2026, even as foreign exchange headwinds and delayed expansion activity tempered annual recurring revenue (ARR) growth in the most recent quarter.
CEO Eddie Ryan said 2025 featured “macro uncertainty” and elongated buying cycles, but the company still gained share, reporting software revenue up 33% for the full year and a record number of new customers. Ryan said net revenue retention (NRR) was 115%, supported by expansion within an “exceptionally stable base of existing large customers.”
AI positioned as additive, anchored by data integrity
Asked whether customers are building AI layers on top of Kneat’s data, Ryan said the company is “not seeing anybody sitting on top” in that way. Instead, he characterized customer AI interest as aligned with Kneat’s roadmap and focused on AI as a “human aid” within workflow processes. Ryan argued that strong data integrity underpins effective AI use cases in regulated settings.
Ryan also highlighted AI-enabled features introduced for Good Manufacturing Practices environments, including:
- Content review agents
- A natural language processing analysis expert
- A user support expert
- Instant language translation
On internal productivity, Ryan said the company is using AI tools to improve development efficiency and has dedicated AI teams working on both product capabilities and organizational productivity. He said the goal is to “get more out of the team we have,” while noting that domain expertise and requirements definition remain a significant part of software development beyond coding.
ARR growth impacted by FX and pushed expansions
CFO Dave O’Reilly said ARR growth in the quarter was 24% year-over-year—“solid” but below expectations. He attributed part of the shortfall to foreign exchange moves since Q3, which created a $1.1 million headwind, and part to expansions being pushed into future periods. O’Reilly said those deferred deals remain in the pipeline and are expected to materialize in 2026, potentially as early as Q1, while also reiterating that ARR has historically been back-end loaded and he expects 2026 to follow a similar pattern.
Ryan said the macro environment beginning in the second quarter contributed to budgets being “deprioritized” or temporarily frozen in certain areas, delaying expansions. He said the company continues to engage with customers on these opportunities and expects the deferred expansions to come through in 2026. When asked about NRR, Ryan said he “definitely” expects it to rise from 2025 levels.
On churn, Ryan told analysts there was no evidence that customers who discontinued use of Kneat switched to competitors. He said churn had three components: deferred expansions, FX, and churn itself. He said customers that churned had “some degree of financial difficulty,” with “one or two” having closed down. He also noted that in earlier years Kneat sold to a broader range of customer types, and some churn may reflect a less-than-perfect fit in those older cohorts as the company has since focused more on enterprise and strategic customers.
Pipeline and expansion opportunities beyond core validation
Analysts questioned management’s confidence that incremental ARR additions will increase in 2026 compared to 2025. Ryan tied that outlook to the company’s recent focus on enterprise and strategic customers, saying these accounts can take one to two years to ramp and are now beginning to “show fruit” in terms of expansion potential.
He also pointed to conversations about “adjacencies” beyond validation, particularly deeper into manufacturing-related areas. Ryan said Kneat is already deploying in some adjacent areas with certain customers and has active discussions with large global customers about new opportunities, though he said the company would provide more detail “in due course.”
When asked whether the company’s commentary implied a specific numeric ARR add target, Ryan said Kneat was not putting a number on it. He said 2026 add-ons should include delayed expansions from 2025, expansions from other customer cohorts, and contributions from new customers. He added that Kneat now serves more than 130 customers.
Margins, spending discipline, and 2026 cash flow breakeven target
O’Reilly said operating expenses declined in Q4 versus Q3, while full-year operating expenses rose 33%, reflecting investment in key talent in 2025 after holding headcount steady in 2024. He said the hiring was aimed at advancing the platform, expanding presence within existing customers, and amplifying Kneat’s profile in life sciences.
On gross margin, O’Reilly said Q4 benefited from year-end accrual releases, contributing roughly a 0.5% lift. He said normalized gross margins were around the “77% range,” and he expects gross margin to be around that level, depending on revenue mix. He noted professional services (PS) revenue has historically been about 15% and he expects that to rise to “20% and above,” with SaaS continuing at “an 80% kind of level.”
Management reiterated a target for 2026 to be cash flow breakeven. O’Reilly said achieving that goal is contingent on meeting top-line growth expectations. In response to questions about the bridge to breakeven, he said prior messaging on adjusted EBITDA margins should hold over the next 12 months, capitalized R&D is expected to be relatively static year-over-year, operating expenses should still grow “a little bit,” and gross margins should improve. He also said cash flow breakeven would not be driven solely by adjusted EBITDA, pointing to balance sheet levers such as R&D tax credits.
The company ended the year with CAD 48.7 million in cash, which O’Reilly said positions Kneat for a “pivotal year.” On debt, he said certain prepayment penalties roll off in 2026 for some tranches, but paying down debt is “certainly not in our short-term projection” given the company’s focus on reaching cash flow neutrality. He said the company would announce any decision to clear tranches earlier, and otherwise expects to keep paying them.
Competition and pricing
Ryan acknowledged increased competition in customer evaluations during 2025, saying it may have slowed sales processes alongside macro-related delays. However, he said Kneat is winning the “majority” of competitive requests for proposals and described pricing as stable. He said the company is not pushing prices down and sees no “huge amount of pricing pressure,” though it may be “a bit innovative” around contract structures such as multi-year agreements.
On enterprise-wide licensing, Ryan said moving customers to broader enterprise arrangements is an “ongoing thing” as usage scales, and described it as “win-win.” He said the company does not track the percentage of customers on enterprise-wide licenses, but estimated that among its top 30 strategic customers, roughly 30% are on some form of longer-term strategic deal.
In closing remarks, Ryan said the company believes it is positioned to continue momentum as a go-to validation platform for large life sciences companies, while deploying AI to help customers “work faster and smarter” while keeping data compliant and trustworthy. He added that Kneat expects to sign “even more new business this year than last.”
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.
