Nanalysis Scientific Corp. (NSCI) Earnings Call Transcript & Summary

Good day. Welcome to the Second Annual Winter Wonderland Best Ideas Conference. The next presenting company is Nanalysis Scientific Corp. [Operator Instructions] I'd now like to turn the floor over to today's host, Sean Krakiwsky, Founder and CEO of Nanalysis Scientific Corp. Sir, the floor is yours.

Thank you very much. Nanalysis Scientific Corp. makes portable NMR and MRI machines for industrial and health care applications. I'd like to thank everybody for joining us. And I would also like to inform everybody that because we're closing a prospectus financing this week, our investment bankers, Echelon Wealth Partners, have advised me not to take questions and answers during this particular presentation. So I apologize in advance for that. But after my presentation, I will just be discontinuing this session. So... We do seek safe harbor for forward-looking statements as I flip through the lovely disclaimers that our lawyers have put in the deck. So as our operator mentioned, I'm the founder and CEO of Nanalysis. I started the business about 12 years ago, actually, from scratch. My educational background is that I have a master’s degree in electrical engineering, but really, I'm a tech start-up guy. So this is my third tech startup. First one was Internet software associated with wireless location services of phones in the mid-90s, so even before there was a location on the phones. And my second startup was high-performance computing. And then I've been doing this for 12 years and just been having a blast and still learning about magnetic resonance applications of various kinds. We have a fabulous management team, including a very experienced CFO. And our CTO, Julien Muller, has a really unique vision for the future of magnetic resonance. Where we're trading at today, we have a market cap of about $100 million or so. We do have some warrants out there with an exercise price of $1.70, and so they expire in about 18 months. We have demonstrated profitability in our company thus far. We're at a revenue run rate of, let's call it, $16 million. So we're not a pre-revenue company by any means. So our grand vision is to one day disrupt the MRI space and make it work the way it should work. And the way we feel it should work is that anyone on this call should be able to make an appointment at their local pharmacy, go down and sit in a comfortable chair, have an MRI of their prostate or their ovaries, should be connected to the cloud, driven by AI access through a trusted service like WebMD. And then they should get a pleasant message saying, no, nothing wrong with your prostate, nothing wrong with your ovaries, no need to consult your doctor, please consider doing this again in 1 year's time. Or if you're playing football on a Friday night in East Texas and you get your bell run out in the field, you should just be able to go into the sports facility, have an MRI of your brain and determine conclusively if you've had a concussion or not. So that's where we're going. That's our grand vision that we're all excited about. We're not there today, but we do have proven magnetic resonance products in the marketplace. We've been demonstrating some explosive year-over-year growth and indeed, some profitability, and we have an impressive suite of intellectual property. This slide here is just to get -- kind of get calibrated with you and establish a common frame of reference for magnetic resonance. Because they're sort of -- part of this story that sort of everybody can relate to and will get, but then there's a twist, and it's the twist that makes us unique. So on the bottom left of this slide, I've depicted a typical MRI machine in a hospital. It's the one with the blue tint there to the photograph. They use very large superconducting magnets that require weekly fills of liquid helium and liquid nitrogen. They're very expensive. They're complicated to use. They're behind a gatekeeper, and they're in a specialized room with reinforced floors that can't be too close to a road where there might be vibrations that make it not work very well. And it's not portable in any sense of the word portable. So the part of the story that's a little different, the twist is, and this is what most people don't realize is that these machines are also used for industrial analysis. They're configured slightly differently, but it's the same technology, it's the same math and physics. Superconducting magnets are required with liquid helium fills. They're very large, very expensive. I've depicted here the scaffolding that the people have to walk up on top of, putting their test tube to analyze their sample. And what these machines are capable of doing is they're capable of determining what molecules and how many of those molecules are in the substance of interest. And so again, same math and physics is MRI machines for creating an image, but slightly different application. And essentially, what we've done is we've miniaturized this technology. And then more broadly speaking, we're democratizing it. So that means making it more widely available in terms of the portability and the cost of the machines. But it also refers to interpretation of the data and specifically making the data interpretable by nonexperts. So that's kind of what we do. And then this next slide here is just to confirm specifically what our business model is today and then sort of how we're evolving it. So today, our business model is capital equipment sales at high gross margins. We're at about 65% today. And we think we can push them in the direction of 75%. The products on the top left are the full miniaturize systems, so the miniaturize magnets, the electronics, the software. And this is where the bulk of our business is today. We sell these products to pharmaceutical companies, food companies, petrochemical companies, advanced material companies, lot of universities, a lot of government labs. And this is where we see the growth of our business coming from for the most part over the next 18 months. Now the product on the top right is, in fact, a medical imaging product. As you can probably tell from the figure, it's not the complete system. It's only the electronics and the low-level software, and we sell it on a stand-alone basis. We sell it to companies like Mediso, which is a Tier 2 preclinical MRI company. We sell it to a lot of organizations in China that are developing next-generation MRI machines. So for example, to detect smaller tumors earlier. And it, in fact, does create a medical image, and it's the same electronics as is in all of our products. So in other words, we're leveraging the commonalities between magnetic resonance for industrial analysis and determining what molecules are in a substance of interest with that of the requirements for medical imaging. And then we have a specific strategy to one day go towards our vision and have a full FDA-approved MRI product. So that's where our business is today through acquisitions and some organic innovation. We're also adding software and software-as-a-service revenue to our business model going forward. We do full-blown installations and preventative maintenance as well, and recurring revenue -- recurring service-oriented revenue is an important part of our business going forward. So this is just a little bit about where we came from. So as I mentioned at the outset, I started the business from scratch 12 years ago, hired some pretty smart people from Caltech and MIT. We kind of put our heads together and developed an IP strategy. We've built the technology platform, the initial products that we went to market with. And we thought it was going to take us about 2.5 years, it took us about 5 years and quite a bit more money. But fortunately, we're backed by the largest Angel investor group in our region, which is very patient and remains very active in the company. So we were able to evolve our business over the years, and we built out full-blown manufacturing, which is an important part of our story, direct sales, distributor sales, marketing, HR, corporate finance, the whole ball of wax. In late 2018, we have had an opportunity to sell our company to a large NASDAQ-listed organization that is the #1 maker of those large magnetic resonance machines that I showed previously with the scaffolding. They tried to develop a competing product several times but failed. And each time they tried to buy us, and our shareholders said, no, they're not interested in selling. And it was a real sort of galvanizing, unifying moment for shareholders, Board and management in that we decided we -- our corporate strategy was not to just prove out a little bit of growth and sell our business, but rather to build a world-class or fully operational organization, and we've done that. So we decided to go public in June of 2019, mostly because we wanted to execute an acquisition strategy, a specific strategy that I was percolating and that I presented to the Board and really became relevant once we turned down our opportunity to exit. So we did a $6.5 million raise concurrent with our public offering in June of 2019. And we told the market that we were going to do certain things, namely bring new products to market and acquire other companies that we've been working with. And since then, we've done what we said we were going to do. We've closed 3 acquisitions since then and in fact, we just announced our fourth, and the financing that I referred to at the outset is actually connected tightly to this fourth acquisition that we've announced publicly. So we've been rewarded in the market for -- if you look at our stock chart for doing what we said we were going to do. And it's just been a fabulous 10 years. But we think our next 10 years are going to be even more exciting for our team and for shareholders. All of the technology is proprietary and patent-protected, with several patents granted and several more in the pipeline. Today, we have approximately 50 R&D scientists and engineers, and we develop a massive amount of intellectual property every single day in the form of software, firmware and hardware. And then just as importantly, as our IP is proprietary manufacturing processes, and this was a key strategic building block for our company. When I started Nanalysis, I didn't want to do all this awesome innovation and then have the technology ripped off in China or India as soon as we are successful. So we developed proprietary manufacturing processes. And the fruit of those are that if you took a part of our product in China, and you had 10 PhDs working for you that were smart enough to understand our patents, you still wouldn't be able to reverse engineer the technology unless you knew exactly what we were doing and roughly a dozen or so proprietary manufacturing processes. And one of the key items in that is, as we built our company, we never pushed out any complexity to any of our vendors. Like if we had raw components that we needed to buy that weren't specified quite where we needed them to be, instead of going to vendors and saying, "Hey, we're going to buy a bunch of products from you over the years, but we need to improve the spec." We never did that. We kept all the complexity in house and in order to deal with deficiencies in raw components and so on and so forth. And that's been really great for us in terms of not only barriers to entry, but as we're building a real business, having very strong gross margins and so on so that we only have to use off-the-shelf parts and that kind of thing. And as long as our gross margins keep going higher, that's the way we're going to run our business. So very proud of our manufacturing facility here in Calgary, Canada as well. Just to talk a little bit about our overall growth strategy. So we'll always be an innovation company, developing new products. In absolute terms, our R&D budget will always go up. Even though on a percentage basis, it will go down. We'll combine that with industry partnerships such as some of these have been publicly announced. And essentially what these are is we OEM our products to customers that add a little bit of value and then go deep within a particular vertical, a particular vertical that they're already in and that they have a lot of domain expertise in. And then we'll continue to combine that with future acquisitions. I do want to say, though, that there will be no more acquisitions in 2022. We have a lot of very supportive shareholders, and this has been a key point with them, especially institutional investors. And so I can tell everybody that we're going to take a break with acquisitions for 2022, sort of focus on what we've built and making the value manifest to -- in terms of our stock price and in terms of revenue and also for employees and management that for them, acquisitions are quite important and take a lot of their time and so on. So 2022 will be all about showing the world what we've built. But then we will resume acquisitions. There are several more companies that we're working with that I want to buy. And those are highly MRI-centric, I also want to mention, which is a good segue to the last point on this slide. So over time, as we communicate with the financial community, you're going to see us use more and more of the language of human medical imaging and FDA-approved products. And so we're building a solid foundation in terms of our tech platform, our know-how, our manufacturing capability, also service and sales capability as well, which is a key part of our vision. We'll have sales and service in every major market in the world. And so we're working with companies now on the MRI side, making some very strategic announcements. And if you sift through our announcements over the last 18 months, you sort of connect the dots on what we're doing on the MRI side, but that's heading towards our vision. So in, let's say, 2 years, you'll see us pull the trigger on at least 1 and probably 2 acquisitions that catapult us specifically into an application-specific, prevention-centric FDA-approved product for human medical imaging. So that sort of encapsulates our growth strategy. Now I'd like to talk about what I call the amplification of magnetic resonance. And this is another one of those sort of hey, let's get on the same frame of reference kind of slide. So if you have a PhD in Chemistry or if you're a radiologist, you can interpret the data on the left that were created with our machines, by the way. And you can take actions on that data. But our customers and indeed, as part of our vision, in the future, it's not going to be experts interpreting the data, right? It's going to be AI algorithms or it's going to be nonexperts like mining technicians that just want to see one number, percent lithium in this brine pool. And indeed, our products today are used by customers like Albemarle to do such analysis. Or if you can compensate a suspicious white powder like we're working on with a German police organization and for a prison application. You want to know not only is norfentanyl in there, but are there designer opioids in there where the molecules have been tweaked a little bit but it's still an opioid. And magnetic resonance is the best for determining things like that. So it's all about the amplification and which, again, is part of this democratization of magnetic resonance that I've been talking about. In terms of the market opportunity, we're in the scientific instrumentation space. Some people prefer to use the language of test and measurement equipment. It's the same thing. Over $75 billion per year is spent on test and measurement equipment globally, and it's growing. About $8 billion of that is MRI machines and hospitals, that's true. But a bigger chunk of that is various types of analysis for industry. And that's not the addressable part for us. The addressable part for our company today, we feel is about $3 billion per year. But we think that with ongoing miniaturization and democratization and partnerships, we can increase the addressable part of this opportunity for us. I've already talked about who we sell to. So we sell to the biggest companies in the world like Pfizer, Eli Lilly, Corning, DuPont, BASF. We also sell the 2 personal little biotech start-ups. We sell to the most famous universities in the world, but we'll also sell to little community colleges in rural Mississippi or rural India. And by the way, in those places, there are no liquid helium trucks driving around to keep superconducting magnet school. So the part of our product portfolio that's cryogen-free, in other words, no liquid helium and no liquid nitrogen fills is an important growth driver for us. And then we sell to government labs all over the world. So really excited about the general market space that we're in. We have a senior independent Board of Directors. A couple of really good examples are Werner Gartner. He is the Chairman of our Audit Committee. He's a former CFO of a large NASDAQ-listed company called NovAtel GPS. And then a recent addition is Dr. Rene Lenggenhager, who is a Swiss national, and he's a former President of Bruker Corporation, which is the #1 maker of those large magnetic resonance machines. And so he was with them from 2015 to 2017. I'm really excited about his addition to our company and his experience that he's had with other great industrial technology companies like Mettler-Toledo, which is about a $35 billion market cap company and is really helping us with our vertical market strategy. So really great addition as an investor and as a director to our company who is very active with our management team. So that's really the end of the presentation other than to emphasize that we have a fabulous group of people, all shareholders in our company and highly motivated to make us a tremendous success. At this point, we have about 140 people. That's not including the acquisition that we have announced publicly of QUAD Systems, another Swiss company, all made up of former Bruker employees as well, by the way, the large company from Bosch that makes the big magnetic resonance machines. So you can sort of connect -- or read the tea leaves a little bit, connect the dots on kind of some aspects of our future business strategy. So we definitely have some heft in our business. Previous slide, I noted that we have some pretty lofty revenue objectives for 2022 and 2023, and maybe I'll restate those here as I close. So we publicly stated that our target -- revenue target for 2022 is $35 million. And at that number, we're highly profitable, not only on an EBITDA basis, but also on a like a bottom line net income basis as well. And then we think we can double that in 2023. So we're really excited about the growth trajectory that we're on. We have just an incredible group of people to help us execute that strategy. And we think all this is going to be very fruitful for shareholders going forward. So again, I'd like to thank everybody for your valuable time and for listening to me today. I always enjoy answering questions in these fore. But this time, unfortunately, because we are closing the financing this week, I'm not able to do that. I can tell everybody that the financing has been widely oversubscribed. And again, that's been publicly announced. And so the financing has been successful. The lawyers, just as usual, are taking a couple more days to get all the i's dotted and the t's crossed, but we will close either on Thursday or Friday of this week of that financing, for any of you who might be watching our announcement. So again, thank you very much. I really appreciate your time, and I hope you all have a wonderful day and a wonderful conference. So thank you very much, and have a nice rest of your day. Bye-bye.

Ladies and gentlemen, that does conclude Nanalysis Scientific Corp. presentation. The next session will begin in 5 minutes. Please consult the conference agenda for the next presenting company. Remember, one-on-one meeting requests are still open, so be sure to log in to the conference platform and request more meetings. You may now disconnect.