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

All right. Thank you, everyone, for joining us here today with Nanalysis. Just a few comments before we get going here. The company is presenting, I'll be asking lots of questions and we'll be discussing things. [Operator Instructions] And with that, we will -- I'll get my introductory remarks going here. Good day. I'm Martin Gagel with Market Radius Research. It is Wednesday, June 21, first day of summer, I guess. And to celebrate that, we've got CEO, Sean Krakiwsky and CFO, Randall McRae of Nanalysis joining us. And Nanalysis is a leading provider of nuclear magnetic resonance, technologies with compact NMR spectrometer and MRI technologies and services for the scientific and industrial and medical markets. And they're here to give us an update and look into where the business is and where we're going. But please remember, this is neither a recommendation or investment advice, we're here to learn about the company. Sean, Randall, thank you very much for taking the time to talk with us and give us an update on Nanalysis. It's been over 1.5 years since we've chatted on the platform. So it's great to have you back. A lot has changed since then? And why don't you bring us up to speed?

Well, thanks, Martin. It's absolutely fabulous to be here.

Yes. Thanks for having us, Martin. Looking forward to it.

So when I founded this company about 14 years ago, we had a vision t,o one day disrupt the MRI space and make it work the way it should work, right? So any one of us on this webinar should be able to make an appointment at their local pharmacy. Go, sit down in a nice chair, have an MRI of their prostate or their ovaries should be connected to the cloud, driven by AI access through a trusted service and then you should get a pleasant message saying, nothing wrong with your prostate, no need to consult to your doctor. At this time, please consider doing this again a year from now. So that was sort of the grand vision. We -- of course, we embarked on with a lot of excitement. And we have succeeded at moving towards that vision. One of the things that I wanted to do as a veteran entrepreneur was, before we actually got to where we have human medical imaging products that are FDA approved and selling into the health care industry. I wanted to build a solid business foundation around that. And so that's sort of the unique twist to our story is that MRI machines are also used for industrial analysis. In fact, it's the gold standard of industrial analysis. So that sort of brought me to an executable mission to start building a real business around that vision. We do seek safe harbor for forward-looking statements. So yes, we feel that we're absolutely a very compelling investment story. We're a market-leading category, creating global technology company, the category being portable MRI machines for industrial analysis and the vision towards the medical imaging product. We've experienced high year-over-year growth Martin, when I first met you, let's call it, 2.5, 3 years ago and till now, we've tripled our revenue and substantially grown our overall business, including our economic moat and as I sit here talking to you today, if you ask me, Sean, what's your objective for the next 2.5, 3 years, I'd say we're going to do the same thing. We're going to endeavor to triple our revenue from where we are now, which is about $25 million in annual revenue. The difference between the next 3 years and the last 3 years is that there won't be dilutive acquisitions. And we'll do so with intentions to be highly profitable. And we're going to talk more about how we're going to get to profitability and triple our revenue over the next several years. We started out as a sort of sexy technology product company, and we definitely are that. Our DNA is still the same as when I first met you. But we've added on some very sticky recurring service revenue as a complementary part of our business as well. Look just a little bit about the management team. It was just absolutely fabulous. Experienced CFO who you'll get a chance to talk to here towards the end of the presentation. Our CTO, Julien Muller, came to us through one of our acquisitions about 2 years ago, and he's got a real unique vision for the future of magnetic resonance. I feel we're a compelling valuation story as well as a growth story where we're trading at right now, 100 million outstanding shares and where our stock is trading, it's approximately $50 million market cap. And as I said before, our 2022 revenue is $25 million.

Sorry, just on Julien Muller, your CTO, you got him through the RS2D acquisition, and then you sort of rose to corporate-wide overall.

Yes, that's absolutely right. About 3 or so years ago, we were exploring licensing technology from that company and we were going to design their electronics and low-level software into our next-generation technology platform and products. And during that activity, we really hit it off with that founder and also their CTO, and he gained the respect of our entire R&D organization. So at some point, when we started talking about coming together rather than just them being a supplier, he was a natural fit for our CTO. That's kind of been one aspect of philosophical aspect of our acquisitions, right? It's not a roll-up. It's strategic bolting on of businesses, including the key people that come with those businesses. So yes, great question on Julien. So I think most of you know my background a little bit by education, I have a master's degree in electrical engineering. But really -- professionally on a technology start-up guy. So this is my third tech start-up. My first one was Internet Software associated with wireless location services on phones. My second one was high-performance computing, I'm probably the first person in the world to develop a commercial professional computing application using NVIDIA graphics cards. They weren't called GPUs in those days. I hacked into them using OpenGL, which is a graphical interface for gaming, but I used it for professional applications like seismic data processing and so on. And then I've got a strategic investment from NVIDIA Corporation in approximately 2006. So that was my second business. So you can see that with this magnetic resonance company, it's consistent with my past of starting companies from scratch, building a great team and then scaling them. So a little bit about me there. We also have a senior independent very high-quality Board of Directors, this is a slide to get calibrated on what we mean exactly by magnetic resonance. And I think a lot of people in your audience will understand that magnetic resonance exists in hospitals and human beings go and there's images created and a radiologist looks at those images. But the technology is also used to determine what molecules are in a substance of interest, for example, a pharmaceutical company developing a new drug or a mining company wanting to analyze their lithium brine pools. And so the picture here that with the scaffolding and the 2 gentlemen on top of them. What they're doing is they're putting their substance of interest in a 7-inch glass test tube, a standard testing, and they're putting it in this cylindrical module, which is a magnet same superconducting technology in an MRI machine, and they're determining exactly what molecules are in that substance for R&D purposes, QA/QC purposes and so on. And so we're the only company in the world that's sort of leveraging the similarities between the technology and MRI machines and the technology and magnetic resonance for industrial analysis, building our real business today around the industrial analysis part because it's unregulated in the FDA sense. But then we have a strategic plan to one-day launch a very exciting smart next-generation MRI product for human medical imaging. So what our company does is 2 things. As we've miniaturized magnetic resonance technology with real products that we're selling in the marketplace today. But more broadly speaking, we're democratizing magnetic resonance. So that it's not an exotic machine either in a specialized room in a hospital or in the basement of a pharmaceutical company, but rather is proliferated all over the place. And there are several aspects to not only miniaturizing but also democratizing magnetic resonance technology. So that's where our company does. This next slide here is a look at the real products that we sell today and have been for years. So the products on the top left are the full-blown systems. In other words, magnet, electronics, low-level software and end user software. There are flagship products where most of our patents are associated with. We sell them to pharma companies, food companies, petrochemical companies, Homeland Security, the DEA, a lot of universities and so on. And that's sort of emblematic of the miniaturization initiatives that we've had. They're the size of a toaster or a microwave oven as opposed to a gigantic expensive machine that requires liquid helium and so on. Our products do not require liquid helium. So that's a big growth driver for us. Now the product on the top right is, in fact, a medical imaging product, but as you can probably determine from the picture, it's not the full system. It doesn't include the magnets. It includes the electronics and low-level software, the same electronics and low-level software that's in all of our products. So we built a common technology platform around this notion that the math and physics is exactly the same for magnetic resonance for medical imaging versus magnetic resonance for industrial analysis. And we sell that on an OEM basis to Tier 2 preclinical MRI companies. We sell it to a lot of organizations that are developing next-generation MRI technology, for example, to detect smaller tumors earlier. We have a really exciting European Union project in that regard. And we're incubating that MRI business unit. It's not a big part of our revenue, let's call it, 2-2.5 million of trailing 12-month revenue, but we're very active with it, and our scientists on that side of our business work very closely with our scientists on the industrial analysis side of our business. So -- yes, sorry, go ahead, Martin.

That the physics between an NMR and in MRI are essentially the same. You're they're responding and sending off some radiation and you figure out what it is. But an MRI is imaging where you have multiple, I guess, spatial points so you can kind of create an image and the NMR is your test. You've got 1 sample, and it's telling you kind of what's in that sample instead of giving like a 3D or a 2D picture. Am I kind of right on that?

You're absolutely right. The one small point that you made, you used the word radiation. There is no radiation associated with magnetic resonance. The energy that's emitted from the atoms is just RF energy, right? It's the same energy as you have on a cell phone or on a garage door opener. So that energy is admitted from the atoms and then you process that energy, which comes to you in a very particular way with codes. And that tells you what substances -- what molecules are in that substance, right? And then that application is also -- or that physical phenomenon is exploited to create an image. But we do create images with our benchtop NMR spectrometer. It's a little bit strange to sort of think about. But when we put a sample in there, we can create an image of that sample or we can create a frequency spectrum, which is -- which you would think of as spectroscopy. So you can do both. And so if you go to the most hardcore magnetic resonance conferences in the world, like one we were just at in Monterey, California, and you're sitting beside Nobel Prize winners from Princeton. They do not distinguish between magnetic resonance or spectroscopy and magnetic resonance for imaging. It's the same math and physics. And in fact, that this is sort of a key kind of bridge into the vision. The reason why MRI is so important is not because it creates images. It's important because in the future, MRI machines will also analyze cells. So not the radiologist analyzing cells, but the actual hardware and software will analyze cells. That's the link and that's the future of MRI down the road as you won't need a radiologist or the radiologist will be an extra layer, but the actual technology will be able to diagnose -- to interpret the nature of cells and so on. So if you think about that a little bit, it's pretty exciting about what the future capabilities of MRI will be.

So just -- if I put my head in an MRI to scan for a brain to where they see a blob there in the future generations they may actually be able to not just say, hey, there's a blob here, but that -- here are some characteristics that maybe makes it look tumorous or not cancerous or something like that.

That's absolutely right. You'll be able to identify the nature of the abnormalities and again, this is sort of our grand vision. I'm not forecasting revenue on this idea in the next couple of years. But the idea is that you'd be able to analyze the tissue without doing a biopsy. That's the potential of magnetic resonance. And that's the link between industrial analysis and our grand vision that I talk about right now.

Interesting. All right. Thanks.

So just -- I just wanted to sort of talk about our great products. We have markets -- products for the sort of chemical and food part of the opportunity, and then we have higher end products that are more targeted at human blood and urine and proteomics, which is very common in virology research and so on. So really great technology and products that we manufacture ourselves with proprietary manufacturing. But the new part of our company that is different than what I would have talked to you last, Martin, is that we've added on direct service capabilities with lucrative contracts, one in particular, that our CFO is going to talk about and give more detail on towards the end of this presentation. And I've highlighted my reference to that service contractor at the bottom of this slide. So yes, so when we started the company, we didn't want to just be a technology company and then rely on other entities for our future. So we built out proprietary manufacturing not just final assembly but proprietary processes such that if you took our product apart in China or India, you had 10 PhDs 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're doing in our manufacturing facility, which is right here in Calgary, Canada. Our R&D scientists and engineers develop a massive amount of intellectual property everyday in the form of proprietary firmware software, hardware and other product characteristics. So really excited about the technology DNA of our company.

Sean. Sorry, like within the whole organization, I was used to enjoy like I forget the stat out of Calgary. But roughly how many PhDs and masters scientist types do you have on staff?

Yes, I've lost track of the exact number, but the number of PhDs is well over 30 and 40 or 50 masters degree people and then really a truckload of high-quality engineers and scientists with undergraduate degrees. But at our current incarnation of our services business, we have a lot of field techs and stuff, too. So we used to be very heavily weighted towards the PhDs, but we're now becoming a global operating company. So we also have the field workers and manufacturing tech and stuff to complement kind of the high-end talent and experience.

All right?

Yes. So this is just a slide that's emblematic of what I've been talking about the future of magnetic resonance. I always say, if you have a PhD chemistry or if you're a radiologist, you can interpret the data on the left that is created by magnetic resonance machines, our machines in particular, in the case of this slide. But our partners and our customers are telling us that in the future, they want the output of our machines to look more like the data on the right. And in fact, we're doing those types of things today. I've mentioned, for example, real customers that use our products to analyze lithium brine pools and their field techs just see one number, percent lithium in this sample, right? So that's the way magnet resonance is going, and we're really excited about. I call it the amplification of magnetic resonance. Really exciting market opportunity. A huge amount of money is spent every year on scientific instrumentation or test and measurement equipment, if you will, everything in the modern world is tested and measured for, whether it's innovation, for health and safety, quality control and efficient manufacturing. And it's just going more and more in that direction. So really excited about the general market space that we're in. The addressable part of this opportunity for us, we think, is in the $2 billion to $3 billion range. But we think that with ongoing miniaturization and democratization that our TAM will grow in this very large market space. In terms of the exact customers that we sell to, we sell to the biggest companies in the world like Pfizer and DuPont and BASF and Eli Lilly, but we also saw the 2-person little biotech start-ups. We sell to the most important universities in the world like Oxford in England and MIT and Harvard, but we also sell to little community colleges in Royal Mississippi or Royal India. And by the way, in those places, there are no liquid helium trucks driving around to keep superconducting magnets cool. So the cryogen-free part of our product family is a big growth driver for us. Yes go ahead Martin.

Looking at the miniaturization, the democratization of your products is similar to how like computers went from mainframe to mini to PCs. And well, initially, there like who wants a PC on their desk, who wants an NMR and then as the price goes lower, it's like, hey, I could do this cool thing or that cool thing with it? And so it's kind of with the price elasticity of it, it's probably kind of hard to see what the market is going to look like in 10 years when the software gets better, the technology and it gets cheaper, I guess.

Yes. I view things exactly the same way, and it's about the price elasticity aspect of it. And then, of course, I really do like the computing analogy because if people really want to get what we're doing and I'm not there to answer a question when they think about it, they can think about the computing analogy because the question and answers are very similar. And a big part of the spread of PCs, right, is third-party software and applications. Well, it's the same thing in scientific instrumentation and the same thing with NMR and MRI machines, a big growth driver is going to be software partnerships and third-party applications. If there's only a small number of mainframe computers in the world or there's only a small number of big NMR machines in the world, why would a software ecosystem evolve, right? But now if you can get hundreds of thousands of millions of these devices out there, now all of a sudden, software ecosystems evolve and people have more utility and so on and so forth. So that's the way -- that's definitely the way I view our business as well. Several years ago, I had a partner that's a very large international industrial technology company come to us with a vision about a very tiny magnetic resonance devices that, for example, you could plug into your iPhone and use iPhone for some control processing but also access to the cloud. And it would be perfectly mobile in that regard. So -- that was something that came to me. That wasn't something that sort of I came up with, but that's just an example of where a lot of people think this stuff can go down the road. And in the meantime, we're just building a quality business with real growth and in the next couple of years, real profitability.

Right.

People have asked me about our sales organization. We had an acquisition that we closed in January of a sales and services company. And then that changed the way we thought about our sales organization and the sort of team sport nature of sales. to take us from sort of a small tech start-up kind of mentality to a larger, scalable kind of mentality that would be deployed by companies like PerkinElmer or Thermo Scientific or Agilent. So in the last year, we've been evolving the way we do sales. And so this is just a snapshot of how many people on the ground we have in the United States and Canada and then how we sell internationally. We're -- for us sort of direct or tight partnerships between direct and external sales reps works well, sort of uncoupled distributor-type relationships haven't worked that well for us. So we're going more and more towards the sort of direct route or the tightly coupled direct with partnerships route. And then yes, we've got some really exciting kind of value-added reseller opportunities to go deep in verticals. One of the powerful aspects to which I've kind of woven into this discussion is that magnetic residence is a general in nature technique. It can analyze a lot of different things. And for the most part today, our customers use it as a general purpose analyzer. So the same customer will, for the most part, will analyze a drug or a food item. They don't use it as a single-purpose analyzer. But as we move forward, we're working on vertical market partnerships with companies that are only in the food industry or only in the beverage industry or are only in the petrochemical industry, and they're going to take our products deep into their vertical market. So that's an important part of our growth strategy as well.

And Sean, just the sales organization, that's the KPrime acquisition you're talking about that gave you that rolled out on the services side. And so I guess you kind of addressed it as well because you're going more direct through the sales organization now, I guess, at least in North America and -- KPrime was North American focused or exclusive, correct?

That's correct.

And so you kind of got rid of your distributors or your middlemen there and then went direct to customers using the KPrime distribution?

Yes. We sort of evolved them. I mean to say we got rid of them is maybe at that language is a little bit too strong. But yes, we definitely evolved in a new direction with the KPrime acquisition.

Okay. Where the distributors are more sort of traditional distributor model like your -- you guys are in charge of making the sales calls and much more taking the sales process in your own hands?

Yes, that's right. And then KPrime introduced a model where they become more like lead generation type people, but that don't have to handle the product because they're not specialists in that product. We are and they don't have to invoice the customer and that sort of thing, but they get a 6% commission kind of a thing. So that was one new dimension to it as well. And we changed our compensation structure with our existing salespeople. So larger quotas, smaller territories, which is a sort of normal evolution when you go from a small tech company to a large company with -- today, we have over 230 employees kind of thing where if I talk to you 4 or 5 years ago, we might have had 30 employees.

Yes. Okay.

Yes. So just before I kind of turn it over to Randall here in a second, I just wanted to highlight of how we built this company from scratch. The original team that I put together 14 years ago, is still all with the company executing on our mission and driving towards our vision. And then we've just -- we've raised quite a bit of money over the years. We've layered on fabulously talented people as we've gone from phase to phase in our business. We went public in June of 2019, we've done 4 acquisitions since then and integrated them into our business. Most recently, a company in Switzerland called QUAD Systems that we've been working with as an OEM partner, and now they're taking us up market into human blood and urine. And then also the KPrime acquisition, which is the entity that won this $160 million scientific instrumentation service contracts. So it's just been a fabulous 10 years, but we think our next 10 years are going to be even better. We've got all kinds of exciting catalysts coming down the pike. And like I said before, I intend to endeavor to triple our revenue in a profitable way over the next sort of 2.5 years time frame. So our company is, yes, it started out about technology and products but now it's about products and services working synergistically together. And because this particular contract win that we signed, about a year ago is that sort of a big part of our company sort of disproportionately large just because it was opportunistic and lucrative and it's consistent with our vision of having direct service in every major market in the world. I wanted to talk about this in particular, but I'm going to let our CFO talk about that. He's heavily involved in the financial management and operational management of this very important contract. So with that, Randall McRae, our CFO.

Thanks, Sean. So looking at this contract, we're about a year past signing a little more than that. And in our phase-in period, currently, we've got an active presence in 81 locations for the customer, which is the entirety of the service. We're still ramping up our services available in those locations, and that's going to continue on through the next part of 2023. So to step back a little bit, this is $160 million service contract to provide maintenance services and other ancillary services to the Canadian equivalent of the TSA. So this is a sticky recurring revenue contract where we're in there every day servicing airports across Canada. 81 locations, as I mentioned, and last 5 years. Now the contract actually has 2 renewal options in it at the customer's discretion as well. So it has a theoretical life of 15 years. So we've been generating revenue in the contract since late 2022, and we're expecting to have revenue reach around $25-plus million a year as we get into the full operation stage of the contract. So like a lot of service businesses, this is a business that relies on a technically skilled labor force. We've got some great people. We've hired 115 out of our project, which is over 90% of our projected hiring for the contract. And we're going to generate strong margins on this. We've got a good handle on what this type of business should do our modeling is tracking very well to what -- to both industry standards as well as our goals in terms of what we want to generate. And it's going to allow us to have a highly skilled technical labor force that we can not only work on this contract, but redeploy those individuals to other types of service work, especially in the major centers across Canada where a large portion of the workforce will be located.

And is the service you're providing essentially servicing the X-ray machines and the body scanners and the test strips or they rub on your laptop and that kind of thing?

That's exactly right. So servicing, installing commissioning and decommissioning a whole range of services related to that. And it really works well with our business model. We're a scientific equipment company. And we're servicing some of the most complex scientific and detection equipment on the face of the earth. And it only increases in its complexity. So one of the things that I think makes us attractive to the customer is the fact that we do have, as Sean said earlier, a huge amount of intellectual resource. So we can solve problems that might come up that people haven't necessarily seen working with the original manufacturers but also with our highly skilled tech workforce in the field and our highly skilled an analysis subsidiary as well that brings forth a lot of technical knowledge and detection and analysis.

All right. The phase-in period is ending soon. And the phase-in period is you couldn't start 1 Monday a year ago and say, okay, you're now covering all the airports at we're slowly rolling it out to the thing. So you're almost rolled out to all of them. And I sort of cliche kind of the heavy lifting has been done. The investments have been made, and now it's once you're all in and a few other sort of learning hiccups presumably along the way you should be in full force and then probably go more to the optimization phase once you kind of figure out what's working and what's not working so well.

That's exactly right. I'd say the majority of the heavy lifting is done at this point. We've hired most of our staff. There's a ton of training that has to go into this. So that's the last phase here is to get everybody trained up and get them all fully deployed to where we can cover every type of service that the customer wants, which -- now the service is quite broad. There's a preventative maintenance component, and there's what we call corrective maintenance. So that's a break-fix model. because, of course, as equipment ages, it tends to break and it breaks regularly, and we need to be able to respond quickly. You can't have flights being delayed or airport travel going down because your body scanner is not working properly. We've got to be out there and fix it in a timely fashion. So that's the second component. And the third component is actually working on additional projects and upgrades that the customer has ready to go. And as we have everybody fully trained and certified by the equipment manufacturers, then we're ready to take all of that on.

All right. And is -- and it sounds like it would be the type of business where you describing here is $25 million per year. It's roughly flat maybe every new X-ray machine, they install, you get a little bit of additional service revenue or if they take a unit offline, something like that, but it's pretty stable over the term of the contract?

Yes. That's my expectation is that it will be fairly stable. Like the preventative maintenance is scheduled. Corrective things like that. Well, that -- when we talk about corrective, we're talking about a huge volume of equipment. So that's going to average out to be, I think, fairly stable over the course of the year. Month to month, it may vary a little bit. But over the course of the year, I expect it to be stable. Projects on the other hand, could go either way. Certainly, if there's a large or a project that the customer has that we want to take on, that might be something that happens over a period of months or the majority of 1 year and that might be make that year particular -- stand out a little bit more than others. But I would think you're probably on it there, Martin, that we're looking at a relatively flat year-over-year revenue as once we're fully scaled in.

Got you. You say you're targeting strong EBITDA margins. Are you able to give any sort of hint or range of what relatively strong EBITDA margins kind of means?

Yes. I mean we're expecting to see at least 15% to 20% on that and hopefully, with some optimizations and strategic work on our part, do a little better.

Yes. And obviously, with the last couple of years, all the inflation news, I know there are some inflation, you've announced there are some inflation adjusters in there. Given the last year of inflation, were there any surprises that kind of caught you off guard or the pricing mechanism seems to work here?

No. As you can see, we've got a billing rate for the -- with the customer that is I think it's a win-win for the customer and for us that it's a fair price for the customer, but it also allows us to -- in the first couple of years of the contract, absorb a little bit of that inflation that we're seeing and also allow for the fact that we do have to have people on call for that break-fix model. As we go forward, as you hit the nail on the head, there's inflationary adjustments in the contract that are indexed. So that should cover what we need to make sure we can continue servicing in the future.

Got you. Are you on this sort of services -- this services contract presumably gives you a bunch of scale, especially in Canada, are you looking after other or looking at other sort of large contracts like this? Or now that you've got the sort of foundation of business then your test really looking -- because it's -- I think you can clearly argue that it's sort of -- it's what you do, but it's not really core to your scientific or commercial industrial customers, but it gives you a scale. Is all your other sort of growth looking more at your kind of key target market, if that's fair to say?

I think there's a good target market in the detection side of this industry as well. So I think there are opportunities that we're looking at in the service side, particularly in detection equipment. So I'm hopeful that we can continue to grow that part of the business. But I think you're right, Martin, right now, it is a little bit outside of our kind of core NMR target market, but what we have to remember is as we grow internationally, as we continue to get more instruments out into the field and as we continue to expand with our investment in QUAD into the high field segment, is particularly high field instruments require a ton of annual maintenance and a ton of ability to keep those running. So in the long term, we're going to need a service segment of our business to be able to deal with all of our scientific equipment that's in the field. I think that's really important. If you look at some of the major kind of players in all sorts of industrial equipment, there's an increasing move to have in-house service because of the attractive margins that you can make on this, but also because it provides an A to Z customer experience where everything that they need can be taken care of at one shop.

Yes. And you don't have to worry about your customer experience failing because your service provider isn't doing their job and it kind of rubs off on you then.

Exactly. Our service provider, especially with what we do because there's going to be quite a bit of expertise that you're going to need to handle equipment that is literally groundbreaking. And it's not like we can just call up a local supplier and have a repair like microwave that's been on the market for 40 or 50 years. This is new stuff. This requires proprietary knowledge. So having an internal makes a ton of sense from a strategic perspective, from an IP perspective and a customer relationship perspective.

Got you. Your KPrime is North American-based. I guess in Europe, you're still relying on service companies and so forth. Would that -- is that a logical step to have your own services organization in the European market sort of firstly comes to mind?

Yes. And I think, Sean, why don't you take that question?

Thanks, Randall. Yes, yes, absolutely. And so everything Randall just said, I'll extend that to Europe. United States has been our biggest and best market. So we always sort of do things there first, but we're moving that model into the United States and with a couple of -- or sorry, to Europe, I meant to say and with our acquisitions, we have a couple of physical offices there right now in sort of the peripheral of Europe, we do use third-party dealers. But in France and Switzerland and Germany, we're currently selling and servicing direct, and we're going to continue to sort of grow that.

Got you. Okay. So you do have a foundation there. And I would think Switzerland, Germany and France are some of the better markets for your -- for I'm guessing, for a lot of your clients are based in those 3 key markets.

Yes.

Got you. All right. Okay. Great. I know I think that's pretty in-depth here on the services.

Absolutely.

Maybe I'd just like to say to sort of cap off this thing, my vision is to be able to service a next-generation MRI machine in a hospital in Menlo Park, California, to provide service to benchtop NMR spectrometers that have been deployed in corn manufacturing facility in rural Nebraska. And don't be surprised if there aren't benchtop NMR spectrometers analyzing illicit drugs in airports. And United States and Canada, right? So yes, the service business has gotten big fast, but it's also a key part of our long-term growth strategy.

All right. And is that the key presentation, we can go into more questions at this point?

Yes, that's -- other than to just emphasize how fabulous our people are. That's the end of the presentation. So happy to have any kind of discussion or Q&A you'd like, Martin.

Sure. Your -- the 400 megahertz Quad system, your low -- I don't know are you launching it? Or is it launched at this point?

It's launched. We launched it at a very important conference in Monterey, California in April.

And is that a cryo-based system as well? Or is it more permanent magnet.

It is a cryo-based system and it's using our electronics and software platform that's in our cryogen-free products, but that particular product today does use liquid cryogen. We have a very exciting path, though, to stay at that higher field but get rid of the cryogens in the future. So a tangible plan to do that. But today, it is using conventional superconducting magnets that require liquid helium, yes.

There are a lot -- there are significant players in that market with the high field NMR. Where do -- like it's clear the benefit you have on the benchtop that's basically a new product class. How do you differentiate yourself from the incumbent, if I was running a science lab, why would I go with little analysis as opposed to a big multinational billion-dollar scientific instrument company?

Yes. Great question. So the first thing is that everywhere except in Japan, which has some kind of unique characteristics in that market because of the involvement of the Japanese government. But everywhere else in the world, there's essentially a monopoly in place. So there's one company, a large NASDAQ-listed company that really has -- customers buy the throat all around the world. And I've spoken to thousands of these customers over the last 5 years, and they tell me they're looking for an alternative supplier. So we acquired a company that the founder and the 15 employees actually come from that very large company. One of them is arguably the most important R&D executive that existed at that company. And they went off on their own and then they partner with us, and now we've come together as one company. And so we feel like we have a compelling offering that's at a reasonable price that will give customers freedom that they want, that they're requiring. And then we have a really exciting plan to differentiate ourselves going forward in terms of unique selling points relative to that, I'll call them -- I won't call them a monopoly, I'll call them an incumbent. And a really exciting plan with some very knowledgeable experience on people. And by the way, just going back to the computing analogy, but now applying it to the bigger machines and the smaller machines, there's huge cross-selling opportunities. So 95% of our current benchtop customers use the big machines. But sometimes, they want machines that are portable. They want to drive them around in their mobile ads or use them on their guests. And then conversely, with this acquisition called QUAD Systems in Switzerland, selling -- leading with the sale on the high fuel side opens up all kinds of opportunities for benchtop sales as well. So it's not an either/or proposition. It's about giving the customer what they want evolving the technology to make it smarter and more easily accessible, and we're doing that with QUAD Systems.

And is one of the -- you seem to have a lot of focus on the software side of things? Is that where you see you gaining some of the differentiation is on the software and I guess, interpretation?

Absolutely correct. Historically, magnetic resonance is used predominantly in a high-end academic research environment, but we're moving it more into the industrial environment, where -- the customer doesn't want sort of an exotic research toy, but rather an efficient machine that can give them the answers that they want and only the answers that they want. And software is a big part of that.

All right. Speaking of QUAD Systems, that is sort of a -- you own a part of the company, you have option to increase ownership, can you talk about the state of quad systems, your ownership, your partnership, your -- the path forward going there?

Yes. Absolutely. The main part to emphasize is that we're working well together. We're both excited about the joint product that we just launched -- our sales pipeline is strengthening. And we currently own 43% of the company. We are in some sort of sensitive negotiations right now with the company that I kind of don't want to sort of get involved in publicly. But I do want to say that it is our full intention to be -- to eventually acquire 100% of that company. the macro sort of stock market environment over the last 1.5 years has been a bit turbulent, but we sort of see that it's stabilized now. And so we feel confident that we're going to be able to fully consummate that acquisition in the near future. I do want to point out that our module is sort of the control engine of the whole system. And so really, it's our technology that enables them to execute the exciting business plan that they're executing.

All right. So you are a key to their product you're important to them is what you're saying.

Absolutely.

Got you. You had a slide here earlier, I think we said pentanol yes, knowing it. A couple of years ago, you announced a partnership, I don't know, I guess, call it a partnership with a German police agency, call it, where I guess you'd have mobile labs to check to see what kind of drugs are in the -- what the samples they seize is, call it. Is that still ongoing? What is the state of that partnership? Or...

Yes. It's an active technology partnership with their scientists, the German organization was out of Hanover called LKA. There were several press releases on both sides that went out about that. We're excited about it. It involves using benchtop NMRs, spectrometers from us to analyze, for example, suspicious white powders that are complicated in -- whether it's a border crossings or just out on the street and doing database matching with the database that we built with the LKA. We think there's a tremendous opportunity there. For example, in crime labs in the United States, they're using all kinds of instruments for controlled substances like narcotics. And we've all seen this publicly that this is a growing problem especially in the developed world, and we think we can participate in dealing with that problem in some way. Initially, it won't be on the [indiscernible] side. but it will be on just helping law enforcement and other crime agencies sort of deal with the problem and kind of develop their technology platforms so that they can better deal with the problem. And then from a visionary perspective, ultimately, I see it as being a tool that's used for evidentiary reasons as well in the field with law enforcement. Then they use optical techniques and wet chemistry techniques right now, optical techniques like Raman Spectroscopy that just have a terrible of false negative and false positive rates and then wet chemistry techniques just aren't really effective at all. So we think we can do some really great things in that regard. So yes, thanks for bringing up that project with us Martin.

All right. Question here on artificial intelligence with the increase in artificial intelligence technology over the last 6 months, especially -- are there opportunities for you to apply any artificial intelligence or powerful computing techniques can generate better images or higher -- or create new -- does it give you any opportunities in the future?

Yes, absolutely. Artificial intelligence and machine learning is a way to get smarter answers faster. And when you when you're trying to make machines that are smaller and cheaper so that they can be deployed more broadly. Part of that is to not try to get all the information from the raw hardware, but to sort of get a minimum amount of information from the raw hardware and then use software and AI as a smart way to get to the final answers that you need. So we've got several exciting projects associated with this. That topic is also related to the dualistic drug or narcotics technology as well. But yes, on the medical imaging side, it definitely applies to getting more information out of the images than rather than just what the raw hardware plus a radiologist can get out for sure.

All right. And another question here from the audience. Are you considering divesting parts of an analysis to stabilize things?

That's not part of the current plan. I've been talking about our vision and our business plan for several years now. And if you go back and look at what we talked about when we went public in June of 2019, we've basically done all those things exactly how I said they would roll out. And then the next phase of that, which eventually will be medical imaging, that's our plan. So when the audience member says stabilizing things, we've had a need for capital. I mean any time you sign a $160 million rock solid contract with the government of Canada, yes, that's going to require capital, but we're executing successfully on that contract. And we anticipate that particular contract being profitable in the very near future. And then I view it as a cash cow that's going to fund a lot of the initiatives for the rest of our business. So that's how we've executed on our plan, and we're going to continue to execute on our plan and we feel like all these different pieces in our company are coming together very nicely.

You -- since going public, I believe you've done 2 equity raises and -- and then as well, in one of your slides, you have a line of credit or a credit facility queued up here. Or should investors be -- are you going to need to raise additional equity? Or would that maybe be only limited if you have a big acquisition or just are you sort of structured here to be self-sufficient with upcoming profitability?

Yes. So we publicly disclosed that we did a small raise about a month ago. existing investors, really supportive investors, angel investors as well as institutions participated in that. And then I'll maybe let Randall talk about this, but we are currently restructuring our debt facility with that's been provided to us by commercial banks. So not private debt or anything, but just regular old commercial banks. And we expect to have some really exciting news about that. We've already publicly disclosed what's going on. So it's not new in that sense, but the culmination of it will be new, and I'll let Randall talk about that.

Yes. Thanks, Sean. For today, there's nothing new to announce there. We're continuing to work on restructuring that debt facility. As we said in our press release in Q1 that we've -- we entered a nonbinding term sheet on a $15 million set of credit facilities. So my expectation is when we close that, we will significantly strengthen our balance sheet and provide -- it will help provide the necessary capital to allow for growth and some of the goals that Sean has been speaking up here today.

All right. right? Are you able to provide any revenue projections for this year, next year or thereafter?

Yes. So what we've decided to do going forward, especially as we get this large service contract profitable here in the next few months is just to sort of talk about what we endeavor to do. And so at the outset of this webinar at which Martin and I mentioned that you've seen us triple our revenue in the last 2.5, 3 years. and we have a specific plan to endeavor to triple our revenue in the next 2.5, 3 years. Again, with the only difference being there won't be the dilutive activity that you've seen. And we'll do it in a way that's profitable. So not just sort of tripling our revenue but getting to a very solid EBITDA margins. Randall, you like any other comments on that?

No, I think that's the way I view it as well. There's -- we've spent the last year really focused on rolling out this $160 million contract. And that requires a lot of work, a lot of focus, and I'm really happy with where we're at on that. And I think it's going to provide us with a really good base for us to grow our revenue going forward.

That, let's say, having similar growth in the next 2, 3 years as you had in the last 2, 3 years, would that require like significant acquisitions? Or is that essentially organic in nature, just growing the businesses that you currently have?

To honor. So again, not with any acquisitions, just with digesting our past acquisitions, hunkering down and focusing in on our current operations. So it would be 100% organic.

All right. When can we expect profitability?

I'll let our CFO comment on it.

That's a good question. I'm not going to put a date on it, but what I will say is this further to what I talked about with regards to rolling out CATSA and what Sean said about organic growth and looking inwards. We've done a few acquisitions over the years, and that means there's been a lot of there's a lot of synergy available for us to make use of with our acquisitions. So we need to take some time to, as Sean says, digest it. look internally here, realize some of that efficiency. We've done a lot of work on our sales group over the last year. We've done a lot of work on CATSA. So I would say sooner rather than later will be the ads were I'll provide here because it is a key focus for us for the remainder of 2023 to do that work to realize those synergies and realize those efficiencies.

Would it be fair to say, given the size of the CATSA project and the opportunities that gives that you maybe haven't been able to put as much effort on optimizing the other parts of the business. And pushing that as there was a lot of -- making sure that CATSA work will not -- I don't know if taking the eye off the eye off the ball is quite the right analogy, but there's only so much you can do in a day?

Yes, definitely. We bid off quite a bit with that contract. They came through one of our acquisitions. When we closed that acquisition, I didn't have full visibility on the probability of winning that contract. So it wasn't until 3 months into closing that KPrime acquisition that I -- that it hit me like, holly smoke! we're actually going to win this bloody thing. And so yes, candidly, if I could rewind the clock back 12 months, there's a couple of things that I do differently and how we scale it and how we finance the CATSA project for sure. A lot of smart, hard-working, sincere committed people have been getting this thing going. So I'm very proud of the work that everybody has done. But yes, there definitely are some things that we could have done differently if I had a time machine and could go back 12 months. But I'm very excited about where we are today and how I view the next 12 months.

All right. I think you've lowered -- the question from the audience here. I think you've largely addressed it, but maybe they're looking for additional specifics. What measures are you taking to control and improve cash flow and adapt as the company matures?

I'll speak to one thing that we're doing is one of many, many items. But one thing we're looking at is improving internal automation. So as you grow, we all know organizations get more complex and they get more challenging to manage. And invariably, you can end up working off spreadsheets and different things like that. And so one of the projects we're working on right now is to unify our background software so that we can improve and increase the efficiency at of our operations team of our finance teams of our human resources team. So we're trying to leverage software and tools to do things faster, better and smarter as we go forward. And this is going to lead us to better scalability and more efficiency.

And then I'll comment on that. Martin, when I founded this company and for the first 5 years until we got a product to market, if you looked at our budget, it was 100% R&D, which normal for a quintessential tech startup. And then we launched the product, we started marketing and selling and so on. And then -- and our R&D budget as a percentage of revenue and as a percentage of our overall budget, has been falling. In absolute terms, it's gone up. And so we're in the next phase of our business now where we're still going to spend a lot of money on R&D. We're still going to be an innovator. We're still going to be a technology company. But in terms of the percentage of R&D that we spend of our overall budget, you're going to see us go down to sort of what I would call orthodox percentages. We've had some very successful R&D projects that we're now manufacturing and generating revenue from. And so yes, so we're moving our business, whether it's on the SG&A side, which Randall just -- sorry, on the G&A side, which Randall just alluded to or whether it's on some of the other cost centers in our business. We're also doing some, I would call it, high-quality rightsizing that not going to impact any of our innovative activity and of our revenue. But it is going to bring us in line with conventional percentages in terms of where we spend our money going forward. So that transition is happening right now as well.

The last several years have been very transformative for you with the various acquisitions, a huge contract win. And now you've got sort of the digesting to do the next couple of years isn't going to be, call it, let's say, maybe as transformative, but it's more streamlining and sort of executing. Is that where kind of the focus will be?

Yes, 100%, right? We feel like we've created a tremendous amount of value in the last couple of years. But obviously, if you look at our stock chart, that value hasn't manifested itself yet in our stock price. So over the next couple of years, it's all about building up a very strong like impressive balance sheet and making sure that the value we created, the intrinsic value manifests itself in the stock price for shareholders. And then once we do that, let's call that 2 years. Then we're going to embark on the next phase of very aggressive growth associated with the medical imaging side of our business and an FDA-approved product. But that's not going to happen in the next 18 months for sure, and it's probably not going to happen in the next 24 months. But we will be successful, and then we will embark on that next phase after a couple of years.

Because you were profitable prior to going public and sort of hitting the growth accelerator and so forth. So in a way you've kind of proven that NMR machines can be profitable. You do a bunch of transformation and then you focus on getting back to that cash flow and sort of -- and just growing and running a good business and then you can sort of stir things up to begin, I guess.

That's exactly right. We've had periods of profitability in the past. And so based on our access to capital and the reality of the equity markets, there has been periods of time where we've run our business for 3 or 4 quarters profitably, EBITDA positive and cash flow positive. And then there's been other parts of our evolution where we publicly stated that we're not going to run our business profitably for 3 or 4 quarters. We're going to do this acquisition and this project ramp up and so on. So what I really like about our business and the way I the way I found that it was we would have levers to operate for profitability when we wanted to/add to. But then we would have other times when it would just be about growth. So that's the way we run our business, and that's the way we're going to continue to run our business. My experience over 27 years as a tech entrepreneur is that reality does not happen in terms of linear curves or exponential curves, reality happens in S curves, right? And so that's the way we're managing our business with S curves.

All right. We're at an hour. Here are a couple of quick questions, and then we should wrap things up here. Can you comment on what the startup costs were for the CATSA Airport contract?

Be more specific with your question for Randall, please.

The start-up costs, I guess -- this is from an audience member. So I guess the investment required to now sort of the burn that was required to get to the point until you expect it to be profitable?

Yes. To the audience member, I would encourage you to go look at our Q1 MD&A because it's detailed out in there. And I think we're sitting around a little bit north of $3 million to date. At Q1 and expected another couple of million in the end. So I expect $5 million to $6 million would be the net investment by the time we're cash positive on it.

Got you. All right. And then one final question here. Is there a company barbecue this year? If so, when is the date?

There definitely will be a company barbecue. The weather in Calgary hasn't been that great recently, but we usually have one in the August time frame. Everybody's always invited...

Am I welcome?

Yes. Of course, Martin will make you a special guest, if you come here from Vancouver. We have a couple of employees that really take pride in their drilling capabilities. So we'll definitely have one, and we'll definitely invite everybody. We get occasionally some visitors from Europe and the United States that come to these things as well. So looking forward to inviting you to that, Martin.

All right. And just I'd like to end with what kind of news flow should investors expect over the next 3 to 6 months, I guess, more confirmation on your bank facility of contract wins, not just obviously, you can't say specific things, but the type of news flow you hope to be announced over the next couple of quarters.

Yes, it will be a smattering of different things. You mentioned some of them, and we expect some really high-quality partnering announcements in the next 6 months as well. And then from my perspective, the biggest thing is as we get into the fall, we expect to be able to demonstrate that from a financial perspective, our business plan is working.

All right. Well, gentlemen, thank you very much for that. That was a really good update and great to see -- get an update from you guys. It's been too long. Sean, Randall thank you very much.

Thanks Martin, Appreciate it.

Thank you.