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

I think we're good to go here. Just waiting on a couple of people, letting them in. Okay. I think we'll go ahead and get started. So welcome, everyone, to the Nanalysis Scientific Annual General Meeting. Everybody is in a mute mode. I would request that you please do stay in a muted mode until the question-and-answer session, which is going to be after the presentation, which is after the formal meeting. I will also send a note to everyone in a chat box where you can send questions to me, and I'll read them off later. So again, thank you for joining us. With that, I am going to turn the meeting over to Martin Burian, Chairman and Director of the company. He also will be acting as the Chairman of the meeting. So with that, Martin, the floor is yours.

Thank you. Good morning, ladies and gentlemen, and welcome to the Annual and Special General Meeting of Nanalysis Scientific Corp. I'm Martin Burian and I'm the Chairman of the Board of Directors, and I will be the Chairman for this meeting. I'd like to thank everyone for their attendance. In terms of the agenda today, after the formal part of the meeting, we'll have CEO, Sean Krakiwsky, do a presentation, and he and CFO, Randall McRae will be willing to answer any questions. And before starting, I'd also like to -- and those 2 gentlemen are in the physical boardroom in Calgary. And then the rest of the directors are joining us, similar to myself, virtually. And I'll just tell you who they are. We've got Werner Gartner, Michal Okoniewski, Guido Cloetens, Dr. Rene Lenggenhager and Kham Lin. So thanks, everyone, for attending. Okay. The meeting will now come to order, and I will ask the corporation's Corporate Secretary, Robert Borkowsky, to act as Secretary of the meeting. Also Gloria Gherasim and Nicola Murtagh of Odyssey Trust Company will act as scrutineers [ during the ] meeting. I'll request the secretary to table proof of delivery of the notice of meeting, instrument of proxy, management information circular and accompanying documents to the registered shareholders of the corporation. Thank you, Robert.

Proof of mailing of the notice calling the meeting and accompanying documents has been duly filed, and I direct a copy of this notice with proof of delivery to be kept by the secretary with the records of this meeting. Next item of business is quorum. I've received the scrutineer's report, and the required quorum is present at this meeting.

Thank you, Sean -- Thank you Robert. Next, I'm able now to declare the meeting as regularly called and properly constituted for the transaction of business. The next item on the agenda is the financial statements. So we will -- this item is to receive and consider the audited financial statements of the corporation for the year ended December 31, 2022, and the report of the auditors thereon. I'll ask the secretary of the meeting to present these financial statements to the meeting. I will also note that they've been filed and are available on SEDAR. A copy of the financial statements and reports to the auditor thereon have been mailed to each registered shareholder, and they had an opportunity to review these documents, so I'll request a resolution dispensing with the reading of the auditor's report. Sean, can you do that for me, please?

I, Sean Krakiwsky, move that the reading of the report of the auditor and the financial statements be dispensed with.

Thank you.

I, Robert Borkowsky, second the motion.

Thank you. All those in favor. [Voting]

And I will just advise everyone this meeting has being conducted in the old style format, which is you're entitled to be in the room, attend the meeting, and of course, you're entitled to send in your proxy. So we have received all the -- all the voting on the business items by proxy and ballots that have been submitted. So thank you for that. Given that, I will declare the motion carried. Next item of business is the size of the Board of Directors. With this item, we are putting in a motion to set the size of the Board of Directors at 7 members. I will now request a motion to fix this number.

I, Robert Borkowsky, move that the Board of Directors of the corporation to be elected at the meeting to be fixed at 7 members.

I, Sean Krakiwsky, second the motion.

Gentlemen. All those in favor. [Voting]

So any opposed in the room? No. Okay. Thank you. The motion is now carried. Election of directors is the next business item which we will now proceed with. 7 directors have been -- will be elected at this time to hold office until the next Annual General Meeting or until their successors are elected or appointed. Could I have the nominations, please?

I, Sean Krakiwsky, nominate Martin Burian, Sean Krakiwsky, Werner Gartner, Michal Okoniewski, Guido Cloetens, Dr. Rene Lenggenhager and Kham Lin for election as directors of the corporation to hold office for the ensuing year unless his office is earlier vacated in accordance with the articles of the corporation.

Thank you. Seconder?

I, Robert Borkowsky, second the motion.

Thank you very much. Is there any further nominations in the room? Thank you not seeing any. I now declare the nominations closed. In order to accurately record the voting results, the vote on this resolution will be conducted by ballot. All those persons physically present at the meeting and are entitled to vote will have received a ballot. And my understanding is that you will have submitted that ballot by now to the scrutineer. Of course, we've also received proxies and ballot returns in electronic formats -- to the deadline. Okay. So having received -- having, sorry. And the scrutineer you've gathered them all? Any change to what we had tabulated before the meeting?

No.

I don't believe so. Great. Thank you. Having now reviewed the ballots with the scrutineer and the -- I declare that the following persons have been duly elected, directors of the corporation to hold office until the next Annual General Meeting or until their office is vacated. That would be Sean Krakiwsky, myself, Martin Burian, Werner Gartner, Michal Okoniewski, Guido Cloetens, Dr. Rene Lenggenhager and Kham Lin. If any shareholder is interested in the exact number of votes cast in this -- for the directors, you can request such information from the secretary after the meeting. And just as a side note, I believe our practice has been to also publish those in a news release. So thank you. Next item of business is the appointment of the auditor. Management information circular and [indiscernible] or proxy prepared for the purpose of this meeting, contemplates the appointment of Ernst & Young LLP Chartered Accountants as auditor. Can we have a motion with regard to the appointment of the auditor until the next the Annual General Meeting. And could this motion be -- and could this motion provide that the auditor's remuneration be fixed by the Board of Directors.

I, Sean Krakiwsky, move that Ernst & Young LLP Chartered Accountants be reappointed as auditor of the corporation until the next annual meeting or until a successor has been appointed, that Ernst & Young LLP's remuneration be fixed by the Board of Directors.

Do we have a seconder, please?

I, Robert Borkowsky, second the motion.

Thank you. All in favor of those in the room? [Voting]

Great. Any opposed? Thank you. I'll declare that motion carried. The next item of business is the reappointment -- reapproval, sorry, of the company's stock option plan. The stock option plan was set out in the information circular. I will note it's a fairly plain-Jane plan in conformance with the TSX Venture Exchange policy, it's what you call a rolling 10% plan. Could I have a motion, please? Put on the floor?

I, Robert Borkowsky, move that the resolution as more -- particularly set forth in the management information circular prepared for the purpose of the meeting relating to the reapproval of the stock option plan of the corporation be approved and adopted.

Thank you. And seconder?

I, Sean Krakiwsky, second the motion.

Great. Thank you. in the room, all in favor? Can you signify? [Voting]

Thank you. Any to the contrary? No. Great. I'll declare that motion carried. Thank you, everyone. Finally, we now come to the termination of the meeting. There being no further business indicated to me, then I will ask for a motion to terminate. Sean, will you do that?

I, Sean Krakiwsky, move that the meeting be terminated.

And a seconder?

I Robert Borkowsky second the motion.

I take it we're all in favor of that? Yes. [Voting]

Anyone not? No. Okay. Thank you very much. I declare that the meeting is now terminated and closed. Over to Sean, I think.

Yes. So that concludes the formal part and we'll turn it over to Sean Krakiwsky for a presentation.

Thank you very much. Thank you, Martin, for sharing the formal part of the meeting. Now I will give a presentation that's a little bit of a sort of year-end review since the last AGM in June of 2023. So I'm sure everybody on this call knows that we make portable NMR and MRI technology for industrial and health care applications. I'm the founder and CEO. We do seek safe harbor for forward-looking statements. I believe we just have an absolutely fabulous management team, for example, Julien Muller, our CTO, who came to us, by the way, by our first acquisition that we closed just before the pandemic, is a great guy with our team, has a really unique vision for the future of magnetic resonance. Most of you know that Randall McRae has been with us now for approximately a year and has really done an absolutely fabulous job taking over from the previous CFO, who's still connected with the company and helping us out in various capacities, but I'm really thankful to Randall for the great job that he's done, and he's going to speak on a couple of the slides towards the end. I think most of you know me. I'm the Founder and CEO, and I'm an electrical engineer, but really I'm a tech start-up guy. I'm really proud of what we've built here our company. I'm not really proud about the current stock price, to be honest. But I think we've done a lot of fabulous things. And I think there's optimism in store for us with regards -- for our valuation. Just a little bit of an update on our cap table, we have about 100 million outstanding shares where our stock price is trading at right now. We have a market cap of approximately CAD 50 million. In 2022, we did CAD 25 million in revenue. And we're very confident that we're going to continue to grow that for many years to come. I feel like we're a compelling story in terms of valuation but also in terms of growth. We're a category creator in terms of portable NMR. And then just recently, we've complemented our product sales with recurring, very sticky, service revenue stream as well. It has been a challenging year for us, but we've got tremendous conviction in what we're doing. We're staying the course. Our conviction is based on an absolutely fabulous foundation that we built over 14 years with technology innovation, operational excellence, great access to capital, a lot of talented people working very hard on our strategic vision and we've got a lot of short-term tactical building blocks that we've created that we think is going to result in tremendous shareholder value as we execute our mission and drive towards our vision. So I'm just going to go through some of the things that we've accomplished in the last 12 months. We digested 3 -- our most recent 3 acquisitions of KPrime, the sales and services company, One Moon Scientific software and then, of course, the 43% investment in a high-field NMR company in Switzerland called QUAD Systems. I feel like we've made tremendous progress on the integration side. In terms of that last investment, we successfully launched the full high-field NMR system at the most prestigious NMR conference in Monterey, California just recently. So we're really excited about the revenue that's going to be generated from that and our positioning in the NMR market because of that product. And we continue to innovate. We filed more patents that -- full patents and provisional patents, we developed a tremendous amount of IP associated with our products every single day. And then, of course, we've got this great services business that we built and by the KPrime acquisition, the leader of that group Kham Lin has just done a fabulous job, not only winning that contract, but executing on it. And since we had this AGM, we've hired about 110 people specifically associated with that. We've gone from 0 revenue per month on that project to well over CAD 500,000 per month on the CATSA project and it continues to ramp, and we continue to have confidence that we're going to be profitable on that project there this fall. Our CFO will make some more detailed comments about that contract towards the end of the conversation here. We made tremendous gains on the performance of our 100 megahertz product. We built a prototype next-generation 60 megahertz product, which is going to be very important for some partnerships that we have in the pipeline and also in terms of increasing our average selling price and that sort of thing. So really proud about what we've done both with our 100 megahertz and 60 megahertz in the last year. And we have a fabulous finance and accounting department. We continue to show that we have great access to capital. Our CFO has been in the process of doing some great work with regards to restructuring our credit facility. And we do have several very important cost reduction initiatives underway in our company to get us oriented towards the next phase of our business, which is about profitability. This is a look at our full product portfolio. So our sales organization, which is growing, has many things to be able to sell today in magnetic resonance both on the MRI side, also on the NMR-spectroscopy side. We have a tremendous suite of accessories as well that go along with our core products. And then as is indicated by the bottom part of the screen, and it looks like this last little bit has been cut off. But as indicated there, again, this emphasis on service, which is becoming a significant part of our business. So that's maybe -- one of the main themes is that we used to be a sort of a capital equipment only company. But now it's about our technology and products working synergistically with our service. And I know many of you believe that the service part of our business has gotten quite a bit bigger than originally expected quicker, and that is true. But regardless, it's definitely part of our vision to have products complement services and vice versa. So really proud about the progress that's been made there in terms of contract wins, but also in terms of some pretty impressive execution. We're just in a fabulous market space when I founded this company 14 years ago. Scientific instrumentation or test and measurement equipment wasn't really a sexy place to be, but it definitely is now. And everybody knows that you need scientific equipment, whether you're looking for detecting explosive or narcotics at an airport or whether you're an R&D lab or whether you're trying to manufacture efficiently. So really excited about the general market space that we're in and about the state of our TAM and how we feel it's going to continue to grow and are stable of high-quality customers that we've built up over the years. So now I look forward a little bit. And so one of our short-term objectives is to exit the current fiscal year as a profitable and growing company and our CFO is doing a fabulous job positioning us for that. Some of you have expressed to me your thoughts about how our balance sheet has looked sort of over the last year. And it's our intention to begin a phase in our company where you see our balance sheet strengthen not from raising money, but from operating cash flow. We expect to make high-field NMR by our QUAD Systems partnership and investment to become a material part of our revenue. We continue to expand our sales organization with prioritizing the United States, of course, but also for the rest of the world. And then it's our objective to establish some value-added bench-top NMR partnerships that will have -- allow us to penetrate deeper into certain verticals like food and pharma and so on. We continue to have an objective of acquiring the remaining 57% of QUAD Systems, our acquisition. I'm going to talk about that in a slide, and I welcome any questions later on, on that topic. In terms of our Investor Relations, Randall and Matt and I are working very hard as is also our Chairman, Martin to get us in front of more analysts and get increased coverage of our company. We continue to have an objective to graduate to a major exchange, probably the TSX big board, I'm not going to rush that. There's a lot of very important foundational things that we need to do before we do that. But eventually, we think that's going to benefit shareholders and our company as well. I just wanted to be clear with everybody that we've done a lot of acquisitions recently, that is not in the cards. It says 2023, 2014, that's a typo sorry, I meant to say, 2023, 2024. So you're not going to see us do that. But our original sales pipe -- acquisition pipeline for our vision, it is my objective to resume that once our stock price recovers, once our balance sheet gets stronger. So you can think of it in terms of, yes, I still have specific MRI acquisitions that I want to do that will take us towards an FDA-approved human medical imaging product that's application-specific and prevention centric, but that's not in the cards for the next 18 months, so there'll be no dilutive activity in that regard. But it is part of our vision. So it's just been an absolutely fabulous ride here over the last 10 to 14 years. We had a lot of exciting short-term catalysts and medium-term catalysts. And so we think our next 10 years are going to be even better and more exciting than our first 10 years. So this is just a specific slide on the QUAD Systems acquisition because many of you inquired about that. So we did have a contractual option to acquire the remaining 57% of the company before July 1. We are not going to exercise that option. The sort of state of the equity markets and all our valuations, and that sort of thing have changed since we initiated that deal approximately 18 months ago. However, we -- our intentions remain the same. We have a great partnership going there that's going to generate revenue, and there's a lot of strategic synergies. And therefore, we are -- we remain in ongoing negotiations and again, our intentions have not changed, but the timing definitely has changed. So again, happy to answer more questions on that. Now I'm going to turn it over to our CFO, Randall McRae, who's been very involved in this $160 million CATSA project, and he'll make a few statements about how that project is going. So Randall.

Thanks, Sean. And thanks, everybody, for being on the call and the meeting today. So talking about our CATSA contracts. So as many of you already know, we won a $160 million service contract to maintain and service detection equipment at Canadian airports, so your airport security equipment. We signed that contract May 25, 2022. It goes all the way to June 2028. And there's actually 2 renewal options at the customer's discretion in that. So it's typically renewed for an additional 5 years, but there's a theoretical renewal period up to 15 years from the original signing. It's a preventative and corrective maintenance contract primarily, but there's a significant component as well for special projects as requested by the customer, which we're already actually working on for them. It's maintaining all of the scientific and detection equipment in Canadian airports so what we call the above ground where passengers goes through. The phase-in period, which is generally speaking, the first year of the contract is ending soon. We currently have an active presence in all [ ED 1 ] locations required by the customer, and we'll have a complete presence in all the locations by the end of 2024. Revenue has commenced on the contract. We began earning revenue in late 2022, excuse me. And sorry, let me -- I misspoke in the first one. We're expected to be in all the airports by the end of 2023, not 2024. We commenced revenue in 2022 where, as Sean said, we're running over CAD 500,000 a month in revenue right now and increasing on the contract. It's expected to go further than that on average about CAD 25 million a year from 2024 to 2027 once we're fully operational in every location. We're targeting strong margins on this contract. We've got a good handle internally on what this tech service business should look like in terms of its structure, in terms of profitability, and we're targeting that actively from the outset. This is a staff-based business. We've got a large workforce of over 100 employees. We're over 90% hired on those employees right now and significantly through the long and important training process to get them up to speed. Once everybody is fully out, we are billing people out between $228 and $304 an hour to our customer and expect to have strong operating margins as a result and ultimately, strong earnings before tax and net income off of this project. It's important to note that there's a global opportunity with regards to maintaining detection equipment. This is a Canadian contract, but these types of equipments are used in all G7 nations in a variety of applications that go beyond airport security. And this is -- this type of equipment is very analogous to our scientific equipment and our [indiscernible] as we grow the business globally as we expand with our QUAD acquisition, it's a high field we're going to need an agile and technically based service force to be able to maintain the needs of that part of our business as well. And that's what Sean speaks to with regards to the long-term integration of our service operations and our NMR operations.

Thanks very much, Randall. So that's essentially the end of our presentation other than to emphasize we feel like we've built a fabulous company that's a compelling investment and now I'll open up the call back to Matt Selinger, our IR Manager, who will turn this into a question-and-answer session. So thanks very much to all those of you who joined the meeting today.

Yes. Thank you, Sean and Randall. So if people do have questions, depending on your Zoom skill set. [Operator Instructions] We tend to have been orderly in the past. So with that, why don't we open up for some questions? Maybe we have none. Yes, such a good presentation. Sean and Randall. I'm not seeing any questions as of now. Everybody you do know how to get a hold of us if you do have questions, please follow up with myself. And we appreciate everyone taking the time today to join us for our Annual General meeting.

Thanks, everyone. Yes.

Thanks, everybody.

Bye for now.