Nanalysis Scientific Corp
XTSX:NSCI
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
0.335
0.58
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Nanalysis Scientific Corp
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen, and welcome to the Nanalysis Scientific Third Quarter 2024 Conference Call. [Operator Instructions] This call is being recorded on Thursday, 21st of November 2024.
I would now like to turn the conference over to Matthew of Investor Relations. Please go ahead.
Thank you, operator, and welcome, everyone, to Nanalysis Scientific's Third Quarter 2024 Conference Call.
Before we begin, I would like to remind everyone that our remarks and responses to your questions today will contain forward-looking statements that are based on the current expectations of management. These assumptions involve inherent risks and uncertainties that could cause actual results to differ materially from our responses. Certainty of factors and assumptions were considered and applied in making the forward-looking statements. These risk factors are included in our filings for the year ended December 31, 2023.
Forward-looking statements on this call may include, but are not limited to, statements and comments with respect to future growth of the company's business, the ability to graduate to a senior exchange, the company's acquisition strategy, the ability to develop future products and the possible associated results. The company's actual performance and financial results in the future could differ materially from any estimates or projections of future performance implied by the forward-looking statements.
The forward-looking statements made on this call speak only as of today, and Nanalysis Scientific assumes no obligation to update any forward-looking information as a result of new information, future events or otherwise, except as expressly required by applicable law. For additional information, I do encourage everyone to review our public filings and press releases, which are posted on the SEDAR filing system, and that's at www.sedarplus, s-e-d-a-r-p-l-u-s.c-a.
So on the call with me today are Nanalysis' Founder and CEO, Mr. Sean Krakiwsky; and Nanalysis' CFO, Mr. Randall McRae. So with that, I would like to turn the call over to Nanalysis CFO, Randall McRae. Randall?
Thanks, Matthew. Appreciate it. It's a pleasure to join and speak with everyone on the call today. I'll now dive into the financial results for the quarter ended September 30, 2024. All announced reference are in Canadian dollars.
Financial highlights for the 3 months ended September 30, 2024, include the 3 months ended September 30, 2024, the company reported consolidated revenue of $10.6 million, an increase of $3.5 million or 50% from the comparative period in 2023. Gross margin percentage on product sales was 52% versus 41% for the 3 months ended September 30, 2023.
Improving in gross margin percentages for Benchtop NMR is materializing as sales improved in the second half of last year. A manufacturing cost reduction started in 2023 and continued in 2024 are positively affecting margins. Security Service gross margin percentage in the quarter was 15% versus negative 3% in the prior year comparative period as the company completed full transition of 100% of airport service to its control from the incumbent provider in the first quarter of 2024 and expects to continue to increase revenue and drive efficiency within this business through 2024 and into 2025.
Adjusted EBITDA for the 3 months ended September 30, 2024, was $264,000 versus an adjusted EBITDA loss of $1.4 million in the same period last year. This improvement was driven by increased product sales, full transition of airports to the company's control, resulting in increased Security Services revenue and the effect of cost-reduction initiatives put in place beginning in 2023 and continued into '24.
Net loss for the 3 months ended was $1.6 million as compared to the 3-month loss for September 30, 2023, of $6.3 million. In the prior year, the company recognized a onetime charge of $2.8 million related to the loss of control on its QUAD subsidiary in the third quarter. The company had approximately $223,000 cash on hand, an undrawn credit facility of $2.1 million and working capital of $4 million as of September 30, 2024.
We're happy to see continued strength in our financial performance this quarter. Our year-over-year revenue numbers reflect significant growth in product sales and strong consistent billings in our services. I'm very pleased with our margin improvements as this has been a large focus of our work and efforts over the past year.
Our product sales margins were up 10% to 52% from the previous year, and services were up 18% from a negative 3% margin the year before. We believe that we can continue to improve these margins, and that will contribute to our goal of overall profitability.
While our current results have enabled us to continue to achieve EBITDA positivity, we still need to keep our heads down and focused. We're continually evaluating other fixed cost reductions to further increase annualized cost savings and work to reach profitability.
With that, I'll turn the call over to our Founder and CEO, Mr. Sean Krakiwsky. Sean?
Thanks very much for the financial overview, Randall. I am very proud of our 50% year-over-year growth and our ability to maintain EBITDA positivity on our path to profitability.
The third quarter has always been an interesting one for us historically. Since 2 of the months, July and August, are late summer months, we tend to see some seasonality with slowing in order flow. Then come September, there's a flurry of activity, and we work very hard to take care of our customers and close all that business to the best of our abilities. This year was no different, and we did see approximately $600,000 of business falling to the fourth quarter. This only reassures us and solidifies the statement that we will have a great fourth quarter as it has historically been the strongest sales quarter of the year. And that because of that, our second half of the year will be stronger than our first.
Regarding our Benchtop NMR products business, we currently sell into some of the largest enterprises in the world, including pharmaceutical, chemical, electronics. We also sell into government, labs and universities globally. What we are seeing is the proliferation of acknowledgment that NMR is the gold standard in testing. Because of the utility of the size of our Benchtop products, the use cases and applications are rapidly expanding.
We're seeing our sales expand horizontally on our current customers. For example, where an R&D lab at a pharma company may be using one of our Benchtop units, the QA/QC department may be ordering them in the future. And in fact, because of the size, these can be used in larger deployment places like production lines, where traditional large NMRs were impractical.
Because of our increasing visibility and the expanding market opportunity, we continue to invest in the next-generation platform technology and products, which we'll launch in 2025. These new products will help us gain market share relative to competitors, succeed at the aforementioned horizontal penetration within enterprise customers and open up more vertical market partnering opportunities.
In the MRI and medical imaging, we booked another large medical imaging sale in the quarter to a customer in Europe. Going forward, shareholders should know that this business, although with tremendous opportunities for future growth, can and will continue to be lumpy. We continue to seek new partnering opportunity to sell our MRI console as well as large, custom MRI projects. Areas of opportunity include neonatal and guided radiation therapy.
As mentioned in our press release, as we evolve, it is likely that we will reduce efforts selling other companies' products and eventually focus entirely on sales of our own proprietary products and services, where margins are higher and the competitive barriers to entry are also higher.
Regarding the specific investment in QUAD Systems AG and high-field NMR market opportunity, lot has happened, some initial success in the go-to-market strategy and expects 2025 to be an exciting year for them. We leveraged our software and electronics platform technology by providing QUAD with a high-field NMR console, which is a critical module in their overall NMR system. We're also developing customer leads and building a sales pipeline with QUAD as part of our distribution agreement with the company, which gives us the right to sell high-field NMR products in several territories.
As we have previously stated, we remain 43% owners of the company, hold 2 seats on the Board of Directors. QUAD Systems has been in need of some more capital to fund the go-to-market strategy, and I'm pleased to report that, very recently, they had made some progress in that regard. And I'll provide more color on this in future quarters as I come to fully understand the associated ramifications, which I anticipate will be overall positive for Nanalysis Scientific.
There are tremendous synergies that exist between QUAD and Nanalysis. My original objectives associated with QUAD Systems have not changed, and we see strong -- a strong future in high-field NMR.
Regarding third-party equipment sales, first of all, as a reminder, this is predominantly the reselling of Agilent scientific instrumentation, but also includes other equipment manufacturers. This has been a steady, consistent business for us that provides incremental revenue and has historically allowed us to knock on more doors with customers that we also target for our proprietary products. While the margins are good, we're not able to control over the growth the way we would with our own proprietary products. Therefore, as previously alluded to, this will be less of a focus for us in the years to come.
Turning now to our growing services business. The $160 million CATSA contract continues to progress, both from a billing and margin perspective. As a reminder, we took full control of all 89 airports in Q1 of this year. I'm very encouraged that the margins are up 18% year-over-year. A lot of this was due to the shedding of the initial training and credentialing costs, but Randall and our team have done an incredible job of focusing on efficiencies as well. The mix between scheduled maintenance, unscheduled maintenance and project work will shift quarterly, but we'll continue to provide a consistent balance of billing. As we continue to see progress with this contract, we will gain efficiencies with the service mix, and we do expect to see increased margin growth through the remainder of 2024 and 2025.
While this CATSA contract remains our largest source of service revenue, it is not our only source, and our objective is to grow this overall service business. There are also clear synergies with our Magnetic Resonance products business, and we look forward to leveraging in the future for product sales and expansion going forward.
In summary, with the majority of the year complete and the visibility that we now have, I continue to be very encouraged about the direction of our business as we finish 2024 and head into 2025. I expect Q4 to be very strong.
As highlighted earlier, we have made excellent progress on a cumulative and year-over-year basis. We continue to record company-wide positive EBITDA as we work our way towards profitability, which are our explicit goal. As our large service contract has transitioned from cash burn to gross profit contribution and growth, we continue to refine and look for margin expansion. This contract will provide us with sticky recurring revenue for years to come.
Our Benchtop NMR business is just scratching the surface of the addressable market with tremendous blue sky potential ahead. We're seeing horizontal expansion within our customer base as well as new addressable markets and applications. We'll look to enter into new verticals as well as strategic agreements. We have always been an innovator as that is the core of our DNA, and we will continue doing so. We will keep generating new features and products to meet new market demand.
While we focus on growth, the point that both Randall and I have continued to make is we will stay operationally focused and work to continually drive down costs by looking for efficiencies and simply asking the question, how can we do this better?
Finally, I do want to thank our incredible team here at Nanalysis for they are the ones putting in the hard work, which has translated into these results today and will in the future. For those shareholders listening to this call, I thank you for your continued support.
Operator, I would now like to open up the call for questions.
[Operator Instructions] Your first question comes from the line of Max Czmielewski from Ventum Capital Markets.
This is Max Czmielewski calling in for Stefan Quenneville. Congratulations on another strong quarter. It's great.
My first question is just on Benchtop NMR. It's stronger than we thought. It's usually seasonally slow in Q3, particularly in academia. So could you describe what drove some of that strength in Benchtop and demand in the quarter outside of that channel and if we should expect that strength to persist into Q4? I know you characterized it a little bit earlier. But sort of what does the overall market look like right now for you guys?
Yes. Thanks very much, Max. This is Sean. We're just seeing steady and consistent growth in demand across-the-board. We've continued to grow our direct sales organization and improve the -- our distributor network via training and sort of readjusting our incentive program with them.
So I'm not going to say that we were doing jumping jacks about the performance of Benchtop NMR in Q3. I would just characterize it as solid. And again, a lot of the POs came in right at the end of the quarter. And for just basic revenue rec reasons, got pushed into Q4, again, approximately $600,000. So that's what made it a solid quarter.
We feel like we're just scratching the surface here, the first inning of a 9-inning game, and we're going to do tremendously better in Benchtop NMR going forward. And I think you'll see that in Q4. And then we have some exciting product announcements throughout 2025. First one will be in Q1, and that'll just continue to build on top of the strength in that part of our business.
Great. And just another one. It looks like you're getting some pricing power on the units. Is this more sort of market demand-driven? Or is it a function of maybe fewer discounts, rebates or inflationary adjustments? If you could just characterize that for me as well.
Yes, it's all of the above. We continue to evolve our software and the performance of our machines, just even within our existing product lines, continue to get better. And so that has enabled us to discount less. And as we continue to evangelize with distributors, they become more confident in maintaining the firmness in their pricing.
Perfect. And then it feels like you have your arms wrapped nicely around CATSA at this point, and margins are heading in the right direction. Seems like it still might be a few quarters until you get to your target on that project. But when do you think you'll have the bandwidth to optimize the workforce, sort of utilize those hands outside of the contract towards maybe other opportunities in the security space?
Yes. I tried to answer that in previous calls. We've turned down business with that workforce in the past, just because we were hunkered down and laser-focused on making our customers happy. But we are at a stage now where we're actively considering and, I guess, maybe getting very close to working on other contracts with the same team or at least largely the same team. So don't want to sort of write this in stone per se, but I expect that we're going to make some tangible announceable progress on that front in 2025, so really working hard to make that come true.
Great. And besides the Benchtop beat medical imaging, you saw another sale in the quarter. Was that fully reflected? Or should we expect some of that sale to spill over into Q4 as well?
The one specific item that Randall referred to was fully reflected. But we continue to make similar types of sales each quarter. So I expect there to be other ones that will be recognized in Q4. And we also are just like actively pursuing and in the progress -- in the process of succeeding, not just pursuing, with new partnerships, exciting partnerships that we hope will expand our MRI business going forward.
Having said that, it is also true that maybe some of our older partnerships might evolve, and we might discontinue activity with a certain partner that we've been working with for a couple of years but replace that with new and more exciting partnerships that are more closely related to our proprietary technology. So again, I think there's a good chance there might be some news about those types of things in 2025.
And one last question here, just big picture. Any more color on the sort of NMR segment vertical partnerships as the next leg of growth? And if you could speak a little bit more to that.
Yes. I mean that's a critical part of our growth strategy, and we're working exceedingly hard on those strategic partnerships. In the last 12 months, we were oh so close to doing something really exciting. And for reasons that were a little bit outside of our control, it just didn't come to pass. But that particular opportunity is still in place.
And then we've also developed other opportunities. So which -- like being -- still being in like the first inning of a 9-inning game, the large potential partnering opportunities become more and more feasible going forward because it becomes clear to large established companies that, one day, Benchtop NMR machines are going to be in every lab in the world. They're going to be in every QA/QC environment in the world, and they'll be in every like pharma and food and chemical manufacturing facility in the world, right?
So it's just a matter of when -- the visionaries like Nanalysis evangelize that consistently, that eventually the larger companies catch on to it. So we feel that sort of strength of belief in the future of Benchtop NMR just continuing, so really excited about what's going to happen. I don't have anything specific to -- obviously, to announce today. Otherwise, I would have already done so. But that still remains a huge focus for our company.
[Operator Instructions] There are no further questions at this time. I'd like to turn the call over to Sean Krakiwsky for closing remarks. Sir, please go ahead.
Thanks very much, operator, and thanks very much to all shareholders and employees that joined us on this call and look forward very much to the next opportunity to speak with you.
So have a wonderful afternoon, and thanks very much.
This concludes today's conference call. Thank you very much for your participation. You may now...