Nanalysis Scientific Corp.

Ladies and gentlemen, thank you for patiently holding. The conference will begin shortly. © transcript Emily Beynon Thank you. Thank you. Thank you. Good afternoon, ladies and gentlemen, and welcome to the Analysis Scientific Corp. 4th Quarter and Full Year 2022 Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, the 27th of April, 2023. I would now like to turn the conference over to Matthew Salinger, Investor Relations. Please go ahead.

Thank you, Operator, and welcome everyone to the Analysis Scientific's fourth quarter and full year 2022 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 current expectations of management. These assumptions involve inherent risks and uncertainties that could cause actual results to differ materially from our responses. Certain material 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, 2022. 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 Analysis 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 encourage everyone to review our public filings and press releases, which are posted on the CDAR filing system at www.cdar.com. So on the call with me today are an Analysis founder and CEO, Mr. Sean Krakuski, and Analysis CFO, Mr. Randall McRae. So with that, I would like to turn the call over to Analysis CFO, Randall McRae. Randy?

Thank you, Matthew. It's a pleasure to join and interact with everyone on the call today. I'll first dive into the financial results for the quarter ending December 31, 2022, and then move into the full year 2022 results. All amounts referenced are in Canadian dollars. Financial highlights for the three months ended December 31, 2022 include that I'm happy to report for the three months ended December 31, 2022, we reported consolidated revenue of $7.2 million, an increase of $2.1 million or 42% from the comparative period in 2021. This includes $5.9 million in product sales and $1.3 million of service revenue related to airport security services. Gross margin on product sales was 36% for the three months ended December 31, 2022. This was the result of an increased manufacturing workforce whose associated wages and training costs began impacting margins in the second half of the year. As this workforce gains experience and sales continue to grow, management expects margins to improve. Also, the company incurred additional warranty expenses related to the replacement of several instruments that required greater than normal levels of customer service intervention. This is not expected to continue going forward. Service margins in the corridor were 42% as the company accelerated its training schedule for the CAATSA project and began expensing wages related to airports that were in service. Wages related to airports not yet in service continue to be deferred to prepaid expenses. Management expects service margins to improve significantly as the CAATS airport security project is phased into full capacity. Loss or income before other items for the three months ended December 31, 2022 was a loss of $2.5 million versus an income of $400,000 compared to the same period in the prior year. The company reported net loss for the three months ended of $3.3 million as compared to a three-month loss for December 31 of $658,000. Turning to the full year end of December 31, 2022, the company reported consolidated revenue of $24.8 million, an increase of $8.8 million, or 55%, versus the comparative period in 2021. This includes $21.6 million in product sales and $3.2 million of service revenue related to airport security services. Gross margin on total sales was 45% for the 12-month end of December 31, 2022. This was the result of increased cost of personnel for the CAATSA airport securities project, increased personnel and training and analysis as manufacturing group to increase manufacturing capacity, and an increase in cost due to worldwide supply chain constraints and inflation. We do expect margins to improve as continued investments in manufacturing improvements continue, sales levels increase, and the CAATSA airport security project phases into full capacity. Loss or income before other items for the 12 months ended December 31st, 2022 was a loss of $3.9 million versus an income of $1.9 million compared to the same period last year. Net loss for the 12 months ended was $9.9 million compared to a net loss in 2021 of $1.8 million. The company had cash on hand of $3.5 million and undrawn available credit facility of $3.9 million. working capital of $8.4 million, and undrawn government contribution funding of $3.5 million at December 31, 2022. Subsequent to the quarter, on April 21, 2023, the company announced a $3.5 million private placement. As mentioned in the press release, the intention of the $3.5 million private placement is to bolster the company's balance sheet as it enters the final stages of the CASA project rollout. We expect the CASA project to continue to consume cash until the fall of 2023, at which time we expect it to be cash flow positive. This is the main reason why we recently announced the non-broker private placement, which has been fully subscribed. I'd like to take a moment here and discuss our working capital and cash management going forward in 2023. When we entered into our current operating credit facility with a major Canadian bank, it was based on the current business at hand without consideration of the capital requirements and timing of the CAATSA project. We're exploring options available to us with regard to debt facilities that better suit the cash flows of this project. With these additions and changes, we feel a strong financial base will be the foundation for an analysis of future growth. With that, I'd like to now turn the call over to our founder and CEO, Sean Krakuski.