Nanalysis Scientific Corp.

Hello everyone, and thank you for joining the Analysis Second Quarter 2023 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 zero for the operator. This call is being recorded today, August 24, 2023. I now have the pleasure of handing you over to your host, Matthew Selinger, Investor Relations. Please go ahead.

Thank you, Operator, and welcome everyone to an Analysis Scientific second quarter 2023 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. Certain material factors and assumptions were considered and applied in making the forward-looking statement. These risk factors are included in our filings for the year ended December 31st, 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 such 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 CDAR filing system, which is www.sedar.com. On the call with me today are Nalysis founder and CEO, Mr. Sean Krakuski, and Nalysis CFO, Mr. Randall McRae. So at this point, with that, I would like to turn the call over to Nalysis CFO, Randall McRae. Please go ahead.

Thanks, 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 on June 30, 2023. All amounts referenced are in Canadian dollars. Financial highlights for the three-month end in June 30, 2023 include reporting consolidated revenue of $6.956 million, an increase of $1.769 million, or 34% from the comparative period in 2022. This includes $3.917 million in product sales and $3.039 million in service revenue, predominantly related to security services. Gross profit margins on product sales were 44% for the three months ended June 30, 2023. This is due to a strong quarter in RSTD as well as high margins from the third-party equipment sales business within the K-prime segment. Benchtop NMR margins continue to be depressed in the quarter due to underutilized labor and higher costs related to post-COVID supply chain issues, as well as ongoing inflation. The company has achieved certain increased efficiencies that allowed for the reduction of its manufacturing labor force, while remaining aligned with its current manufacturing requirements and improved margins. The company continues to analyze its supply chain to manage its material costs. Service growth profit margins in the quarter were negative 15% as the company continued to accelerate its training schedule for the CASA project that began in the first quarter of 2023, expensing $920,000 of training costs. As stated previously, while training will be an ongoing part of the company's security service group, it's not expected to continue at this accelerated pace once the CASA project ramp-up is complete. While the company now has a presence in all airports, Wages related to airports not yet being fully serviced by the company continue to be deferred as prepaid expenses, with the company capitalizing $890,000 of wages during the quarter. We expect gross revenue to continue to increase at a faster pace than expenses, thereby increasing gross profit margins as the project progresses. Loss before other items for the three months ended June 30, 2023 was a loss of $2.399 million versus $947,000 compared to the same period last year. Net losses for the three-month period ended June 30, 2023 with a loss of $4.054 million as compared to the three-month loss for June 30, 2022 of $2.532 million. Finally, the company began a cost reduction plan including layoffs in some of its segments during the second quarter to better align its resources and reduce its fixed costs. This is expected to generate annualized fixed cost savings in excess of $2 million. The company continues to explore other fixed cost reductions not related to labor reductions to further increase annualized cost savings. As we mentioned on our last call, the company closed a $4.1 million private placement equity issuance on May 3rd after upsizing it from the original $3.5 million announced on April 21st, 2023. This private placement included insiders and directors. The purpose of this private placement was to bolster the company's balance sheet as we enter the final stages of the CASA project rollout. Also in the quarter, the company closed on a two-year committed $15 million senior secured credit facilities with ATB Financial, comprised of a $5.0 million demand operating line and a $10 million term loan. The new credit facilities replaced the company's previous demand senior secured credit facility with another lender. These new facilities will provide improved financial flexibility and a strengthened balance sheet to help the company manage its operations and current growth initiatives. The company had cash on hand of $5 million, an undrawn available credit facility of $4.7 million, working capital of $11 million, and undrawn government contribution funding of $1.4 million as of June 30, 2022. I want to take a moment here and address another initiative that we completed subsequent to the end of the quarter. In an effort to counter possible economic slowdowns in both benchtop NMR and third-party equipment sales, the company has partnered with a third-party financing organization to expand the number of ways its customers can buy products to include different lease and financing options. Specifically, the lease and finance options will be available to qualified customers within the United States, the company's largest market for scientific equipment. Related to this, as the company moves away from leasing equipment itself, in August 2023, we successfully closed the sale of the company's U.S. sales lease book for gross proceeds of 518,000 U.S. dollars. With these additions and changes, we feel we're building a strong financial base that will be the foundation of the company's future growth. With that, I'd like to now turn the call over to our founder and CEO, Sean Krakuski.