This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: And gentlemen, the Q3 press release will be out any minute, and we will start shortly. Once again, the Q3 press release will be out any minute, and we will start shortly. Please stand by. Thank you so much. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Good afternoon, ladies and gentlemen, and welcome to Dean Analyst's third 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. I would now like to turn the conference over to Matthew Selinger. Please go ahead.
spk04: Thank you, Operator, and welcome everyone to an Analysis Scientific's third quarter 2020 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 31st, 2022. Forward-looking statements on this call may include but are not limited to statements and comments with respect to future growth in 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 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 at www.cdrfiling.org. So on the call with me today are an analysis founder and CEO, Mr. Sean Krakiewski, and analysis CFO, Mr. Randall McRae. So with that, I would like to turn the call over to analysis CFO, Randall McRae.
spk03: Thanks, Matthew. It's a pleasure to join and speak with everyone on the call today. I'll first dive into the financial results for the quarter ending on September 30th, 2023. All amounts referenced are in Canadian dollars. Financial highlights for the three months ended September 30, 2023 include for the three months ended September 30, the company reported consolidated revenue of $7.0 million, an increase of $158,000 from the comparative period in 2022. This includes $3.9 million in product sales and $3.1 million of service revenue, predominantly related to security services. Gross profit margins on product sales were 43% for the three months ended September 30, 2023. Bench top NMR margins continue to be compressed in the quarter due to downward pressure on selling prices as a result of a slow scientific instrumentation market and higher costs related to post COVID supply chain issues, as well as ongoing inflation. Starting in the second and into the third quarter, the company began cost cutting measures, including the reduction of its manufacturing labor force to better align with its current manufacturing requirements. This is expected to have a positive effect on margins going forward. Additionally, The company continues to analyze its supply chain to manage its material costs. Service gross profit margins were negative 2.6%, which was an improvement from the negative 15% last quarter as the successful rollout of the CASA project continued. We believe that EBITDA will turn positive with increased utilization in Q4 and continue forward. Revenue is also expected to continue to grow as the project ramps to full capacity. As at the release date, the company had a presence in every single airport required and had approximately rolled out approximately 76% of the project. There was continued training for the CASA project that began in the first quarter of 2023, resulting in net training expenses of 2.6 million for the nine months ending September 30, 2023. As stated previously, while training will be an ongoing part of the company's security service group, expected training costs are coming down and are not expected to continue at this pace once the CASA project ramp up is complete. The company has a presence in all airports, however, wages related to airports not yet being fully serviced by the company, continued to be deferred as prepaid expenses, with the company capitalizing $912,000 of wages during the quarter. Loss before other items for the three months ended September 30, 2023, was negative $1.4 million, compared to $618,000 from the same period in the prior year. That loss for the three-month period ended September 30, 2023, was $6.3 million as compared to the three-month loss for September 30, 2022 of $2.6 million. Included in this net loss is a $2.8 million loss related to the deconsolidation of Quad and associated revaluation of the company's investment, as well as an additional $256,000 loss from Associate in Q3 2023. Effective this quarter and going forward, quad results will no longer be consolidated in the financial statements of the company and will be represented by the company's investment in associate on the balance sheet and income or loss from associate on the statement of profit and loss. Finally, during the quarter, the company continued its cost reduction plan, including layoffs in some of its segments, which started in 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 $2.5 million. The company continues to explore other fixed cost reductions not related to labor reductions to further increase annualized cost savings. So far, in conjunction with this initiative, the company recognized total restructuring expenses at $437,000 in Q2 and Q3 of 2023. The company had cash on hand of $1.2 million, an undrawn available credit facility of $5 million, working capital of $5.6 million, and undrawn government contribution funding of $1.1 million as of September 30, 2023. With the bulk of the capital-intensive portion of the CASA project behind us, we feel we're in a good financial position and are poised now to reap the benefits of this long-term project. While there will be ongoing training costs, they are expected to be a fraction of the initial phase. So with that, I'd like to now turn the call over to our founder and CEO, Sean Kurkiewski.
spk05: Thank you very much, Randall. First off, we are pleased with the sequential growth in our benchtop NMR business, which was up significantly from the prior quarter. We are seeing that this trajectory is continuing in the current quarter. We still are not where we would like to be, but feel that the changes we put in place with regards to our sales organization are bearing fruit in spite of some of the overall macro headwinds and scientific equipment. We did just announce a leadership change today with the promotion of Nick McKenzie to VP of Sales, leading the sales teams for the Benchtop NMR, Highfield NMR, MRI, and third-party equipment product lines. Nick is a seasoned sales executive with a proven track record with over 15 years' experience. Nick has been with our organization since 2012 on the K-Prime side. We recently concluded a thorough and internal process and Nick was a successful candidate. He reports directly to me, and I look forward to working closely with Nick going forward. Concurrently, Shemay Burich, former VP of Sales, has been promoted to President of K-Prime, effective December 31, 2023, and immediately named Executive Vice President of Security Services, making him an officer of the public company. Shemay was instrumental in winning the CASA contract and has been overseeing the successful rollout of that project. With these leadership changes, we believe we have optimized roles on our management team so that the product sales and services business both get the energy and focus they require going forward. With that, I'd like to walk through our different business units. BenchStop NMR. The company is still working through a transition period of integrating the K-prime and analysis sales organizations for Benchtop NMR and has experienced some sales slowdown due to this. Management continues to believe that the implemented changes will benefit overall long-term sales performance. Additionally, the company is continuing to explore application and value-added distribution deals to augment revenue in the short and medium terms. Longer term, we're working on several initiatives which, if successful, will result in regulatory tailwinds for our Benchtop NMR products. The company believes that there may be a temporary slowdown in capital spending due to economic conditions in the US and worldwide, which it continues to monitor closely. Over the last quarter, we rationalized our manufacturing by reducing headcount, but are confident that we are nimble enough to ramp back up with increased sales. As we have mentioned on previous calls, we continue to innovate our products. The current focus has been to apply the advances on the 100 megahertz to our 60 megahertz offering. We feel that this will improve our position in the market because we'll have high performance products at more price points. Because of the tremendous progress that was made on the 100 megahertz last year, we have been able to reduce the size of our R&D group while still maintaining a culture of innovation. This aligns with the goal and commitment to exit 2023 EBITDA positive in the benchtop NMR business and all business units on a run rate basis. We're working very hard to achieve this objective via cost reductions and increased revenue. To the extent that we fall short of this exiting 2023, we'll redouble our efforts to achieve this objective in early 2024. Regarding third-party equipment, slower sales in the scientific instrumentation market continued to hamper the third-party equipment business, and therefore results in Q3 were not as strong as those in Q2. However, they remain above the levels established in Q1 2023. There continues to be macro level concerns in many analytical instrumentation markets over the last couple of quarters, and some are predicting that this may continue for a few more quarters depending on market vertical. We do expect to close Q4 2023 strong, but this is contingent on several larger deals that we are pursuing. With regards to quad systems and high-field NMR, in the quarter, the company sold two of its proprietary high-field NMR consoles to its partner, Quad Systems. Quad Systems currently has two demonstration labs set up where a full NMR system, including a superconducting magnet and our console, which we manufacture for Quad, are working well. There is one in Strasbourg and one in Zurich. There are plans to open more demo labs in locations such as UK, USA, and Calgary at our headquarters, contingent on available cash flow. While the accounting structure between the two companies has changed, as Randall mentioned, the relationship remains strong. Our team has been integral in developing the Highfield NMR system and the two teams will continue to collaborate on an ongoing basis. Our analysis sales and services teams are authorized and trained to sell and service both the full high-field NMR systems as well as the separate modules in several territories around the world. We remain very enthusiastic about the high-field product line, the associated market opportunity, and the relationship with Quad. Regarding MRI sales, We were able to recognize some additional revenue from a large project in France during the third quarter, and we will continue to be able to recognize more revenue in the fourth quarter. We were also successful in selling several proprietary MRI consoles into niche research-oriented customer opportunities in Q3. We continue to leverage the technologies across MRI and MRI regarding electronics and software. Regarding security services, as Randall described earlier, the CAPTA security service contract continues its ramp up and is moving to the final stages of full deployment. We are now in all 81 airport locations and are expanding our services offered in each location. The company expects this product to start generating positive EVTA by the end of this year on a run rate basis. the full service rollout to be completed early in 2024. By March 31st, 2024, there was a contractual requirement that the incumbent service proprietor be fully phased out, and we fully expect to meet or exceed this contractual objective. As we have noted previously, this contract is going to be profitable for us, give us a stepped-up annual revenue base, and will provide us with a large service organization that we will need and be able to leverage going forward with our products business. Keep in mind that while this is initially a five-year contract after the first phase in year, it can be renewed for additional two five-year terms and is indexed to inflation. As I mentioned earlier, Chimay Burich is now solely leading this division. Chimay was instrumental in landing the MCATSA project and is known as a leader in that industry. Chimay is aggressively pursuing additional opportunities to grow this business with quality customer and partner testimonials in hand. With a fully trained workforce resulting from the MCATSA project, we will have a unique opportunity and competitive advantage to leverage them and service additional projects. Overall, in summary, I am encouraged as to where we are with the overall business. The move into security services is proving to be a growth driver for the company. Though not without growing pains, we can see the light at the end of the tunnel where this is bringing in top line numbers and those will start to flow to the bottom line. We're happy to be turning this corner in the contract and have comfort that this will continue for the life of the project with the ability to renew for additional periods as mentioned. In terms of the benchtop business, we are encouraged by the sequential growth and foresee this continuing this quarter. We have made a lot of tough decisions in 2023 and are starting to see the results of the implemented changes. We like what we are seeing. That being said, we cannot take our focus off driving results and working towards cash flow positivity for the whole company, segment by segment. I would like to thank our stakeholders and investors for sharing our vision. Additionally, we have an incredible team here at Analysis with over 200 employees across the globe. I would like to thank the entire team for putting in all their hard work as we become a fully vertically integrated global scientific instrumentation company. Through their hard work and efforts, we're able to serve customers in security, pharma, biotech, food, energy, advanced materials, petrochemical, and education markets with advanced imaging and detection products and services. Finally, I would like to make a very important announcement regarding the current president of K-Prime Technologies, Mr. Cam Lin. After a 30-year prolifically successful career in analytical instrumentation and security services, Mr. Lin will be retiring from his full-time role at the company, effective December 31, 2023. Among Mr. Lin's many professional accomplishments are building a prosperous company in K Prime Technologies, which culminated in the winning of the $160 million CAFSA contract and successful wrap-up of that project. We thank Mr. Lin for his tremendous contribution to our company, and we wish him a fruitful retirement, where he will focus in on spending more time with family and generously donating his time, resources, and expertise to his various philanthropic activities, especially the Alberta Cancer Foundation and the Lynn Family Foundation. I know that Mr. Lynn has full confidence in the team he has built, especially Sine Burrage, who will succeed Mr. Lynn as president of K-Prime Technologies, effective December 31st. We thank Cam again for his incredible service and contribution, and we wish him well.
spk08: Operator, I would now like to open up the call for questions.
spk00: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one. Should you wish to ask a question, And your first question is from Stephon Crennavaux from Echelon Capital Markets. Ask your question.
spk06: Oh, thanks for taking the question, guys. And sorry, I'm a bit, I just got the press release, so I'm just sort of going through it as you speak. Can you again repeat what the CAATSA revenue was in the quarter?
spk03: Sorry, you wanted a repeated CAATSA revenue, Stephon? Just so I can hear, just make sure I heard you correctly.
spk06: Yeah, because the press release just came out, so I'm just going through it as we speak. Gotcha. So I'm going to make sure I have the right number.
spk03: Yeah, my understanding is there was an issue on the distribution service, but thankfully it just got resolved here. So CAATSA revenue, our service revenue is $3.1 million in the quarter, which is predominantly, overwhelmingly CAATSA revenue. Okay. Okay.
spk06: And, um, when you hit sort of March 31st in Q1, do you think you'll be running at the kind of, uh, the full run rate at that point? Are there still, it's a ramp from here to the sort of, uh, you know, 6.7 quarterly run rate. Uh, when does that sort of get up to that, that level?
spk03: Yeah, so that's a great question. The way you get up to that level is, I think first we got to go through the types of revenue streams that we see from it. So there's three different types of revenue streams, primary revenue streams on the contract. So there's preventative maintenance work, which is scheduled and regular. There's corrective maintenance work, which is your break fix. And that's kind of what we consider the baseload revenue. So, you know, what we watch is seeing those work orders growing quarter over quarter. Now, What can be a little more variable but is significant is what is termed in the contract or in the project as additional work. So there's a number of projects that are queued up and ready to go for us. So our expectation is as soon as we're completed our rollout, we'll begin working on those projects. And that's how you get to that high run rate. Now, that's not necessarily going to be, I'm not sure at this stage if that's going to be consistent month over month or if it's going to be, you know, a little bit more up and down as we go forward. It's going to, you know, depend on the project, frankly, but there's a good load of those ready to go. So I think, you know, as soon as we hit that, then it's going to be just growing into that revenue. So I'm not, I can't give you a specific date, but once we're rolled out, then we're going to be tackling these projects that are queued up and ready to go for us, basically, from the customer.
spk06: Yeah, but just from a time perspective, that sounds like a Q2 next year would be. Like you're going to get, as you said, you're going to be fully staffed and you're going to be replacing the incumbent by, you know, before the end of the first quarter.
spk03: Yeah, I don't know that I would say it's even going to necessarily wait until Q2. I think we're going to start, you know, tackling at least some of these projects in the first quarter. In fact, we do some smaller ones now already, depending on the airport.
spk06: Okay. No, that's great. Um, and, and, and just also the, uh, the bed shop business. So a nice, uh, sequential quarter of growth, which is, which is good, but you know, our last quarter was pretty tough. Um, and you think sequentially it's going to be going in Q4. Um, you know, I know that the scientific instrument backup is pretty tough. Uh, you know, um, Thermo, Fisher took down the numbers on the quarter, out, you know, industry bellwether, and they gave them basically a flat outlook for 2024. How are you seeing, like, sort of next quarter and 2024? How's that looking for you?
spk03: Well, you know, qualitatively, I think, you know, Q4 has historically always been a very strong quarter for us, and I don't think this year is going to be any different. based on what we're seeing. I am quite happy to see that revenue growth from Q2 to Q3. I think it shows things are trending in the right direction. It's coming back to where we'd like to get it. I'm not going to say that Q3 is quite there yet, but it's moving in the right direction nicely. So going into 24, I would say that what we're we still see some upside over 2023, but I think, you know, obviously we didn't have a great first half of the year. So, you know, we've got room to grow into four into 24. Um, but I don't think it's, you know, given the bellwethers and the market indications, you know, at this stage, we're not assuming 2024 is, I think it's still going to be a bit of a tough year in the scientific instrumentation market in general.
spk06: But you see it being a year of positive growth in the benchmark business.
spk03: Oh, I think so. Um, Yeah, I think so, based on versus 2023, certainly. Okay.
spk05: Yeah, just step in. This is Sean, the CEO. I'll add some color to that. When we went through the transition from the K-prime transition and the disruptions that occurred in our sales organization, and we had a huge turnover all at once, I've really been focusing in on on the fundamentals of that organization and the execution. And I feel like, I feel like we've fixed those problems. It's taken some time. So I feel like, you know, the strength of the sales funnel, the way, the way our teams are working together, our ecosystem of distributors and, and resellers in the United States, you know, things are working very well now. A year ago, I couldn't, I couldn't say that. And so that's why I feel good about 2024. Okay, great.
spk07: That's it for me. I'm just going to go into numbers and then have a follow-up. Thank you.
spk00: Thank you. Your next question is from Greg Lehman from Canaccord Genuity. Please ask your question.
spk01: Hey guys, thanks for picking my question here. So just a couple of quick ones, starting with the airport security project, which has been ramping up over the last couple of quarters. So I guess implementation kind of slowed a little bit during the busy summer months for travel. Can we expect those higher initial training costs that are kind of front loaded to occur until you're at 100% capacity or will those start slowing down already?
spk03: Thanks, Greg. Randy here. So yeah, you hit the nail on the head just on your first comment with regards to summer season. So what we did is we, summer season is obviously busy with travel. So we took a bit of time, planned out our kind of fall rollout here. And, and as you know, in the, as we said, the press release, we've rolled up to, you know, 76% coverage now by, by today. So did a lot of work here in the last couple of months. So, As far as training goes related to that, we've bitten off most of it already. I do expect to see still, you know, material training amounts in the fourth quarter here as we get the last of our teams trained up. And then going forward, it's just going to be maintenance level, you know, as we have, you know, potential turnover and things like that. But a little bit more left on training and then we're, you know, we should be through that at that 100% point.
spk01: Great, thanks. And is it when those training costs, those initial ones come down, that it becomes free cash flow and EBITDA positive in Q4? Like, has that already happened? Or is that more expected very end of the quarter? Or is that just as services, I guess, get expanded as you roll those additional revenue streams?
spk03: I think the biggest driver is going to be expansion of services. So we've taken over full coverage in some of the largest airports in the country over the last number of weeks. So that's going to be the biggest driver of things. But I do expect that as, you know, obviously as the training comes down, that's going to help drive that in the right direction as well.
spk01: Great, thanks. And just on the overall labor force reduction initiatives, it looks like the anticipated cost savings for those increased a little bit up from Q2 up to $2.5 million now. Is that plan mostly completed at this point? have those reductions like all been implemented across your labor force? And real quickly, just on the back end of that, you mentioned that you're also considering some other avenues of fixed cost reductions. Are you able to touch on those a bit more, like perhaps quantify those?
spk03: Yeah, a little tricky to quantify at the moment, but I will say that at this stage of the game, we've turned our focus from headcount reduction to those alternative methods of cost saving. So the types of things we're looking for is scrubbing through, looking for additional efficiencies in terms of automations, in terms of making sure we're basically just scrubbing through our expenses and make sure we lean out and we just have what we need. So I don't have a quantification of that off the top of my head. The bulk of our savings have been through headcount reductions. At this stage, we've pivoted away from that method and we're looking at other options.
spk08: Great. That's all for me. Thanks, guys. Thanks, Rick. Thanks, Greg.
spk00: Thank you. Once again, should you wish to ask a question, please press star 1. Your next question is from Jim Kennedy from Marathon Microfund. Please ask your question.
spk08: Hi, guys. Hi, Jim. Hi, Jim.
spk02: Hi. A couple questions for you. On the CSA contract, If you're 76% implemented, so to speak, are you not receiving 76% of the revenue? I'm struggling with why we're not cash flow positive yet. It sounds like we're not going to be cash flow positive by year end. How do I reconcile the fact that you're 76% implemented? Who's getting the rest of that revenue?
spk03: That's a great question, Jim. Randy here. So when we say 76% implemented, that's 76% of our required coverages. So that means we're, I'm talking about those preventative maintenance and that break-fix maintenance revenue. So that's as of today, right? That's not as of the third quarter. We've made significant progress here in the fourth quarter to get to that 76% mark. And I think we'll see that reflected in the fourth quarter numbers. Now that's mid-fourth quarter where a lot of that came in to be clear, but Should see that in the fourth quarter. How you get to the large run rate that gets you to that contractual value is through those additional projects. So we've done some smaller additional projects to date, but the customer wants us to focus on getting that base coverage finished, and then we'll start to turn our attention towards the additional projects.
spk02: Okay, what do you mean by additional projects? Wasn't this contract supposed to be cash flow positive by now? based on just the original contract and now we're adding additional projects?
spk03: So the additional projects make up part of the full $160 million contract. So the base load revenue is a component of it. And then a not insignificant part is additional projects that the customer has in their queue that they've wanted done either for the last number of years or are adding. So this could be new equipment installation, taking on trans, you know, decommissioning equipment and that type of thing as a, as a simple example. So this is baked into that $160 million budget. So the expectation is we get to that baseload revenue and then we start immediately taking on project work and, and we expect to, you know, that's going to make a huge difference in terms of where we're at in terms of positive cashflow on the project.
spk02: All right. I guess what I'm struggling with and help me understand is, we signed a contract uh we're implementing it you know across whatever 76 installation now did we not know at the time we signed the contract that we would not be cash flow positive by now because there were going to be additional projects or were these additional projects part of the original contract and we knew it all along we so
spk03: My expectation of it is once we're fully rolled out on the baseload revenue, that will generate positive cash flow.
spk02: That wasn't my question. My question was, when we signed the contract, did we not know that there were going to be additional projects to be rolled out and therefore that the cash flow would not be forthcoming until they were rolled out?
spk03: So, Jim, I'll let Sean answer that because he was around when we did sign the contract. My expectation is – sorry, go ahead, Sean.
spk02: Well, Randy, I don't want expectations. What I'd like to hear is what we signed and why we're not cash flow positive today.
spk05: Yeah, I don't mind jumping in there. So, yeah, so we signed the contract – Thanks very much for the questions, by the way, Jim. We signed the contract on May 25th, 2022. And at that time. You know, we didn't actually have a lot of visibility on the timing of things, right? The customer hadn't Don this before, in other words, remove that incumbent service provider and replace them with a new service provider. And so the first six months were, um, you know, working together with the customer to, um, To define, you know, what, what a reasonable plan was. It's not to say that we didn't start, but we started, and we also started to refine our plan with the customer. So with regards to sort of the latter part of your question, you know, not, I feel good about where the cash flow situation is with CAATSA right now. And I don't believe we need the AWs per se to become cash flow positive on that. Those certainly will. add to our level of profitability, right? Because our expenses stay essentially flat, but our revenue continues to go up. So where we're at right now is we're right at that sort of, you know, point where, you know, Randall and I ask each other every single day, hey, are we, you know, we, you know, that extra terminal was just completed in Montreal, you know, are we cashflow positive today? And, and Randall and I will say, well, yeah, I think we might be, or, or, you know, well, what about training? So, oh, maybe we're not like, so we're just on that tipping point where, where we're sort of like right on the verge of, of being cashflow positive or maybe slightly negative. But, but the essential point is, is that we are at that tipping point right now of, you know, of break even. So, so Randall's just being very conservative and, with regards to like, is he just going to, you know, just make a black and white statement like, you know, we're cash flow positive today, period? Or is he just going to be a little bit more cautious in terms of how he's explaining that? But I'm comfortable that we are at that breaking point right now. And that as we get towards December 31st, and that sort of takes me to the point that I made, which is we are And Randall will give you a more conservative statement, but you can listen to the CEO if you'd like to. We are going to get 100% control of the whole project and phase out the incumbent service provider well before the contractual deadline of March 31st. Well before that. Not two weeks before that, but well before that. And when that happens, we will be cash flow positive. So, if you want, if you want finer grained resolution on that, like, is that going to happen on December 15th or December 30th or January 7th or okay. I respect your desire for that finer grained information. Randall and I are telling you what the information is that we have right now. And I'm very confident in what I just said.
spk02: Okay, thank you. The other question regards quad systems. If I recall, we had the option to acquire more of or all of quad systems. It sounds like we backed off of that. Where do we stand in our ownership position of quad systems, and what is the strategy going forward there?
spk05: Thank you very much, Jim. So on July 1st, 2023, our option expired. And there's two reasons why we did not exercise our option. And that's because we felt like the market had changed dramatically from when we negotiated that deal in the first quarter of 2022. And it's such that technology valuations, especially for sort of pre-revenue or just emerging revenue companies had fallen significantly, whether in the, in the VC world or in the, in the junior pub co world. And so we weren't prepared to pay, um, that, that, that price. And the second one is, uh, second reason is, is that, um, we, um, The, the, the equity markets were such that, you know, raising money to, to, to, to fully consummate that acquisition. just wasn't prudent at that time. So today, we still own 43.5% of the company, which is what we owned immediately after our investment in March of 2022. And I still have an objective to acquire 100% of them in the future. when the time is right. And essentially what that means is that we recalibrate them regarding their valuation. And we become stronger in terms of our balance sheet and our stock price to be able to do that deal. So it's a very important deal for me because of the synergies on the technology and the cross-selling side. But we're just going to have to grind it out. And we're just going to have to focus in on the partnership, which means starting to increase revenue of the terrific product that they have created with our help. So that's an update on the quad systems front.
spk07: Thank you. My pleasure. Thank you.
spk00: Thank you. Once again, please press star 1 should you wish to ask a question. And your next question is from Stéphane Crineville from Echelon Capital Markets. Please ask your question.
spk06: Oh, hey, guys. Just a quick follow-up. I was looking at 2024 again. You know, on the Benchtop NMR side, there's been a lot of talk previously about some, I guess, vertical partnerships that would allow you guys to work with some well-established vertical players to develop NMR solutions for them. Where are you on those initiatives and when do you think those will start to bear fruit and help drive your base NMR sales?
spk05: Those are an ongoing focus of ours. We've had discussions with several companies and had technical projects with several companies. One in particular, I don't mind saying that we had a letter of intent to really create a tight partnership. Although the letter of intent has expired, the opportunity remains open and the opportunity in that particular case was contingent on getting what we've talked about in the press release and in other calls, our next generation 60 megahertz product going. And this particular entity is a deep penetration in the food and pharmaceutical and chemical It's a company that's been around for over 80 years. So both parties have agreed that, you know, when we get our next generation 60 commercial and selling that, you know, we'll restart talks. So that's just one example of the kind of activity that we're engaged in. You know, BenchStop NMR is a new class of instrument. It's a nascent market opportunity. It's largely, in terms of these verticals, it's largely application-driven as opposed to hardware-driven. And so that's another area of our focus is these vertical market applications.
spk06: Okay, great. And then just maybe on the sort of security side of the business, I know you guys have got your hands full wrapping your arms around this catch-the-thing and getting it fully implemented. Do you think there's any scope for maybe like later in the year? Because I know you've talked about other potential opportunities in this space.
spk07: Anything, you know, manifesting itself sort of later in the year?
spk03: Yeah, no, we're always looking at new opportunities. And, you know, there's, we've got a great workforce countrywide in Canada now. So that presents us with, you know, the ability to look at different opportunities, especially in the regions where those, you know, highly technical technicians are based. So we've done some of that. We continue to explore those. You know, we've gotten great references from our existing customer, CAATSA, to allow us to continue to, you know, bid on and look at other works. So, you know, hopefully there's some, you know, growth there in the future that we can announce.
spk08: Okay. Thanks, Esther. Thanks, Stefan.
spk00: Thank you. There are no further questions at this time. I will now hand the call back to Nenalis' CEO, Sean Kukiewski, for the closing remarks.
spk05: Yeah, I'd like to thank all the shareholders for participating on the call and for the terrific questions. And I think I can kind of feel the vibe out there that there's a a lot of lofty expectations that investors have. And we share those lofty expectations, obviously. And, you know, we feel like we're grinding out a victory here. And we're very optimistic of where our company's headed. You know, we all understand, you know, management, board, shareholders alike, that things have been slower than, you know, previous expectations. But, you know, we're absolutely convicted in terms of the benchtop in our market, the synergies with Highfield, and that this CAATSA project and the security service business is going to be a fabulous cash generator for us. We did take a risk doing that. But, you know, I believe strongly in that and, you know, management and board are united And like I say, grinding out a victory here and getting us where we all want to be, which is generating positive cash and restoring exciting growth. So thanks again for everybody for supporting us. And I look forward to speaking with all shareholders again very soon. Thank you very much.
spk00: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.
Disclaimer