Nanalysis Scientific Corp.

Good afternoon, ladies and gentlemen, and welcome to the Analysis Scientific Corp Full Year 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 on Monday, April 29, 2024. I would now like to turn the conference over to Matthew Schellinger. Please go ahead.

Thank you, Operator, and welcome everyone to Analysis Scientific's fourth quarter and full year 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 statements. These factors are included in our filings for the year ended December 31st, 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 in financial results in the future could differ materially from any estimates or projections of future performance implied by the forward-looking statement. 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.gov. cedarplus.ca, S-E-D-A-R-P-L-U-S.ca. So on the call with me today are Analysis founder and CEO, Mr. Sean Krakiewski, and Analysis CFO, Mr. Randall McCray. So at this point of the call, I would like to turn the call over to Analysis CFO, Randall McCray. Randall?

Thank you, 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 December 31st, 2023, and then go into full year results. All amounts referenced are in Canadian dollars. Financial highlights for the three months ended December 31st, 2023 are, for the three months ended December 31, 2023, the company recorded consolidated revenue of $9.8 million, an increase of $2.6 million or 36% from the comparative period in 2022. This includes $5.5 million in product sales and $4.4 million of service revenue related to security services. Gross margin percentage on product sales was 48% for the three months ended December 31, 2023. Improvement in gross margin percentage for benchtop NMR is materializing as sales have improved in the second half of the year, and reductions in the manufacturing labor force in late Q2 have begun to positively affect margins. Service gross margin percentage in the quarter was 21% as the company accelerated its training schedule for the airport security project and began expensing wages related to the airports that were in service. Management expects service gross margin percentage to improve significantly as the airport security project is phased into full capacity and revenue scale-up continues in 2024. EBITDA loss for the three-month end of December 31, 2023 was $774,000 versus the $2.5 million EBITDA loss in the same period last year. Net loss for the three months ended was $2.1 million as compared to the three-month loss for December 31, 2022 of $3.3 million. For the full year ending on December 31, 2023, the company reported consolidated revenue of $28 million, an increase of $3.6 million or 15% from the comparative period in 2022. This includes $16.3 million in product sales and $12.1 million of service revenues. Gross margin percentage on product sales was 41% for the 12 months ended December 31, 2023, down from 49% in the prior year. Benchtop NMR margins were depressed in the year due to a slow scientific instrumentation market in the first half of the year, as well as higher costs related to post-COVID supply chain issues and 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. Because of these cost-cutting measures, as well as improved sales markets, gross margin percentage on product sales rose to 48% in the fourth quarter. The company continues to analyze its supply chain to manage its material costs. Services gross margin percentage was negative 23% for the 12 months ended December 31, 2023. This was the result of high upfront training costs related to the rollout of the airport security project as the company's labor force was hired and trained through 2023. EBITDA loss for the 12 months ended December 31, 2023 was 8.1 million versus an EBITDA loss of 4 million in the same period last year. Net loss for the 12 months ended was 16.8 million as compared to the loss for December 31, 2022 of 9.9 million. This increase was driven by losses generated from upfront training related to the airport security contract of 2.9 million. and a loss on derecognition of quad of $2.8 million, offset by a $1.1 million increase in gains on contingent consideration. The company had cash on hand of $759,000, an undrawn available credit facility of $2.1 million, and working capital of $3.3 million as of December 31, 2023. Finally, during the year, 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 began manifesting itself in improved gross margin percentages, particularly in the fourth quarter, as I noted above. The company continues to explore other fixed cost reductions to further increase annualized cost savings and has continued to apply cost reduction measures in 2024. With the bulk of the capital-intensive portion of the airport security 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. As we have noted before, while there will be ongoing training costs related to the airport security project, they are expected to be much less than in the initial phase. Our goals for this year are to continue to grow revenue as well as our margins, focusing on positive EBITDA and then profitability. So with that, I'd now like to turn the call over to our founder and CEO, Sean Krakuski.