Nanalysis Scientific Corp.

Good afternoon, ladies and gentlemen, and welcome to the Non-Analysis Q4 and Full Year 2024 Conference Call. At this time, all lines are in 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, April 24, 2025. I would now like to turn the conference over to Mr. Matthew Salinger from Investor Relations. Thank you. Please go ahead.

Thank you, Operator, and welcome everyone to the Analysis Scientific's fourth quarter and full year 2024 conference call. Before we begin, I would like to remind everyone that 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 risk factors are included in our filings for the year ended December 31st, 2024. 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 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 encourage everyone to review our public filings and press releases, which are posted on the CDAR filing system at www.cdarplus.ca. So on the call with me today are 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, Mr. Randall McRae. Randall?

Thanks, Matt. It's a pleasure to join and speak with everyone on the call today. As always, I'm going to dive into the financial results for the fourth quarter, which ended December 31st, 2024. All amounts referenced here are in Canadian dollars. Financial highlights for the three-month end of December 31st, 2024 include, for the three-month end of December 31, 2024, we reported consolidated revenue of $12.3 million, an increase of $2.5 million, or 25% for the comparative period in 2023. Gross margin percentage on product sales rose to 60% versus 48% for the three months ended December 31, 2023. The improvement in gross margin percentage for bench-top NMR is materializing, as our average selling prices have improved and manufacturing cost reductions started in 2023 and continued through 2024 have started to take full effect. Security service gross margin percentage in the quarter was 16% versus negative 20% in the prior comparative period, as the company completed the full transition of 100% of airport service to its control from the incumbent provider in the first quarter of 2024. The company expects to increase revenue and drive efficiency within this business through 2025. Adjusted EBITDA is used by the company as an approximation for operating cash flows available for reinvestment in the company and servicing financing obligations. Adjusted EBITDA for the three-month end of December 31, 2024 was $1.8 million versus an adjusted EBITDA loss of $677,000 in the same period last year. This improvement was driven primarily by full transition of airports to the company's control, resulting in increased security services revenue, effective cost reduction initiatives and manufacturing efficiency, and slightly improved product sales over the prior year. This was offset partially by a slight decrease in third-party equipment sales. Normalized net loss for the three-month ended was $400,000 for the quarter, as compared to the three-month normalized loss for December 31, 2023 at $2.1 million. Normalized net losses exclude one-time non-cash impairment charges related to the quad investment, loan to quad, contract receivable from quad, and customer relationship assets acquired in the K-prime acquisition. 7.1 million of non-cash impairment charges were recognized in the fourth quarter of 2024. As the quad investment, loan, and K-prime customer relationships have been fully impaired at this point, no further accounting charges are expected related to these items. Now I'd like to turn to the full year. The financial highlights for the 12-month end of December 31, 2024 are the company reported consolidated revenue of $45.5 million, an increase of $17 million or 60% from the comparative period in 2023. This includes $19.4 million in product sales, $21 million of service revenue, and $5.1 million of both-year inventory revenue. Gross margin percentage in product sales for the year was 53%. up from 41% in the prior year. Bench top NMR margins were driven by the reduction of the manufacturing labor force in 2023 and 2024, as well as improved efficiencies in its manufacturing process. The company continues to analyze a variety of methods to manage parts costs and opportunities for increasing manufacturing efficiency, including greater harmonization between the company's research and development and manufacturing labor forces. Service gross margin percentage was 12% for the year ended December 31, 2024, compared to negative 29% in 2023. As before, this margin improvement was the direct result of increases in revenue when the company took over services in all airports in early 2024, as opposed to 2023, where the company was still ramping up services. Adjusted EBITDA after the 12 months ended December 31, 2024, was $2.8 million versus an adjusted EBITDA loss of negative $7.9 million in the same period last year. Normalized net losses for the 12 months ended were negative 6.3 million as compared to the normalized net loss of negative 14 million in 2023. Again, normalized net losses exclude one-time non-cash impairment charges related to the quad investment loan to quad, a contract receivable from quad, K-prime customer relationships acquired in the K-prime acquisition, as well as the loss and loss of control of a subsidiary being quad, which was recognized in 2023. In 2024, these one-time non-cash charges were $7.3 million versus 2023, where they were $2.8 million. Again, as all these assets have now been fully impaired, the company does not expect any further one-time charges related to these items. The company had cash on hand to close the year of $1.4 million, an undrawn available credit facility of $2 million, and working capital of $3.9 million as of December 31, 2024. We're happy to see continued strength in our financial performance over the past year. Top line of margin improvement in benchtop NMR has been a direct result of hard work and focus on both sales and efficiencies in manufacturing. We believe we can sustain our margins and grow sales through new products and innovations, as well as a continued focus on efficiency in manufacturing. As we continue to manage our security services segment, we've been able to demonstrate continuous growth in revenue quarter over quarter. Into 2025, we look to continue to drive revenue growth in the segment, as well as increasing the efficiency of our service delivery to improve gross margins. There's work to be done here, and this is a core focus of ours. The aforementioned efforts have allowed us to record positive adjusted EBITDA from the second quarter of 2024 onwards, and we expect this to continue through 2025. As we look to continue to drive improved gross margins in our security services segment, we do expect adjusted EBITDA to continue to improve as we work towards our goal of overall profitability. While our current results have enabled us to continue to achieve the adjusted EBITDA positivity, we're going to keep our heads down and stay focused. We're continually evaluating efficiencies to further increase annualized cost savings and improve margins in both our segments.