Earnings call transcript: Nanalysis Scientific sees stock surge after Q1 2025 results

Nanalysis Scientific Corp reported its Q1 2025 earnings, revealing a consolidated revenue of $10.6 million, a 5% decrease compared to the previous year. Despite the revenue decline, the company improved its gross margin percentage on product sales to 66%, up from 47% in Q1 2024. Adjusted EBITDA turned positive at $180,000, a significant improvement from a loss of $104,000 the previous year. Following these results, the company’s stock price surged by 9.62% in after-hours trading. According to InvestingPro data, the company currently appears undervalued based on its Fair Value analysis, with strong free cash flow yield metrics supporting this assessment.

Key Takeaways

• Gross margin on product sales increased significantly to 66%.
• Adjusted EBITDA improved, indicating better operational efficiency.
• Stock price rose by 9.62% following the earnings release.

Company Performance

Nanalysis Scientific demonstrated notable improvements in several key areas despite a 5% year-over-year decline in revenue. The company increased its gross margin on product sales from 47% to 66%, driven by cost reduction measures and improved sales margins. The adjusted EBITDA of $180,000 marks a positive shift from the previous year’s negative figure, reflecting enhanced operational efficiency. InvestingPro analysis shows the company maintains a "GOOD" overall Financial Health Score of 2.86, with particularly strong performance in relative value metrics.

Financial Highlights

• Revenue: $10.6 million, down 5% year-over-year
• Gross margin on product sales: 66%, up from 47%
• Adjusted EBITDA: $180,000, improved from -$104,000
• Net loss: $1.3 million, improved by $1.2 million from the previous year

Market Reaction

The company’s stock price increased by 9.62% in after-hours trading, reflecting positive investor sentiment towards the earnings improvements. The stock closed at $0.26, with InvestingPro data showing the stock is currently trading 54% below its 52-week high of $0.35. Despite recent gains, the stock has faced challenges, declining 35% over the past year. Subscribers to InvestingPro can access 6 additional key ProTips and comprehensive valuation metrics for deeper insight into the company’s market position.

Outlook & Guidance

Nanalysis Scientific remains confident in its 2025 outlook despite global economic headwinds and U.S. budget uncertainties. The company expects to recover lost ground in the remaining quarters, supported by a strong sales funnel and service business opportunities. It continues to focus on operational efficiency and margin improvement.

Executive Commentary

"We’re confident we can drive change that’s within our control," stated Randall McGray, CFO. CEO Sean Kratkyewski added, "We remain confident in the 2025 outlook despite some of the headwinds." These statements underscore the company’s commitment to overcoming challenges and achieving its financial targets.

Risks and Challenges

• Global economic headwinds could impact future performance.
• U.S. budget and tariff uncertainties may affect business operations.
• Potential fluctuations in European defense spending could influence market opportunities.

Nanalysis Scientific’s Q1 2025 earnings reveal a company making strides in operational efficiency and market positioning, as reflected in its improved margins and positive stock performance. The company’s strategic focus on innovation and cost management appears to be paying off, even as it navigates broader economic challenges. With a current market capitalization of $23.32 million and a beta of 0.44, the company shows relatively low correlation with broader market movements. Discover more detailed insights and access the comprehensive Pro Research Report, available exclusively on InvestingPro, covering what really matters for smarter investment decisions.

Full transcript - Nanalysis Scientific Corp (NSCI) Q1 2025:

Conference Operator: Good afternoon, ladies and gentlemen, and welcome to the Nanalysis Scientific Q1 twenty twenty five Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 05/28/2025. And I would now like to turn the conference over to Mr.

Matthew Salinger, Investor Relations. Please go ahead.

Matthew Salinger, Investor Relations, Nanalysis Scientific: Thank you, operator, and welcome everyone to Nanalysis Scientific’s First Quarter twenty twenty five 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 risk factors are included in our filings for the year ended 12/31/2024.

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 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 SEDAR filing system at www.sedartlus.ca. So on the call with me today are NANalys’ founder and CEO, Mr.

Sean Kratkyewski and NANalys’ CFO, Mr. Randall McGray. So with that, I would like to turn the call over to NANalys’ CFO, Randall McGray. Randall?

Randall McGray, CFO, Nanalysis Scientific: 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 first quarter, which ended 03/31/2025. All amounts referenced are in Canadian dollars. Financial highlights for the three months ended 03/31/2025 include, for the three months ended 03/31/2025, the company recorded consolidated revenue of 10,600,000.0, a decrease of 570,000 or 5% from the comparative period in 2024.

Gross margin percentage on product sales was 66% versus 47% for the three months ended 03/31/2025. Improvement in gross margin percentage for bench top NMR is materializing as average selling prices have improved and manufacturing cost reductions started in 2023 and continued into 2024 have taken effect. Security service gross margin percentage in the quarter was 6% versus 8% in the prior year comparative period As a result, the higher cost of service in the quarter, including overtime wages. The company has begun a specific program to improve efficiency and margins within the project given the setback in Q1 twenty twenty five. Adjusted EBITDA is used by the company as a proxy for operating cash flows available for reinvestment into the company and the service financing obligation.

Adjusted EBITDA for the three months ended 03/31/2025 was 180,000 versus an adjusted EBITDA loss of 104,000 in the same period last year. This was primarily a result of 19% improvements in margins for product sales as well as the effects of cost reduction measures taken in 2024. Net loss was 1,300,000.0 for the first quarter of twenty twenty five, which is an improvement of 1,200,000.0 over the same period in 2024. The decrease in net loss is due to improvements in product sales gross margin, the effects of 2024 cost reductions taken, lower depreciation due to the impairment of an acquired intangible asset in 2024, and finally, the fact that losses in associate are no longer recorded in the consolidated statement loss and comprehensive loss due to the impairment of the quad investments in 2024. We’re happy to see continued solid performance in our benchtop sales.

While product sales were down slightly year over year, we were able to benefit from much improved gross margins, up 19% from a year ago. The margin improvement in benchtop has been a direct result of hard work and focus, both on sales and efficiencies in manufacturing. We believe we can sustain these margins and grow sales through our new products and innovations and a continued focus on efficiency in manufacturing. We have turned that same focus on operations and efficiency to the security services business. The company welcomes Mark Tomlinson as the new VP of services.

With his extensive background in strategic operations management, the company believes it will quickly return to its services growth trajectory seen in the first three quarters of twenty twenty four. Changes will center around workload management, process improvement, and continuing to continuing to implement automation and tools to help our team deliver their services effectively and efficiently. While our current results have enabled us to continue to achieve adjusted EBITDA positivity for four consecutive quarters now, we’re working here, and we’re gonna keep our heads down and stay focused. We’re confident we can drive change that’s within our control. As we continue to look as we look to continue improving gross margins in the security services segment, we do expect adjusted EBITDA to continue to improve while we work towards our goal of overall profitability.

Finally, I’m pleased to announce that we’ve negotiated the renewal of our term loan with our bank, including a twelve month reduction in principal payments as well as company friendly covenant testing in 2025. With that, I’ll turn the call over to our founder and CEO, Sean Patusi.

Sean Kratkyewski, Founder and CEO, Nanalysis Scientific: Sean? Thanks very much, Randall. So I think everybody knows that, in the last several months, there’s been some significant global economic headwinds that everybody has encountered mostly due to the uncertainty created in The United States with regards to budgets, tariffs, and so on. Very proud of the way we’ve kind of persevered through those uncertainties. Admittedly, we’re we’re all, a little bit disappointed in in our revenue coming a little bit light and and below expectations that we had, you know, certainly at the end of year, but very proud of the fact that, we’ve been able to generate, positive EBITDA and also, 2,700,000.0 of positive operating cash flow as we continue to drive towards our ultimate objective of positive net income.

I do want to emphasize that our products are not subject to tariffs going into The United States. We are USMCA compliant, and, you know, despite uncertainties and so on, it it is my opinion, that we will not be subjected to tariffs going into The United States in the future, although admittedly others, have different opinions, but I’m fairly confident on that matter. With regards to the specifics, in our benchtop NMR business, We, had an exciting product accomplishment in q one, able to make our first shipments of our next generation 60 megahertz technology, which is on the same technology platform as our hundred megahertz product, and and has, over twice the performance of our old generation sixty sixty megahertz technology. So we feel like that’s gonna result in sales growth as well as open up Blue Sky partnering opportunities. So very proud of our team on that, and we have been shipping to customers with excellent customer uptake.

I’m really excited about the ongoing software, applications that are being built for that new product and our 100 megahertz, including, software associated with make, driving, adoption in pharmaceutical, quality control, part of that market. We continue to leverage our core magnetic resonance technology by incubating our MRI group and products associated with human medical imaging. We we are working on several, exciting partnerships there with established human medical imaging companies that are using the same electronics and software in the form of MRI console that exists in our benchtop NMR products. With regards to high field NMR, we continue to make progress there with our partner that we own 43% of, soon to go down to 38% because they were successfully able to raise money at a decent valuation, and are taking their product to market. They do have a commercially viable product that is selling.

Again, I’m referring to Quad Systems in Switzerland. I just visited their facility, and the founder of that company, Doctor. Clemens Kessler was very proud of some recent contract wins that he conveyed to me, which we will talk about in the future. One of them was actually a win at a at a prestigious university in Canada. So despite some of the accounting treatments that we we implemented in in 2024, Really excited about the the potential of that part of our business.

With regards to third party equipment sales, which to give everybody a refresher is mostly the selling of Agilent scientific equipment. We performed in a stable fashion in q one, and we have a positive outlook for that for the rest of the year. It is our intention as a company over time, and I’m talking about over the next couple of years to sort of minimize the selling of other people’s technologies as our product portfolio continues to grow and get more robust and is adopted more widely, but that activity is still a significant part of our revenue today. With regards to our security services business, Randall alluded to, over the last eighteen months, we’ve made tremendous progress there taking that business from negative gross margins to positive gross margins. Recently, we felt like we have stalled with regards to some of the important KPIs on that business.

And therefore, know, in a decisive fashion, we made some leadership changes. And I too would like to welcome Mark Tomlinson to our company who’s just been with us for a short period of time, but all already been an incredible addition to our leadership team. If you look at his profile, you see that he spent almost a decade with NATO involved in procurement of of cruise missiles and f fifteens, something of that nature. So, you know, fully well suited for the the security vertical that we plugged him into in charge of this CATCA contract that we’re operating. We feel like Mark is going to be able to restore the trajectory of strengthening gross margins, which again, has an objective to get to 50 Excuse me.

To 25% and then ultimately towards, towards 30%. So, we we feel like we had a great 2024 with regards to that business and then just need to continue to evolve. Some of the strengths that are required to take a business, from 25,000,000 a year to 50,000,000 a year, are not necessarily the same strengths that are required to take that service businesses from inception and zero revenue to 25. So just a natural evolution there that we think, bodes very well for the company. In terms of an outlook for our overall business, you know, we we feel like we’re managing the uncertainties that are stemming from, The United States political environment, well.

And although we did, experience some some softening of of revenue in in q one. We’re still confident in our overall 2025 forecast, and we feel like we’re gonna make up, if not if not all of our lost ground, a significant amount of our lost ground throughout the rest of the year. So, we we are seeing, you know, good strength in our in our sales funnel and also in in our in our opportunities, to grow the services business. So we remain we remain confident in the 2025 outlook despite, some of the some of the headwinds that, you know, pretty much all companies have experienced in q one due to the macro environment. And then lastly, I’d just like to thank, all of our our our shareholders for their continued support.

I really appreciate the precious capital that they’ve allocated to our company, and I’d also like to thank, our magnificent employees who continue to add a tremendous amount of value to our business every day. And so with that, I’d like to turn it back over to the operator for questions.

Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Max Schmielewski from Ventum Capital Markets. Go ahead.

Max Schmielewski, Analyst, Ventum Capital Markets: Hi, Sean, Randy. It’s good to see you guys put out some solid positive EBITDA. I guess just in terms of maybe where the margin is struggling, can you maybe speak to the labor dynamics that might be dragging on the security services side? And like, are you having staffing challenges? Or are these sort of one off placements where some overtime outlay was required?

Just give me some color on that if possible. Thanks.

Randall McGray, CFO, Nanalysis Scientific: Yeah. No worries. Max, Randy here. It’s, you know, it’s a number of factors, and overtime outlays in certain circumstances is part of it. I think, you know, for the last eighteen months, a lot of our focus has been get the project up and running, make sure our customer is happy with our services, and make sure we’re delivering.

Now, as we said previous to this, we want to start grinding out some more efficiency there and making sure our full labor force is effectively deployed across the contract. That’s what we expect to see some progress on in the next couple of quarters.

Max Schmielewski, Analyst, Ventum Capital Markets: That’s great. Thanks. And I guess just on tariffs, the broader topic there, like USMCA compliant, there shouldn’t be any, I guess, direct negative impact of shipping to The U. S, but is this an ongoing story of how you’re looking at institutions that might be sort of tightening budgets and what purchasing looks like, one, in Q1 and what the pipeline appears or the health of the pipeline appears to be given the broader concerns about sort of the macro picture?

Sean Kratkyewski, Founder and CEO, Nanalysis Scientific: Yeah. Thanks very much, Max. This is Sean. So I think people are getting sort of used to the uncertainty despite the fact that the uncertainty isn’t going away. Whereas, you know, several months, there was sort of an element of surprise and shock to this whole thing.

So so, you know, we we haven’t lost business, but certain types of business has stalled. So customers like the FDA and the EPA customers of ours that we expected significant orders Q1, but they’ve kinda gone into a holding pattern. So we don’t know how long that holding pattern is gonna last. I mean, everybody on this call can can watch CNN and and and the news just like I can. So but but we we we are sort of confident that it’ll that it’ll clear itself up before the end of the year.

We’re just not sure, you know, to what extent it’s gonna clear itself up, you know, like, in the, you know, next six weeks or something like that. So but in but just in terms of our general sales funnel strength, we’re seeing good strength.

Max Schmielewski, Analyst, Ventum Capital Markets: K. That’s great. Thanks, guys.

Conference Operator: Thank you. Your next question comes from the line of Christopher Pooh from Canaccord Genuity. Please go ahead.

Christopher Pooh, Analyst, Canaccord Genuity: Hey, everyone. Yeah. I just got a perhaps a couple of questions here. In regards to the kind of in Europe, let’s kind of go across overseas to Europe. I mean, you may have Germany passed their historic defense spending bill, and and there’s idea that European security investment spending would be going up.

I’m just wondering if I can get some of your thoughts on implications for perhaps your detection business over there.

Sean Kratkyewski, Founder and CEO, Nanalysis Scientific: Yeah. You know, we do have opportunities over there associated with the phenomena you just described, you know, in France, for example. It’s developing sort of slowly but steadily for us, but we do think that’s going to be a tailwind in the future. Mean, I can’t really you know, pinpoint, you know, what month we’re talking about, but I do see it as a tailwind going forward. Yes.

Christopher Pooh, Analyst, Canaccord Genuity: Okay. Thanks. My other question is in regards to your automated industrial analyzer for, like, detecting the illicit drugs. Do you have any updates on that from the development side?

Sean Kratkyewski, Founder and CEO, Nanalysis Scientific: Yeah. There’s several aspects to that technology. There’s there’s AI parts of it. There’s database parts of it. There’s there’s hardware parts of it, And we’re making steady progress there, and we do have traction with beta users, important beta users, including law enforcement customer in Germany, that is helping us evolve that.

I can’t give you a sort of full visibility on a full blown product launch yet, but I can tell you that it is progressing well.

Christopher Pooh, Analyst, Canaccord Genuity: Okay. That’s great to hear. Yeah. Thanks for the color. Yeah.

I’ll turn it over.

Sean Kratkyewski, Founder and CEO, Nanalysis Scientific: Thanks, Chris.

Conference Operator: Thank you. And there are no further questions at this time. I would now hand the call back to Mr. Shanker Kieske for any closing remarks.

Sean Kratkyewski, Founder and CEO, Nanalysis Scientific: Thanks very much, operator, and thanks for those who asked the excellent questions. Really, Randall and I and Matt look forward to the next opportunity to talk about our business with all of you, and thanks for joining our call today.

Conference Operator: And this concludes today’s call. Thank you for participating. You may all disconnect.

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