Nanalysis Scientific Corp. (OTCQX:NSCIF) Q2 2022 Earnings Conference Call August 25, 2022 5:00 PM ET
Company Participants
Matthew Selinger – IR
Sean Krakiwsky – Founder and CEO
Randall McRae – Interim CFO
Conference Call Participants
Stefan Quenneville – Echelon Capital
Brandon Austin – Venator
Operator
Good afternoon. My name is Silvi and I will be your conference operator today. At this time, I would like to welcome everyone to the Nanalysis’ Second Quarter 2022 Conference Call. All lines have been placed on mute to prevent background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]
Thank you. And I would like to turn the conference call over to Matthew Selinger, Investor Relations. Please go ahead, Sir.
Matthew Selinger
Thank you, operator and welcome everyone to Nanalysis Scientifics’ second quarter 2022 conference call.
Before we begin, I’d 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 of the forward-looking statements. These risk factors are included in our filings, the year ended December 31, 2021.
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 only as of today and Nanalysis 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. So for additional information, I encourage everyone to review our public filings and press releases, which are posted on the SEDAR filing system www.sedar.com.
On the call with me today, are Nanalysis Founder and CEO, Mr. Sean Krakiwsky; and Nanalysis Interim CFO, Mr. Randall McRae.
So, with that, I would like to turn the call over to the Nanalysis’ Interim CFO, Randall McRae. So Randall, please go ahead.
Randall McRae
Thank you, Matthew. It’s a pleasure to join and interact with everyone on the call today in my new role as Interim CFO of Nanalysis. While I’m new to this position, I’m not actually new to Nanalysis as a company, as I’ve worked with them in a consulting basis over six months prior to my joining and know the company, quite intimately. I’ve been impressed with the company’s current business, growth prospects and vision to disrupt the NMR and MRI space. I jumped at the chance to join the company in my current role when given the opportunity.
My goals since joining the company have been to work with Luke Caplette to ensure a smooth transition, as well as to build out my team and systems to support Nanalysis’ growth trajectory. Some of our business segments like the CATSA contract are going to require advanced ERP systems to ensure proper controls and management, the implementation of which has already commenced.
With that said, I would like to turn to the financial performance of the quarter. All amounts referenced are in Canadian dollars. I’m happy to report to the three months ended June 30, 2022, the company reported consolidated revenue of CAD5.2 million, an increase of CAD844,000 or 19% from the comparative period in 2021. The increase in revenue is due to revenue added via acquisition of the K'(Prime) operating segment offset by slightly lower revenue in Nanalysis and RF2D. Gross profit for the three months ended June 30, ’22 were CAD3.2 million, a margin of 62% compared to gross profit of CAD2.9 million and a margin of 67% for the three months ended June 30, 2021.
As discussed on prior calls, we anticipated a bit of margin erosion due to the inflationary pressures on our cost inputs. We continue to evaluate pricing. However, due to a large backlog of sales, the opportunity to increase prices has been temporarily stifled.
The company’s net loss for the three month ended was CAD947,000 as compared to the three month profit in June 30, 2021 of CAD1.2 million. The increased loss was due to higher costs, specifically sales and marketing expenses, increased general and administration expenses and increased research and development expenses, both in the Nanalysis segment and from new acquisitions. Nanalysis has also continued to invest in growing internal processes and structures to support anticipated future growth.
As of August 25, we have 19, 100 megahertz units in our production queue worth approximately CAD2.6 million. We’re pleased to announce that as of June 30, 2022, the company had cash on hand of CAD12.3 million, an undrawn credit facility of CAD6.5 million working capital of CAD13.5 million and an undrawn government contribution funding of CAD5 million as of June 30, 2022. I’m very confident that we have strong financial base for Nanalysis growth.
With that, I’d like to turn the call over to our Founder and CEO, Sean Krakiwsky.
Sean Krakiwsky
Thanks very much, Randall. Welcome to everybody and thanks for spending time with us today. As you know, from our last interaction much of our last call was focused on the recent win of the CAD160 million service and maintenance contract with the Canadian Air Transportation Security Authority or CATSA. Clearly this contract is quite meaningful for the future growth of the company. And I will comment on it in detail a bit later in my remarks today.
First, I would like to start off by discussing our Q2 financial performance, which while we are still experiencing significant year-over-year growth was not where we have been historically and not where we would like it to be. We have been able to drive triple digit growth for the past few years, and I believe we can get back on that trajectory in the near future, but we have fallen short of that objective thus far in 2022.
There are several reasons for this shortfall, Randall alluded to some of them, but I’d like to talk about a few more in detail and ensure investors that we will get back on track. While pursuing the CATSA to contract, which was signed on May 25th of this year, it was in the all hands on that situation and turned out to be quite distracting, requiring resources from throughout the company, especially from our VP of sales.
Also, as soon as we won the contract, we began work associated with it, which includes coverage of all 81 airports in Canada. This is no small undertaking, and I am happy to report that we are currently on schedule with this project.
This was all happening while we were trying to integrate our Nanalysis bench top NMR sales team with K'(Prime) shortly after the closing of the acquisition. As a result of this very important, but quite hectic activity, our top line results and benchtop NMR and K'(Prime) third party product sales did suffer. We have implemented a plan to rectify this situation.
The acquisition of K'(Prime), which now serves as our sales organization has brought Nanalysis a significant change in culture, when it comes to the philosophy and structure of sales. For example, we have changed the compensation structure of sales reps to include higher quotas and smaller territories. Additionally, we have redefined the role of a sales rep to be less technical and more focused on closing business. The technical aspects of closing a bench top NMR sale will now be undertaken by our product and application experts, which have tremendous knowledge about the customer’s technical product requirements.
These product and application experts used to be strictly a cost center in our company, but are now being included in the compensation structure directly associated with generating revenue. This change in sales philosophy and structure did in fact result in some personnel turnover of NMR sales professionals in Q2, which in turn did negatively affect revenue, but I believe will be the best for the long term health of our sales organization going forward.
In this context, we’re implementing a plan to increase our desktop NMR sales organization to 22 sales reps throughout the United States whose main job it is to turn over more rocks, finding more qualified leads and strengthening our sales pipeline. The main job for these people is to close business, not to engage in scientific discussions with customers. These 22 sales reps will be supported by our product and applications, experts who will also be compensated for contributing to the closing of sales.
The Founder of K'(Prime), my colleague Kham Lin, often says to me that sales is a team sport that needs to be played efficiently so that we can scale our sales organization. And I’m fully supportive of this approach, despite the short term growing pains we are experiencing.
So with these changes that we are putting in place, I’m confident that we’re going to see a significant rebound in benchtop NMR sales and K'(Prime) third party product sales in Q3, and that the remainder of 2022 is going to be quite strong. I’d also like to talk about other aspects of our business starting off with the Quad Systems acquisition that is publicly announced.
That acquisition is for going up market with high field NMR systems and those high field NMR systems have several module associated with them. We have started generating revenue from some of those modules, but we’ve also experienced some delays in the completion of other modules. We remain confident that we will close out the year with quite a bit of momentum associated with quad systems and that we will have excellent visibility on the contribution to 2023 revenue by the time the fourth quarter closes.
With regards to our MRI group, we remain quite active there, quite happy to let everybody know that in Q2 we closed a million dollar medical imaging system sale. We recently received noticed that we have also won a $1.1 million contract for another medical imaging sale to a university in France. So on the technology front and on the sales and installation front, we remain quite active there in a way that is fully consistent with the strategy that I’ve talked about with you many times over the years.
Also, we continue to make sure that our manufacturing capabilities are incrementally improved so that we’re positioned to satisfy strengthening demand going forward. Yes, it is acknowledged that Q2 has been a bit of a weak spot for us, but we don’t see that as being indicative of any long term trends and as I mentioned before, we expect to see significant rebound of revenue in Q3.
In particular, with regards to manufacturing, we acquired a state-of-the-art five axis machining center, which is important for reducing our costs as well as facilitating extra capabilities with product performance. We also acquired a state-of-the-art wire EDM machine, which allows us to make parts that we couldn’t make before that we outsource. So very proud of the continued investment in the growth of our business in the context of our manufacturing capabilities.
As I mentioned before, I’ll talk a little bit more about the CATSA project and I’m happy to report that we are on track with that. Kham Lin, the Founder of K'(Prime) and his team had been tremendous in making sure that the customer is happy with our progress there in covering all 81 airports starting off with Calgary and Edmonton, which are sort of our home airports.
And we expect to be generating a material amount of revenue towards the end of the year associated with the CASTA project and then towards the Q1 and Q2 of 2023, we expect to be ramping up and approaching the maximum amount of billing that will occur under that contract, which is over CAD2 million per month.
So all in all, our business is, is on track despite a little bit of a short term blip, and I also want to invite everybody to come talk to me more in detail about that. We’re having an investor barbecue at our headquarters in Calgary this Friday, which will start at about noon. It’s kind of becoming an annual tradition. And like, I always like to say to investors, we have a lot of transparency in our company. We invite scrutiny and questions from shareholders and this Friday will be a great opportunity to mingle with employees on seeing a lot of the new things that we have as we evolve our company. So please RSVP to the official email that went out to all shareholders last week.
In closing, I would like to emphasize that our very talented and committed management team is constantly course correcting as needed, figuring out new ways to drive growth and confidently moving towards our vision of building a fully vertically integrated global scientific instrumentation company, serving customers in the security, pharma, biotech, food, energy, advanced materials, petrochemicals, healthcare and education markets with imaging and detection products and services.
The company will continue to expand product lines, expand direct sales service and channel management capabilities worldwide, and will also strengthen technology partnerships as well as develop important supply chain risk mitigation and technology differentiation capabilities as the geopolitical landscape evolves, ensuring continued value creation for shareholders.
Operator. I would now like to open up the call for questions.
Question-and-Answer Session
Operator
[Operator instructions] And your first question will be from Stefan Quenneville at Echelon Capital Markets. Please go ahead.
Stefan Quenneville
Hi guys. And thanks for taking the question. Definitely a tough quarter and not necessarily the direction we were expecting with the NMR sales. Can you talk a bit about how Q3 is shaping up whether the sort of production snafus that you had previously were impacted those sales as well. And maybe talk about any weakness in end markets that may have impacted sales beyond just the sales force impact your citing?
Sean Krakiwsky
Thanks very much for the question. This is Sean, the CEO. So we’re two thirds of the way through Q3 and things look very good. In previous years, Q3 has kind of been a weak point for us, but we don’t see that weakness this year and, one of the things that has recently started to change is that physical conferences are coming back. I had a call today with basically the quarterback of our benchtop NMR sales group Dr. Matt Zamora. He’s at a very important trade show in Chicago, and he said that interest in our products was higher than he’s ever seen before. So that’s just a little anecdotal evidence that things are good.
In terms of the production side, on 100 megahertz, I’m confident that we’re going to shift somewhere between 1,800 and 2,200 megahertz units for sales in Q3 and then in Q4, I’m confident that in terms of manufacturing, we’re going to be basically be able to manufacture 10 units a month of the 100 megahertz side, which is an objective that I’ve talked about quite a bit. So we’re on the verge of really not having to talk about constraints in 100 megahertz manufacturing anymore.
So those are positive signals. I really — the way our quarters tend to be is, we have a lot of purchase orders that come in right at the end of and towards the quarter and especially with our 60 megahertz where we’re ready to ship them out right away, but unfortunately, we had several sales reps that weren’t really happy with the new type of compensation structure that we implemented and they basically checked out, a couple months before quarter end and that did really hurt us.
So in terms of the market opportunity and market demand, I’m not seeing anything except for strengthening demand there. So really, it’s just been a matter of execution on our side, and again, it comes back to this CAD160 million contract that we won and that really consumed a big part of our management cycle. So, happy to elaborate more if you want to send me in a little bit of a different direction, Stefan, but really, that’s my answer to the question. And again Q3 is looking very good, and Q4 is always our best quarter of the year and that’ll be no different in 2022.
Stefan Quenneville
So do you feel confident in the next couple quarters you’re going to be hitting that doubling of sales that you were at a cadence, or you feel that it’s more prudent to think that it’s — you’re right. If you put this in the context of winning, the CAD160 million contract, bad quarter is worth taking when you’ve made that kind of contract with, I don’t mean to be so doer, but do you feel confident in that sort of cadence? And I think people on this call will understand if you’re growing at 80% or 85%, I don’t think people are going to be particularly upset when you lay on top of that the win, given that that’s — takes quite a bit of focus to a company your size. I just wanted to, understand that Q3 is — this is really an aberration this quarter and things are definitely on track for Q3 and Q4.
And then just a sort of follow-up question, have any sales people been let go of or quit given the realignment, just maybe a sense of the number there if you can disclose.
Sean Krakiwsky
Yeah. So yeah, I’ll just reiterate that we are very confident that we’re going to resume the expected trajectory, the growth trajectory in Q3 and Q4 and, we see Q2 as a sort of an unfortunate anomaly. But yeah again, from my perspective anyways, the biggest cause for it is that when and I’m answering the second part of your question now, Stefan, we did have for the first time in our company’s history, we had some turnover — employee turnover in the form specifically of sales professionals resigning because they didn’t like the new direction that our new VP of Sales was putting this on, which I totally agree with his new direction.
And again, I mentioned some of the characteristics of it. So for example, putting higher quotas on our sales reps and giving them smaller territories. In other words, they need to be more efficient. They need to produce more. These are all characteristics of a larger company’s sales organization rather than the sort of culture of a tech start-up, right, which Nanalysis in the past, we would think of ourselves as sort of a tech start-up whereas K'(Prime) has brought the DNA and culture to a company of a large organization’s sales and compensation structure, which we need to have going forward.
So, I wholeheartedly agree with it, and yes, we did lose a couple of sales professionals, but we have replaced them. And then we’ve also augmented the sales organization with, as I mentioned before, these additional 22 commission-only sales professional, who are professional analytical, scientific instrumentation people. They’re not full-time employees of Nanalysis, but they’re well known to us through the K'(Prime) network largely of adjunct resellers and their job again, is to strengthen the sales pipeline and close business and we have all kinds of product specialists and application experts that can support them on the parts of the sales cycle that entails.
So, we’ve gone from, four sales people covering the United States now to three, but an additional 22 sales reps that are already starting to provide quotations to customers and work with our application specialists. So I think it’s the right thing to do. It’s something that Kahm and the rest of the team from K'(Prime), including our VP of Sales have been sort of trying to evangelize me on for a while, and I think it’s going to be great for the company going forward and that you’ll see the early results in Q3.
Stefan Quenneville
Okay, great. And maybe I’ll finish on a more positive sort of note and sort of a surprise. The MRI contracts that you guys have been winning. I know you’ve kept your cars pretty close to your vest on your emerging MRI business. Are you ready to maybe tell us a bit more about how that’s going, seeing sort of meaningful purchase orders coming out here and maybe, at a higher level, talk to us about how that business is shaping up and going to be growing from here on out.
Sean Krakiwsky
Yeah, so, we’re doing what we said we were going to do on the MRI side, which is remain very active. Generate meaningful revenue. So it’s not the largest chunk of business in our company by any means, but it is millions of dollars per year. We continue to develop our proprietary technology, which is fully synergistic with our NMR technology and working on partnerships that will one day turn into acquisitions, which will catapult us into the human medical imaging side of the business.
So, very active and very proud of our group there. We probably will start to do a little bit more PR about some of our contract wins in that area and our strategy all along has been between now and the end of 2023 to just gradually and steadily ramp up our discourse on that part of the business. And then again, with acquisitions that will resume probably not mid-2023, we need to see the equity markets kind of straighten out a little bit more, but by the end of 2024, my plan as CEO is to resume acquisitions and specifically to get into the human medical imaging side of the business. So really that was just a long way of saying nothing’s changed except we’ve made the progress that we said we were going to make.
Stefan Quenneville
Well, great. That’s all for me. Thanks guys.
Operator
Next question will be from Brandon Austin at Venator. Please go ahead.
Brandon Austin
Hey Sean, how’s it going? I’ve been better, but things are going very well and great to hear from you, Brandon. All right. Well, we’ll see what happens tomorrow, but I guess with people listening, it’s probably a good idea to just get everything, all the questions asked rather than to take things offline. So everyone’s on the same page here, so just let me, just go through my list here and some of this was a little repetitive with the with the analyst.
So the cash, the CAD12 million in cash, is that unencumbered cash, that’s your cash. That’s not including GC quads books or not GC quad sorry quad systems Zurich. So it does include and I’ll maybe ask Randall to kind of compliment my answer after, after I say a few things, but it does include the cash in quad.
Sean Krakiwsky
And so, in that sense, a portion of it is encumbered. But remember we also have an OEM contract with quad systems. And so that’s the way — that’s the way that we get access to that cash is when they place an order for our electronics console. They pay us for that. So, it does include — it does include the cash in quad systems, Randall, do you want to add any color to that?
Brandon Austin
How much is yours?
Sean Krakiwsky
Randall, would you like to add some color to that and give Brandon some specific numbers?
Randall McRae
Absolutely. Hi, Brandon. How are you doing? So unencumbered CAD6.8 million at Q2.
Brandon Austin
Okay. CAD6.8 million. Okay. So there’s a decent buffer there and how many when I’m looking in the quarter the CAD3 million in revenues from Nanalysis, how many units did you move? Like I know in the first quarter call came out and the first quarter you move 10, 100 megahertz units, I think and then we talked a bit about an order backlog, but yeah, one of the problems with the company your size like a great quarters, 15 units and a crap quarter, seven unit, we’re dealing with such small numbers, but they’re high ticket items. So, I’m just curious how many, you were actually able to move in the quarter.
Sean Krakiwsky
Yeah, we were able to ship 13, 100 megahertz units and 18 [ph]. And Brandon. Yeah. And Brandon, I’d like to just point out there because it kind of goes to the heart of what everybody wants to know, and this is a little bit more detail. The 100 megahertz thing was still production issues, which we have overcome, but in Q2, we hadn’t yet, but on the 60 megahertz side, that’s where we really fell short because of I’ll say three sales reps quitting in the quarter, and then sort of checking out before their last day and we didn’t get the really strong finish in 60 megahertz POS that we normally would in Q2.
Brandon Austin
Okay. And so while we’re dovetailing into the into the sales issue, so right now you suggested you have 22 direct sales people that I hear that number right, includes the K'(Prime) sales people that can sell these units?
Sean Krakiwsky
That’s true. So, right now, we have a blend of sales professionals that are employees of our company, but we’ve also added on 22 commission-only sales professionals that are under contract, and that was facility by K'(Prime)’s network of companies that they worked with in the past. So it’s a new set of — a new set of sales professionals that are knowledgeable in our space already knocking on the doors of customers.
The contracts entail 6% commission. So that’s sort of the new part of our, of our sales organization. It’s something that K'(Prime) was sort of pushing to do sooner. And now I wish that I would’ve pulled the trigger on that sooner, but nevertheless, it’s in place now, and it’s going to be paying dividends here in Q3.
Brandon Austin
Okay. Sorry. So let’s just clarify that. So you have 22 sales people that are indirect through K'(Prime).
Sean Krakiwsky
Yes. K'(Prime) in the last couple of months, since the changes have occurred have been signing up these commissioned-only sales professionals that they’ve worked with in the past. So in other words, but they’re not full employees of our company. They’re commissioned-only, and their compensation is 6% commission.
Brandon Austin
Okay. And how many direct sales people do you guys have under your employee through K'(Prime) and Nanalysis at this point?
Sean Krakiwsky
Right. So for Canada and the United States, we now have six that are focused on benchtop NMR. So we lost three and we’ve since replaced them and then we’re augmenting them with the 22 and changing the way we start and end the sales cycle.
So in the past, we would have a sales rep do 75% of the work to close a sale and a big chunk of that would be highly technical and then 25% would be support from our technical group. So now basically that’s flipped. We’re going to have these 22 sales reps do 25% of the total work, including establishing the qualified lead and then closing on the purchase order, but 75% of it will be done by, what I’m going to refer to as our application and product technical specialists. So we’re kind of changing. We’re adding to the number of sales professionals we have there, and then we’re changing the way we close a sale in terms of the sales cycle. I’m happy, go ahead sorry, go ahead, Brandon.
Brandon Austin
I’m just trying, I’m just trying to think, because these guys aren’t exactly employees of yours. So you’re using you’re leaning on K'(Prime)’s expertise in this phase to basically tell you that a 6% commission is enough for basically a lead gen organization relative to, like I thought K'(Prime) would be more of the sales organization going forward.
And I understand they have their hands full with this big contract. But that K'(Prime)’s comfortable that they’re using this external sales force, they’ll be incentivized new product, and I guess benchtop NMR is somewhat unique to you guys relative to the competition. So I guess they don’t really have competitive products that they could engage that would be competitive with you guys, but generally the idea.
Sean Krakiwsky
Yes. And they’re already knocking on the doors of the same customers that we are. And so they sell complimentary products and services, but not competitive products and services.
Brandon Austin
Okay. And what did you guys said? You guys mentioned something about the NMR backlog was 16 units, CAD2.6 million. I’m not sure if the backlog’s the right number. You guys mentioned something in the prepared remarks.
Sean Krakiwsky
Yes. And that was 19 units of 100 megahertz products.
Brandon Austin
That was okay. The 19 units was okay. And that’s backlog then CAD2.6 million.
Sean Krakiwsky
Yeah. CAD2.6 million of 19 units of 100 megahertz backlog.
Brandon Austin
Okay. And so you guys said that you expect, or you’ve already sold, and again, you guys said it, so I’m not putting words in your mouth, 18 to 2200 megahertz units in Q3. Is that…
Sean Krakiwsky
That’s the target right now? Yes. That’s my estimate of how many hundred mega units we will ship against POS in Q3.
Brandon Austin
Okay. And then you’ll have 60s on top of that.
Sean Krakiwsky
Yes.
Brandon Austin
Okay. So, we should expect a pretty healthy rebound possibly, or possibly a record quarter in Q3 in terms of Nanalysis segment revenues. Is that a fair statement then? Using those numbers. Okay. So just a few more items here to knock off.
It’s good because you guys will be getting back on track and it looks like that’s fairly with fairly good visibility and you said the airport contract starts ramping up in Q4 and then won’t be fully ramped up until Q3 of next year.
Sean Krakiwsky
Yes, essentially. Yes.
Brandon Austin
Okay. So that’s good. So we should be getting incremental revenues on K'(Prime) by Q4 and then can you just walk me, I know I always ask you because, it’s probably, I understand technologically it’s attractive, but financially it’s just impossible to figure out what’s coming through and it really is bumpy and messes with your numbers, but can you give me the explanation, the excuse, whatever it might be for the RS2D, when you guys talk about, we missed or whatever, the biggest component to the miss is RS2D coming in at 300 grand versus a million, one last year. So can you just run me through what, again, what causes that division to go out? I have notes here, but I never quite seem to, put together what causes that division to be so volatile in terms of top line.
Sean Krakiwsky
Yeah. Essentially what it is, is that the OEM contract with Quad Systems is via our RS2D subsidiary. And so, but last year that wasn’t the case. So whenever we be able to book revenue from RS2D to Quad Systems that was revenue for Nanalysis Scientific, but now because Quad Systems is under our control when the sales occur between RS2D and Quad Systems, we don’t get to book that revenue. It’s an intercompany transaction.
And then when you — when you then say, when I then say the quad systems revenue generation to external customers has been delayed than basically that amount of revenue is also been delayed. As soon as the Quad Systems product is ready for market and the revenue starts to increase there and it will, then you’ll see that revenue immediately jump back into our consolidated revenue, but there’s a portion of it that is basically disappeared because its Intercom revenue and we don’t get to book it anymore.
Brandon Austin
So that’s going to — so Quad Systems is in our RS2D that’s going to show up basically as the same line that’s you’re going to have three segments Nanalysis, K'(Prime) and RS2D slash Quad, basically?
Sean Krakiwsky
Yeah. I’m going to let Randall elaborate on this from an accounting perspective. Sure. But I’m going to I’m going to comment on it from a business person’s perspective. So the way I see our business going forward is there’s five parts of our business that I think about. So one is, and I’m going to answer your question directly, but it’s also going to be in context, Brandon. So one is benchtop, NMR, and that’s, you can think about is the historical Nanalysis company.
The other one is high-field NMR where we go up market and that’s Quad Systems. So it will be Quad Systems. There’ll be a K'(Prime) third party sales. There’ll be our security business. So that would include the Casa project, but other security service revenue. And then you’ll have MRI, which will also be driven by RS2D. So in effect, and this is sort of the direct answer to your question, in effect RS2D is easing to be MRI and high field NMR, and it’s going to solely be MRI. And then the high field MRI part, you will see coming through Quad Systems.
So, those are the five categories that I view our business as and then, in terms of the segmentation that we’re obligated to provide from an accounting perspective and so on and so forth, it’s going to take Randall some time to have a one-to-one correlation between those five types of product offerings that I think is important and to how that shows up in our MD&A, and so on and so forth.
Brandon Austin
Okay. That that’s, but if I’m looking at RS2D sales, so you’re saying that part of the reason those sales are down CAD700 is because that CAD700 used to be revenues from Quad, but now that you guys effectively control Quad, those are intercompany right now.
Sean Krakiwsky
Yes. Correct.
Brandon Austin
Okay. And that’s like CAD700 grand or is that, I guess it’s tough to say now, because it’s all in a company.
Sean Krakiwsky
You’re on the right track. That’s ballparking.
Brandon Austin
Yeah. So I don’t really want to penalize you, or we shouldn’t penalize you too much just because RS2D went down, that’s really just a function of what Quad’s doing. So basically if RS2D is down it’s because Quad is having these delays, not because RS2D doing less business in a vacuum
Sean Krakiwsky
That’s correct. And just to provide a little bit more color there. So the ways in which we used to do the high field NMR sales out of our RS2D subsidiary, is quite a bit different than the way Quad Systems wants to do sales. Quad Systems is a Swiss company with a lot of former broker employees who are all, Swiss and German. And so they’re, they’re electing to take a different approach with how they go to market and they have some very lofty objectives, like taking away 20% market share away from broker and so on.
And I agree with their approach, it’s different than the approach that we had at RS2D and that I was more directly involved with, even in terms of actually making sales myself. And so, but it is has caused, I’ll call it a three month delay in sort of the revenue being opened on the other end.
Brandon Austin
Okay. I think that’s all I’ve got for now. Maybe we’ll talk offline a bit more about some of the details here, because they’re still alluding me a bit on sort of the sales make in the what’s going on with Quad. But no, that’s good. It’s a good start, and it sounds like Q3 is going to be a nice bounce and it sounds like these security revenues are going to start kicking in the next six months too. So hopefully this is the — this is the low point.
Sean Krakiwsky
You’re absolutely right. Brandon and we think we’re going to have a great Q3 and Q4 and I look forward to talking to you anytime. Please give me a call anytime that’s convenient for you.
Brandon Austin
All right. We’ll speak to you soon. Thanks.
Operator
Next question will be from Richard Helm [ph] at LJA Magnetics. Please go ahead,
Unidentified Analyst
Dr. Krakiwsky. It’s good to hear you in such positive tones.
Sean Krakiwsky
Well, thank you very much. It’s great to hear from you unexpected call, but great to speak with you.
Unidentified Analyst
Well, the concern is as an investor, I’m disappointed. I didn’t get invited to the barbecue tomorrow.
Sean Krakiwsky
Well, you can. Why can’t you just hop in your private jet or fly out? We’d love to have you.
Unidentified Analyst
You no, my jet can’t go to Canada. Well, not yet anyways. Hey, tell me something. I miss something early in the conference call was, you said that Quad is under your control. Now, are you a 100% at this point or are the 47% or 49% or whatever? Have you acquired the balance of Quad?
Sean Krakiwsky
No, we have not yet. We own 43% of the company but our auditors Instant Young have deemed that we have De Facto control because of the seats we hold on their board of directors and then more importantly, the contract we have in place with them to have an a unilateral option to acquire the remaining 57% of the company at a predetermined price.
So, it’s because of that that we have De Facto control and that according to IFRS the auditors have instructed us that we must consolidate their revenue into our revenue and then the flip side of that is that we are not allowed to include the intercompany revenue that occurs between Quad Systems AG and RS2D.
Unidentified Analyst
Great. Number two. The Casa project is, I guess I don’t understand is that more an MRI or an MRI type product?
Sean Krakiwsky
It’s a general scientific instrumentation service contract. So in airports, there’s several different types of equipment, including, mass spectrometers that they — when they brush that little piece of cloth on your laptop to determine if there’s been explosives oriented residue on your laptop or on your hands by the way, they’re looking for nitrogen when they do that. So, there’s an example of a piece of scientific instrumentation that’s in an airport.
Of course there’s all the imaging systems as well, that we’ve all been through. So our, holding own subsidiary K'(Prime) won CAD160 million contract to keep all of that equipment up and running. It’s quite a lucrative contract, by its nature, number one, that it’s a critical service and that it’s with the government of Canada effectively.
Unidentified Analyst
That’s great. Those anyone airports should be a very — did you suggest CAD2 million per month is what the total of those number of airports will generate?
Sean Krakiwsky
Yes, once we complete the phase in period, which we expect to be in Q1 or Q2 next year, then we expect to be in a position to build them for over CAD2 million per month, and we expect material revenue from that customer in Q4 of 2022 as well. So the project is on track and ramping, and we’re very enthusiastic about that opportunity.
Unidentified Analyst
Well, that’s great. Great to hear some positive things after your investor, Brandon, sort of write you over the calls with some, negativisms great to hear some positive things coming out.
Sean Krakiwsky
Thank thanks very much. Rich, really appreciate the call and I look forward to talking to you again soon.
Unidentified Analyst
Very good. I hope that happens quickly.
Operator
[Operator instructions] And your next question will be from Fred [ph], investor. Please go ahead.
Unidentified Analyst
Thank you. Hi Sean, or whoever I have two questions. One. The Quad Systems imaging sales that you referenced. Can you tell me what level of resolution you’re achieving with those instruments compared to hyper finds units that are sort of an initial commercial distribution?
Sean Krakiwsky
Yeah. And by the way, those would be through our RS2D not Quad Systems per se. The Quad Systems is associated with high field NMRs spectroscopy, but we do sell custom MRI systems through our subsidiary called RS2D and part of those are a common technology platform that is shared with MRI spectroscopy. And so the biggest difference between what we’re doing on the MRI side currently, and what Hyperfine is doing is that we’re still a high field and we’re still using superconducting magnets, which means that it means that our resolution and also sensitivity is more than an order of magnitude, better than the Hyperfine equipment, which is at 0.064 Tesla, which is referred to as ultra-low field.
And I guess I’m going to sort of beg to differ with you in terms of the commercial of their product. Our CTO is very, very familiar with theirs. Their product basically has the hope that one day artificial intelligence will be able to pull the MRI image out of the raw data, but the hardware itself does not produce a useful image because it’s at ultra-low field. So the resolution would amount to basically a blob, whereas our resolution would be down to the Hertz level.
But if they — there is some promise there in terms of the artificial intelligence aspect of their product concept but if that ends up working, then it’ll work even better at higher fields, which, where we’re planning to be.
Unidentified Analyst
Excellent. I’m sorry. I thought you had said earlier in the call that those million dollar imaging system were medical imaging. So I assume they were MRIs, but they’re actually, no.
Sean Krakiwsky
One of, all I did was I pointed out that that NMR and MRI are very similar regarding the math, the basic math and physics, but no, the systems that we did sell are imaging systems. One is pure MRI, and then the other one is actually different modalities. And again, I pointed out because it was a relatively big contract win. And also to point out that we’re active in that area, in terms of in anticipation of go to market strategies. It’s not all about science and technology, but there’s other aspects of it as well. But the CAD1.1 million is in fact pure MRI at high field. I believe three Tesla.
Unidentified Analyst
Oh my goodness. You’re much further along in that product area than I had anticipated. But let me move on. That was a great answer. Thank you. Very helpful. Secondly, it appears to me please correct me if I’m wrong, that the last 12 months to 18 months incoming order rates for your a 100 megahertz NMR products have been about three units per month. And that’s a bit of a guess on my part. You now say you are either or close to a production capability of 10 units a month.
Does it make any sense for you guys to perhaps close the price gap between your 60 megahertz and your 100 megahertz machines? I believe the 100 megahertz is still priced at triple the 60 megahertz and it’s not selling well, I know you’ve had some sales disruptions, but by your own admission, those were mostly in the area where the 60 megahertz was being sold by the departing sales people. But the incoming order rate is very small relative your marketing effort and has been since early last year. In my view, it’s not selling well at all. And I think maybe it might be because it’s overpriced. I don’t know. What’s your response to that?
Sean Krakiwsky
I guess I’m going to respectfully disagree, but I think it’s an excellent question that you pose, and so my comments on it would be that because of our, well, first, if we want to go a little bit back further, we suffered from a lot of product development delays. And then we suffered from manufacturing delays, and so the impact that had on the sales and marketing front was that we’ve been trying to sort of keep the lid on demand because we’ve been worried that we wouldn’t be able to fulfill orders, but now that we’ve turned the corner on that, yeah.
Now that we’ve turned the corner on that and we’ve basically rebuilt our sales organization and then sort of re-vectored some other aspects of our company that are going to support the sales organization more aggressively. We’re going to be able to be more aggressive on the marketing and sales with the 100 megahertz product, because we know that we can fulfill orders. So that was the so they’re, and I just want, go ahead, go ahead. Sorry…
Unidentified Analyst
I said, that’s exactly the answer I wanted to hear. Thank you very much. No, seriously, that’s an excellent characterization what’s happened over the last 12 months. That’s all I have. I’m going to let other people onto the call. Thank you for your time.
Sean Krakiwsky
No. Thanks very much, Fred. It was a pleasure.
Operator
Thank you. And at this time we have no further questions. So I would like to turn the call back to Mr. Krakiwsky. Please go ahead.
Sean Krakiwsky
Thanks for much operator and thanks to everybody for getting on the call. I really appreciate it. One of the favorite parts of my job is talking to shareholders, whether they’re new or old and so I look forward to further opportunities to do that, and I’d like to wish everybody a wonderful rest of your afternoon, or if you’re in the East Coast, a, a wonderful evening and thank you very much.
Operator
Thank you, Sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you please disconnect your lines.
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