Nanalysis Scientific Corp. (OTCQX:NSCIF) Q3 2022 Earnings Conference Call November 29, 2022 5:00 PM ET
Company Participants
Matthew Selinger – IR
Randall McRae – Interim CFO
Sean Krakiwsky – Founder & CEO
Conference Call Participants
Stefan Quenneville – Echelon Capital
Bob McWhirter – Selective Asset Management
Brandon Austin – Venator Capital Management
Operator
Good afternoon, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nanalysis Third Quarter 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]
I would now like to turn the call over to Mr. Matthew Selinger. Please go ahead, sir.
Matthew Selinger
Thank you, operator and welcome everyone to Nanalysis Scientifics’ third 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 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, 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 speak only as of today, 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.
For additional information, I do encourage everyone to review our public filings and press releases, which are posted on the SEDAR filing system at 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 Nanalysis’ Interim CFO, Randall McRae. Randall?
Randall McRae
Thanks, Matthew. It’s a pleasure to join and interact with everyone on the call today. I’m first going to dive into the financial results for the quarter ended September 30, 2022, then move into a discussion of cash management during the rollout and scale up of our services business.
With that said, I’ll turn to the financial performance for the quarter. All amounts referenced are in Canadian dollars. I’m happy to report that for the three months ended September 30, 2022, the company reported consolidated revenue of $6.878 million, an increase of $3.542 million or 106% from the comparative period in 2021. This includes $6,145,000 in product sales and $733,000 of service revenue related to airport security services.
Gross margin on total sales was 43% for the three months ended September 30, 2022. This was the result of increased training costs of personnel for the CATSA airport security project, increased personnel and training in Nanalysis’ manufacturing group to increase manufacturing capacity, an increase in costs due to worldwide supply chain constraints and inflation, as well as a specific medical imaging project in our RS2D subsidiary that had lower than normal gross margins.
Management expect that these lower gross margins are transitory and will improve as the CATSA airport security project continues to phase into full capacity, investments in manufacturing result and increased efficiencies, and sales levels increase. The company incurred a net loss of $2.599 million for the third quarter, up from a net loss of $857,000 in Q3 2021.
The increase in net loss was driven by higher costs in G&A expenses, depreciation and amortization, sales and marketing, and stock based compensation expense. These were driven in large part by the acquisitions of K’Prime and Quad. The company had cash on hand of $7.9 million an undrawn credit facility of $6.7 million, working capital of $9.7million and undrawn government contribution funding of $5 million as of September 30, 2022.
Now I’d like to take a moment here and discuss our working capital and cash management as we move into 2023. Our decrease in working capital is due to lower cash balances as the company has invest in new initiatives, primarily the airport security project. As we have previously discussed, we do expect to invest cash in the ramp up period of this project and begin to turn positive cash flow for the airport security project in early 2023.
We’re not concerned about cash and while we’re in a drawdown phase, we purposely decided to move more aggressively in the phase and to get it to billing sooner. We’ve begun operations in Q4 on this project and will continue on our rollout plan anticipating profitability on that project in the first half of 2023. Additional to our cash balances, we have a consolidated credit facility.
Subsequent to the quarter on November 18, 2022, the company closed a credit line with a major Canadian bank consolidating its existing operating facilities into a $9 million operating line, allowing us to execute on our growth and expansion plans. Those of you who follow the company may also recall that back in March, we announced funding of $5 million to expand manufacturing and global markets for nuclear magnetic resonance products from the Government of Canada.
We’ve recently received our first $1.5 million funding amounts from the Prairies Economic Development Canada Business Scale-Up Program. With that being said, we’re confident we have the necessary liquidity resources available to support all our research, development and project initiatives, including the airport security project. This strong financial base will be the foundation for an analysis of future growth.
So with that, I’d like to turn the call over to our Founder and CEO, Sean Krakiwsky.
Sean Krakiwsky
Thank you very much, Randall. On our last call, we spent a lot of time focusing on what I would call the Q2 speed bump in our sales organization. What led to it and what we’re doing to rectify the situation? On that call, we assured you that we had made remedies and that we were already seeing a return to our normal trajectory. We put out a business update press release last month to give you our shareholders assurance that we had returned to previous norms that we are confident in our future growth across business segments.
What I would like to do is go through the highlights of our five business segments, starting with our core benchtop NMR Group. Then I’ll touch on a recent acquisition of Quad Systems and our High Field NMR products, then move to K’Prime third-party equipment sales, provide more detail on our services business, including the CATSA project, and then talk about our medical imaging group.
I’m very happy to report that our bench top NMR business including both the 100 megahertz and 60 megahertz products have delivered strong results in terms of sales shipped units and average sales price. In this last quarter, we shipped a record number of 20,100 (ph) megahertz units. Our revamp sales organization is executing well and I expect an excellent fourth quarter in bench top NMR sales. We are also working on several exciting bench top NMR partnerships that I expect will drive broader adoption of our products and I hope to be able to talk more about those partnerships in the coming months.
Now that we have accomplished our primary R&D and manufacturing objectives associated with our new 100 megahertz product, we have started to implement these new found gains into our established 60 megahertz product, which I expect will allow us to increase performance and hence the list prices going forward.
With regards to our recent acquisition, of Quad Systems in Switzerland. I’m pleased to convey that we have started generating significant revenue in Q3 that we have a very bright outlook for the revenue that we’re projecting for Q4 and we’re starting to get excellent visibility on the material revenue that we’ll generate for our company in 2023.
With regards to K’Prime and the third-party equipment sales business, a third-party equipment sales business, which is highly synergistic with our own bench top NMR and future high field NMR businesses by the way knocking on the same doors of customers that we would with those products is steady and showing signs of slow, but steady growth going forward.
With regards to our security services business that K’Prime is also managing. We’ve seen some really good progress with regards to the CATSA implementation, mainly real coverage of real airports thus far. We have started to generate revenue from that particular customer. And we expect to be — as Randall mentioned cash flow positive on that project by the first quarter of 2023.
All of you know that we are incubating a very exciting medical imaging group and in fact, it’s part of our vision to disrupt the MRI space in the not too distant future. And I’m happy to report that we’re involved in several exciting projects there. We previously announced a couple of significant project wins. The more recent one is turned out to be a $1.3 million which is a little bit higher than previously stated, a contract with a University in France, which we’re very excited about that includes our proprietary electronics and software as well as some third-party modules that we were acquiring with partners.
So in closing, again, I’m very happy to report a return to growth. Speed bumps do occur in growing businesses and we did learn a lot from that experience and I believe we’re the wiser because of it. We continue to look forward, outward and inward to see what we can do to improve and prepare for future growth. I’m very confident in the changes and improvements that we have made in our ability to adapt over time.
We continue to stay the course as we progress towards our vision of building a fully vertically integrated global science 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. We will continue to expand product line, direct sales groups, services and channel management capabilities globally, as well as strengthen technology partnerships.
As we move forward, we will continue to advance our technology differentiation capabilities while keeping an eye on supply chain risk mitigation and ultimately creating value for our shareholders and stakeholders.
Thank you very much. Operator, I would now like to open up the call for questions.
Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question will come from Stefan Quenneville of Echelon Capital Markets. Please go ahead.
Stefan Quenneville
Hi, guys. Congrats on the quarter and thanks for taking my questions. My first question, given let’s say the lumpy revenue from the NMR business you had sort of last quarter and this quarter. Can you — and I know you’ve sort of shied away from providing details on backlog and that sort of thing for competitive reasons. But would you be maybe for this one occasion or maybe this one last occasion be willing to talk a bit about the backlog either precisely or at least directionally at the close of the quarter and how Q4 is shaping up?
Sean Krakiwsky
Hi, Stefan. This is Sean, the CEO. Thanks very much for joining our call today. Yeah. So again, I have stated that it’s an objective of ours to operate our bench top NMR business for example without a backlog. In other words, when we get a purchase order, we’re in a position to ship the product out right away that’s better for our cash flow and it’s also a competitive advantage over our main competitor in particular. So that’s kind of where we’re going.
I don’t really want to give a breakdown on things, but I don’t mind saying that today our current sales backlog as well over $3 million across our business. And so — but in terms of how long we maintain backlogs, it’s quite short and we also have a very strong sales pipeline. And so, in terms of fourth quarter and beyond, I’m very confident that you’re going to see continued growth.
Stefan Quenneville
Great. Maybe I’ll just sort of — I have a couple of questions that I was rattled-off one at a time. Just in terms of your gross margin this quarter, if you backed out the CATSA contract, could you give us a sense of where gross margin would have been in a kind of ex the obvious investment you’re making in that contract just sort of from a kind of trend perspective?
Sean Krakiwsky
Sure. I’ll make some comments on that. From the CEO’s perspective and from an engineer’s perspective, and then I’ll let Randall add some color. So we have seen some gross margin erosion in our bench top NMR business due to what I believe are temporary higher cost of components due to the well documented supply chain challenges. On the bench top NMR side, our gross margins across the board are roughly around 55%.
And so, the way I view our gross margins right now is, first of all, it’s very complicated. And I kind of feel like we’re in a period of flux where — and again, I’m just giving you the honest perspective of an engineer, right, not an accountant is, I feel like things like accounting treatment and transitory phenomena are kind of heavily weighted right now in terms of describing our gross margins.
And so I mean we have a fabulous team of accountants as our CFO and our Audit Committee and of course, our auditors that work with us on the interim financials. So they’re doing a great job and I have full trust in them. But their perspective on where our gross margins are not an engineering perspective and so, when I look at our cost of goods sold and our gross margins, let’s say, on a per unit basis and/or associated with actual revenue, I really like what I see.
But right now, our gross margins include things like training for the CATSA project that aren’t yet associated with the dollar of revenue. And so that’s kind of what I mean by things like accounting treatments and transitory phenomena are heavily impacting our gross margins right now. From my perspective, I believe we’re going to sort of be out of this period of flux and complexity with regards to our gross margins probably in the middle of 2023. And then I’m very confident you’re going to see a return to the really strong kind of gross margins that you’ve seen from us in the past.
So Randall, do you have anything to add to that?
Randall McRae
No, I think that covers it well. Stefan, thanks for the question. I’d like to highlight as well that I would call your attention to the financials where we’ve spoken out those services and product sales just to highlight for you the different components of our business that will have different margins and say that we would expect an increase in those margins once CATSA rolls up. I don’t want to get into specific numbers just from a competitive perspective here on some of these other projects, but we’ll see it tick up as we get rolling.
Stefan Quenneville
Great. And I just have two more guys, if you’ll allow. You mentioned sort of very quickly in passing product improvements that were particularly beneficial for your 60 megahertz system and may allow you to position the product differently going forward. I’m talking to some of your engineers when I was there couple months ago, I got a sense that these are pretty meaningful improvements.
Can you — I mean, I also guess for competitive reasons, maybe talk about them in qualitative terms and talk about what it might mean in terms of your ability to take price going forward. I know that you’ve — your backlog systems, you kept prices where they were despite inflation, but maybe even directionally what that might mean for pricing going forward?
Sean Krakiwsky
Yeah, absolutely happy to talk about that, Stefan. And so part of my comments there was just real genuine enthusiasm for what we accomplished on the 100 megahertz side. Just absolutely ecstatic about what we achieve there. And granted, yeah, it took longer than I would have liked, but sometimes difficult challenges take a little bit more time. And so we are going to be retrofitting those gains back into our 60 megahertz product. Part of that — and I didn’t really link the two in my formal statement, but I’ll link them now.
Part of that activity is linked to some of these partnerships that I’m talking about. So part of our business strategy is to work with partners that have a long history of being deep in certain vertical markets, vertical markets like the food and beverage industries, for example. And so we’re going to take the gains that we’ve made on the 100. We’re going to put that back into our 60 sort of unified the tech platform and that is going to be correlated with some of these exciting vertical market partnerships that we’re working on. And so to drive up sales, but also to allow us to increase prices with our own product that we sell direct.
And so in the magnetic resonance world, customers are always clamoring for more performance. So if you can deliver more performance, you can increase prices. So — and then sort of, again, my statements are both gross margins before, we think that as our business grows, we can get back to the gross margins that we experienced in the past, both in terms of increasing prices, but also taking some aggressive actions on cost reduction side as well. Now that we feel we’re on the other side of some of these supply chain challenges we faced.
Stefan Quenneville
Great. And my last question also, I think it’s sort of important given the sort of what occurred last quarter. In terms of your sales force realignment now, last — this quarter, showed that obviously the tweaks you made and working. Can you provide us a little bit more color on how it’s going, whether you’re touching sort of new clients or parts of the market where you weren’t really before. Just anything from that perspective effective to maybe help people understand how that’s going?
Sean Krakiwsky
For sure, yeah. So, really happy about the changes that we’ve made think they’re the best thing for the long term health of our sales organization. Essentially, it’s implementing a large company model of how to run sales and distribution that K’Prime learned over 20 years working closely with Agilent. And so yeah, so it’s a hybrid model that includes more salespeople that we had before, but it also includes third-party partners that are turning over a lot of rocks. So basically we went from four people in the United States trying to generate purchase orders to now the team as well over 30 people.
And the division of labor in terms of the different parts of the sales cycle have been modified as well. So very happy with it and confident that it’s going to generate growth here in the next — well, it already has contributed, but I really think it’s going to take our growth to the next level in 2023. And yeah, because there’s more beats on the ground and because we’re leveraging relationships of partners that they’ve been selling scientific instrumentation for over 30 years. Then yes, we are making contact with new customers, more customers and increasing our deal flow.
Stefan Quenneville
Great. Thanks for all the color. I’ll — sorry for monopolizing the call. I’ll get back in queue. Thanks.
Sean Krakiwsky
Thanks, Stefan. It’s a pleasure.
Operator
Your next question comes from Bob McWhirter of Selective Asset Management. Please go ahead.
Bob McWhirter
Thank you. Could you talk the Q3 sales of $6.9 million up 106% year-over-year. How much of that came from organic versus the acquisitions?
Sean Krakiwsky
Hi, Bob. Great to hear from you. Yeah. So the sort of ballpark number is, I’m not going to provide a lot of detail here, but ballpark number, which is kind of the thing that I’ve always said and will continue in the future is 70% is associated with organic and roughly 30% would be associated with the new acquisitions. That’s a ballpark number. And if that trend is going to going to continue going forward.
Bob McWhirter
Okay. You talked about getting a $5 million interest rate loan to be able to buy some new equipment. One of them is the five axis machining center as well as the electrical discharge machine. You can talk about one, what they cost? And two, what kind of efficiencies you might get? In other words, you end up saying, we no longer have to outsource some of our work. What do you hope to achieve with the investment in the machinery?
Sean Krakiwsky
Thanks. I’ll let Randall add some color, but I’ll make some initial statements on that. So yeah, so one of the machines, the wire EDM machine is associated with reducing our COGS. It allows us to in-source some key components that we use to outsource and improve quality as well and turnaround time and our ability to schedule properly.
And then the other one, it has a little bit of an R&D component as well as an absolute manufacturing component and that’s the five axis machining center. It actually delivered some significant performance gains on our 100 megahertz product, which again we are going to put back into our 60 megahertz product.
Some of these precision components that are in our instrument have tolerances of microns. So that’s not very many layers of atoms if you’re able to do the math. And so that’s very important to us and the ability to machine these parts is part of that and that’s what the five axis machining center is all about.
I’ll let Randall talk about the costs associated with those machines?
Randall McRae
Hey, Bob. Randy here. So call your attention to actually our second quarter discussion in the MD&A. We invested about $1.3 million in various property, plant and equipment. And that includes those two machines as well as some other items in our manufacturing process. So what I will say to that is that I’m quite optimistic about is seeing as Sean referred to those gains up in our 100 megahertz product and then putting them into our 60 as well. I think the payback period on this investment is going to be quite short.
Bob McWhirter
Okay. And a ballpark description as to the improvement that you expect in the 60 megahertz device is meaningful of 15% or better? Any kind of guesses as to how much more [indiscernible] you might get?
Randall McRae
Yeah. I think I don’t mind going out on [indiscernible] and say that we’re targeting sort of 30%, 40% improvement and on the key sort of flagship performance metrics. And it will also allow us to offer some capabilities that we don’t currently have at all right now. And so I think, yes, confident in giving those numbers.
Bob McWhirter
Okay. So assuming that you would end up making at least a third of that, it implies that you might end up being able to increase your price by 10% to 15% to end up saying, okay, to the clients getting more expensive, but you’re going to get a pretty good deal on that kind of increased cost, right? Turning to the one-time training cost, for both the manufacturing staff as well as the CATSA crew, any guests or sorry, can you give a number that says okay, that was quarter (ph) of $8 (ph) in the quarter, whatever the number was?
Sean Krakiwsky
Randall, would you like to…
Randall McRae
Yeah. It’s not a number that I think I can pull out directly, Bob, it’s part of, in terms of manufacturing, when we’re training our team, right? I would view it more as increasing efficiency with new members of our team. So training and investments made there will increase their efficiency as we go forward.
On the CATSA piece, it would be in the order of kind of low six figures that we’ve invested so far on training. And I would expect that — I would expect that to continue to go forward as we roll out. There’s a significant amount of complex equipment that we deal with. And so there’s a lot of work that goes into getting all of our team fully up to speed.
Bob McWhirter
Can you talk about the $9 million consolidated line of credit. Can you talk about how much has been drawn down of that line of credit?
Randall McRae
As of today, I don’t have the numbers in front of me, but we’ve drawn down — well, I have to say we have the $2 million that we had at Q3 we paid those lines out as part of the consolidation process. And then as I referred to in the financials, we did draw down a little bit more to complete the acquisition of K’Prime and payout that working capital amount. So it’s drawn down the net cash position, I would have to pull for you, Bob, I don’t have that on the top of my fingers right now in terms of drawdown plus net cash rate or netted off against it.
Bob McWhirter
Okay. And then turning to Sean’s description of the four person sales crew, blossom to become 30 people. If you end up seeing we’ve added net 26 people even at a modest $25,000 draw, which I’m sure is a very conservative estimate that would add approximately 650 grand to your expenses. Can you give us some insights related to the staff cost increase of going from four to 30?
Sean Krakiwsky
Yeah. So roughly 20 of those are commissioned only partners. So they don’t get paid until we ship a product. So they’re not adding to our fixed costs. And then, also I’d like to say that part of the revamp sales organization is a total change of compensation structure. And so our new VP of Sales has managed to increase the headcount on our team, but not dramatically increased cost because of the change in comp structure relative to the team that we had before. So it’s not quite — the math isn’t 30 people times average salary, it’s different than that.
Bob McWhirter
Okay. So I think what I’m hearing is the four base staff, salespeople have gone to 10 and you’ve moved to a larger success based compensation model similar to what the 10 — the 20 contractors are as well to all kind of balance out.
Sean Krakiwsky
That’s correct. And a couple of people have moved into the bench top NMR portfolio from the K’Prime team that were already there.
Bob McWhirter
Okay. And can you remind me as to the size and term of the CATSA contract?
Sean Krakiwsky
Six year contract, $160 million, but the first six to nine months are phase in. So I think of it practically speaking as 5.5 years and $160 million. So if you divide $160 million by 5.5, as $29 million per year. And then it’s also extremely likely that the contract will be renewed for an additional five years, which would make it a 10.5 year contract. But the signed contract that exists now is 5.5 years for $160 million.
Bob McWhirter
And can you give us some color as to the actual number of airports that you’re involved with?
Sean Krakiwsky
Right now, it’s a handful. So we’ve got coverage in Calgary and satellite airports such as Medicine Hat, Westridge, Cranbrook for those of you who know the West. But we’re also in Edmonton and the Vancouver airport as well right now. And we’re rapidly moving towards other airports in BC.
And then we’re going to take a little bit of a break in terms of actually being able to physically get into the airports for the holiday season. And then after commencing again on January 2, we’ll be going full board again on getting — we believe full coverage in all 81 airports by the end of March.
Bob McWhirter
Good. That’s it for me for the moment. Thank you very much.
Sean Krakiwsky
Thanks, Bob. It was a pleasure.
Operator
Your next question comes from Brandon Austin of Venator Capital Management. Please go ahead.
Brandon Austin
Hey, guys. A couple of follow ups here from — largely from Bob’s questions. You said that you expect to have all the airports rolled out by March?
Sean Krakiwsky
Yes.
Brandon Austin
Okay. So would that mean that by Q2, Q3 that contract should be running about $7 million per quarter just 30 divided by four or whatever?
Randall McRae
Go ahead, Sean.
Sean Krakiwsky
Yeah. So we won’t be at those kind of billing levels by Q2 of 2023. And the reason for that is there’s different categories of revenue from the contract. And so some of those categories we have like really say deterministic visibility on. But then there’s some other categories of revenue that we don’t have full visibility on. And so I expect to be billing at sort of the maximum rate more towards the end of the year than the middle of the year.
So I think by the middle of the year, I think a reasonable expectation for monthly billing rate is like $2 million a month. So maybe like $5 million to $6 million per quarter. But in terms of getting to that $29 million per year rate, I think that’s going to take more towards the end of the year to get to.
Brandon Austin
Okay. And that’s additive to K’Prime’s current revenue run rate of like $1.5 million (ph).
Randall McRae
That’s correct. Yeah.
Sean Krakiwsky
Yes, it is. If you met $1.5 million per quarter, yes, it is.
Brandon Austin
Okay. So if I’m using like $1.5 million and sort of Q2, Q3, K’Prime as a division should be doing about $6.5 million and finishing in sort of at nine to 10 range by the end of the year? Is that fair ballpark?
Sean Krakiwsky
Ballpark, yes.
Brandon Austin
Okay. Okay. And just remind me, I remember when you guys first signed this contract, you guys seem to suggest this was a fairly decent EBITDA margin contribution for you guys?
Sean Krakiwsky
Yeah, absolutely. We’re basing our planning on around the idea to do 15% to 20% EBITDA margins on the project including overhead. As we’ve gotten further and further into the contract, we now have reasons to believe that it’s more profitable than that, but I’m not prepared to sort of quantify it for you at this time. But as we get a better understanding of how profitable it’s going to be, we will start to quantify it in later quarters.
Brandon Austin
Okay. But it sounds like you guys should — if we’re assuming this is going to be a profitable contract, you guys should be profitable by mid next year or do you have more spending plans?
Sean Krakiwsky
So I think I understand the granularity of your question and the answer is we expect to be profitable on the CATSA contract by March or cash flow positive, I guess, I should prefer to say. And then yeah, it is a target of mine to be profitable as a business certainly on an EBITDA basis by middle of 2023. Yes, absolutely. And Randall, do you have any more color on that?
Randall McRae
Yeah. I would just like to call everybody’s attention to our income and loss before other items. So you can see for the three months ended, September 30, we’re not far off of that number already. And there’s a great deal of our cost below that line that’s non-cash. So I think from an EBITDA perspective, we’re already getting close and then by only see that going up in the future with the addition of CATSA at its full run rate.
Brandon Austin
Okay. And if I’m looking at, I guess, Bob was asking what your growth rate was ex acquisition. You’re in analysis revenue segmentation, though, that’s pure, right? Like there’s no acquisitions in there, right?
Sean Krakiwsky
There — if you… Sorry, go ahead.
Randall McRae
No, no, please go ahead, Sean.
Brandon Austin
No, actually, Randall, if he’s referring to a specific section of the document [Multiple Speakers] efforts.
Randall McRae
Sounds good. So it’s almost all pure Brandon in — to answer that. We’ve got in the quarter ended about a little over $300,000 of Quad revenue in that analysis segment right now in our NMR segment. So I would back that out if do in the calculation. But to Sean’s earlier comment about 70-30, that’s about right on the numbers.
Brandon Austin
Sorry. So there’s $300,000 of the $4.1 million?
Randall McRae
Correct.
Brandon Austin
Okay. And so, okay, fair enough. And so that would still be pretty healthy over the $2.2 million you guys reported last year. And then I guess on a year-to-date basis and analysis old is running about $10 million for the nine months versus $7 million last year. Does that sound about right?
Randall McRae
That’s about right, yeah.
Brandon Austin
Okay. Okay. So that’s good. And I mean, you guys are a little cagey there on the Quad systems. In terms of the progress they’re making towards commercial revenue. I know these are big ticket items, so it’s tough to really give any kind of definitive forecast. But is the product at this point ready for prime time or are we still a couple of quarters away from that?
Sean Krakiwsky
The product is ready for prime time now, but it’s only four out of the five modules which are ready for prime time. But you can sell those four out of five modules independent of the fifth. And the fifth is the magnet. And so we did $300,000 in revenue in Q3. I believe we have a great shot at doing $1 million in revenue in Q4.
And then we should be off to the races in 2023 with the full five modules. So there we did have an expectation that by now we would be selling all five modules. So it’s been a classic R&D delay with one of our partners that has caused the magnet part of the system to not be generating revenue yet. But the other parts are — we’ll be doing that in Q4 and that’s associated with our target of $1 million in revenue.
Brandon Austin
Okay. And your inventory is on your balance sheet. There’s a lot of raw material inventory there. Is that just a function of shipments coming in late or how do I — because it does seem that there’s a decent source of cash there and converting those inventories into sales?
Sean Krakiwsky
Yeah, absolutely. I mean, before the pandemic, we were striving for just in time manufacturing and we had all kinds of KPIs associated with inventory turn that we wanted to reduce and so on. But then when we got into the middle of supply chain challenges, right from the top of our Board of Directors to be honest, there was a mandate given to management to go the other way with that and start increasing inventory just so we didn’t get caught off guard and with an inability to ship instruments.
So we’re sort of tempering that a little bit now as we see easing on the supply chain challenges, but that’s what that is. It’s all current and good inventory. I don’t anticipate any right to write. I know there’s not going to be any material right downs associated with that or anything. And you’re right, it is going to be converted into cash and it’s being converted into cash right now and I anticipate having just absolutely fabulous fourth quarter.
Brandon Austin
Okay. And you guys said you guys shipped 2,100 megahertz units in the quarter, how were 60 megahertz sales directionally?
Randall McRae
So we had 22 in the quarter and we continue to see strong average selling prices across the product lines. So we see strong numbers across the board and bench top NMR and continuing into the fourth quarter.
Brandon Austin
Okay. So are we expecting — can we expect bench top and I can’t remember seasonality, but is that number — is that an analysis revenue number going to continue to increase or is there seasonality I should be accounting for?
Randall McRae
Our seasonality is positive in Q4. Typically, historically, that’s one of our better quarters. So that’s certainly where we’re aiming with regards to bench top revenue.
Brandon Austin
Okay. Great. Thanks, guys.
Sean Krakiwsky
Thanks very much, Brandon.
Operator
At this time, there are no further questions. So I will turn the conference back to Sean Krakiwsky for any closing remarks.
Sean Krakiwsky
Thanks very much, operator, and thanks very much to everyone who participated on the call today and I look forward to talking with many of you in the not too distant future. And so have a wonderful afternoon and evening.
Operator
Ladies and gentlemen, this does conclude your conference call for this evening. We would like to thank everybody for participating and ask you to kindly disconnect your lines.
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