Earnings Call: H1 2019

Jan 14, 2019

Quarterly report

With me in the studio today from Kromek, I am joined by Dr. Arnab Basu. Arnab, good morning. Good morning. Interims out today for the six months to the end of October. What are some of the key themes here for the period, Arnab? The key theme in Kromek currently is really that commercialization process. Over the last three fiscal years, we have secured over $80 million worth of contracts, and those contracts are flowing into us revenue. That is what is giving us a very strong visibility of revenue, not only for the current fiscal year, but also fiscal year beyond this year. For this particular fiscal year, the current fiscal year, we have got about 86% revenue visibility, which gives us real confidence in achieving our year-end numbers, both in terms of growth expected from revenue, but also EBITDA. EBITDA, of course, we were EBITDA profitable last year, and that trend is going to continue this year. We are expected to achieve further growth in that EBITDA, and that takes us towards- actual profitability in pre-tax profits. For this particular period, a bit of a drop in revenue, a widening in the loss. Was that expected to some degree? This was planned, of course, as we talked about last time when we were here, our U.S. facilities in Pittsburgh, we were relocating. It is a state-of-the-art facility that we have built, driven by customer demand and driven by real market needs. We were in a facility which was built for production of CZT detectors only. Our business model is where we are now producing medical grade cameras and equipment, and the new facility gives us a state-of-the-art world-class manufacturing base for making medical devices. It is ISO 13485, going to be certified. It gives us the base to really do high volume manufacturing of medical devices, which we expect to do over the next coming periods. It's a facility that gives us enough confidence to now enter into the medical imaging market and take large orders. This was planned, executed, and on time, so we are now fully functional. This is a world's first. Nobody has ever moved a CZT facility. It has been a fantastic achievement by the team. What about the D3S platform? What's the latest here? D3S is gaining traction. That's the key word. In U.S., of course, D3S has been fully implemented in New Jersey, and now it's getting implemented in other areas and getting federalized. While outside the U.S., we are starting to see a real traction of use of this particular product. We now have over 10 different countries in Europe and Asia where this product is being used by key flagship customers, and we expect these to be implemented in large scale, the SIGMA or the network version of that product, implemented in large scale in multiple locations around Europe and Asia over the next 12 to 24 months. Some of those pilots are already ongoing. We are in that process of really wide-scale deployment of D3S. As a result, we are feeling very good about that market. Just to add to what you are saying there is a growing adoption we are seeing predominantly from Europe and Asia here. In addition to the U.S. Of course. U.S. is our home market, so that is where we started. The D3S product was, of course, developed under the DARPA program. That is going through its motion. Of course, in December 2017, we announced an IDIQ contract from the US Army for long-term procurement of radiation detectors together with chemical and biological detectors. We are in that program as well. We are getting interest not only from the civil part of the market for protection of cities and infrastructure, but also we have got a strong link into that Army or defense part of the market with that same product as well. Albeit post period, I believe. But a significant win here for security screening. Security screening is a market that has remained relatively dormant for us for the last two or three years. But now, driven by regulatory changes, we are starting to see some real activity. In Europe particularly, those regulatory changes means that the screening equipment has to be better, has to be able to cope with different types of threats. For me and you, it means that we would be able to take our carry-on luggage with liquids, and potentially laptops inside the luggage. That is forcing manufacturers to look at bettering their screening equipment. And one of the ways of bettering the screening equipment is, of course, having better quality of detectors. And we do produce them. CZT-based detectors, of course, gives you much better quality of information, and that is what is driving adoption of CZT into this new regulatory framework that is being established in Europe and rest of the world. We are expecting over the next years, CZT to have a real prominent place within- the aviation security market, and we expect to leverage that. You were talking about medical imaging a moment ago. Generally speaking, you are pleased with how this is progressing, how this division is going? Yes. Medical imaging, of course, we have a relatively regular business in the bone mineral densitometry and gamma probe market, and we have just added a small OEM within that segment as well, during the year, and we announced that. But the real growth and exciting development that is going on in the market is, of course, in the world of SPECT, which is used for detection of cancer and dementia and heart diseases and cardiac issues. That market is going through changes. That market is going through change whereby the detection technology or the capability of the equipments are getting upgraded from black and white conventional detectors into color and digital detectors. And that is all CZT. As the market changes, we occupy a very strong position within that, with a market-ready offering, which we have developed over the last two or three years. We are supplying those detectors and camera assemblies to our existing customers, and we aim to expand that customer base over the next years. Full year 2018, 2019, you are confident? Should be a good year. This year has been planned to take into account the factory move that we had to do in the U.S. This didn't happen in one day. We had to plan it over the last 12 months, and that's why you saw some real increase in our activity towards the end of the last fiscal year when we built up quite a lot of stock, almost half built stock that we are now processing through. And with the order visibility and our factory completely up and running, we feel very good about achieving the numbers, both in growth in revenue, but also in EBITDA terms, because that is a key metric that we measure ourselves in getting profitable, in generating EBITDA profitability. Arnab, always good to see you. Thanks for coming in. Pleasure