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Edited Transcript of NTS.V earnings conference call or presentation 12-Dec-19 10:00pm GMT

Q4 2019 Nanotech Security Corp Earnings Call

Jan 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Nanotech Security Corp earnings conference call or presentation Thursday, December 12, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Monika Russell

Nanotech Security Corp. - CFO

* Troy Bullock

Nanotech Security Corp. - President, Corporate Secretary, CEO & Director

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Conference Call Participants

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* Anthony Prost

Stifel Nicolaus Canada Inc., Research Division - Associate

* Gianluca Tucci

Echelon Wealth Partners Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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So good afternoon, and thank you for joining us to discuss Nanotech Security Corporation's Fourth Quarter and Year-end Results for Fiscal 2019. On the call today, we have Troy Bullock, Nanotech's President and CEO; and Monika Russell, Nanotech's CFO. Please be advised that this call is being recorded. (Operator Instructions)

I will now turn the call over to Monika Russell. Please go ahead.

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Monika Russell, Nanotech Security Corp. - CFO [2]

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Good afternoon, and thank you for attending our fourth quarter and year-end fiscal 2019 conference call. Troy Bullock will begin the call today with an overview of our results and operational filings. I will then provide a detailed review of our financial performance for the quarter and the year. Following the financial review, Troy will provide an outlook and discussion of our goals and expectations for fiscal 2020. After the formal presentation, we will be pleased to take questions. Before we talk about results, I'd like to remind everyone that certain statements in this call may be forward-looking in nature. These include statements involving known and unknown risks uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. For caveats about forward-looking statements and risk factors, please see our MD&A for the year ended September 30, 2019, which can be found on our company profile at sedar.com. Also, as part of the company's business involves dealing with security features for banknotes, you will appreciate that we are quite limited in our ability to provide details about specific customers and process. That said, we will do our best to provide investments with general feedback we are receiving from customers and industries and new opportunities that we are pursuing as well as give some general parameters on how development contracts are progressing. I will now pass the call over to Troy for an overview of our fourth quarter and fiscal 2019. Troy?

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [3]

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Thanks, Monika, and good afternoon, everyone. Thank you for attending our conference call for the fourth quarter of fiscal 2019. 2019 was a year of transition for the company, and I'm happy with our progress on meeting the goals we set out for at the beginning of the year. When I took on the responsibilities of CEO in the second quarter, I established the goal to advance Nanotech from a research and development company to a diversified product-based company by commercializing the technology, building out third-party supply chain and investing in sales and marketing to enter into new markets. We identified 2 new markets: government banknote market and the brand protection market. Over the following 9 months, our strategy is to develop and deliver market-focused products and land new customers has been successful. We launched 2 new products in the brand protection market, LiveLogo and LivePortrait. These products were released in April, where we've been marketing them at trade shows and direct to interested customers for the past couple of quarters. We are already seeing strong interest in customers and partners as we build out our sales pipeline, and we recently announced a multiyear contract with the World Baseball Softball Confederation that we believe will grow over time.

We are working on several other opportunities and expect [less the] investors as we close on these new deals. In the government and banknote market, we also set out the goal to deliver new products with a focus on near term revenue. During the year, we were successful in meeting new optical thin film orders. The first wave of new recurring order where Nanotech is supplying color shifting foil, and the customer converting it into a security feature for government ID. The second order was for a customer of qualified Nanotech optical thin film with the Middle Eastern Central Bank. Both orders are expected to be annual recurring business. In addition, in October, we announced KolourDepth, the revolutionary security feature for the government and banknote market. Taking what we learned from years of speaking with Central Bank decision-makers and banknote experts, we believe KolourDepth differentiates from the existing products in the marketplace as a security feature that is always on and offers 3D breadth, multicolor and movement. We have shown KolourDepth to several potential customers and partners and are receiving positive feedback. In the early months since its launch, while the fourth -- sorry, I already mentioned its launch, where the full cycle for banknotes can be several years, our strategy is to partner with leading OEMs in the market to help accelerate the deployment of KolourDepth. Another key achievement in fiscal 2019 with building out our manufacturing supply chain to deliver on earnings for our new products. While we have more work to do in fiscal '20, we have secured both North American and European supply chain partners and convert -- and can deliver to brand protection customers without concern about our internal capacity to do so.

We also broadened the product offering, allowing us to leverage their capabilities and offer our customers several new products, like PSA labels, QR codes and serialization. It's critical that we entered the brand protection market with both a differentiated product, a full solution and the fixed delivery schedule so customers would have the confidence in our ability to deliver.

In fiscal 2019, we also continue to build out our intellectual property portfolio, which is -- which we believe is a hidden asset in the company. We currently have 33 issued and 26 pending patents across 7 countries. Over the last 6 years, the company has invested over $15 million in research and development, creating a strong merge around our technology and offerings. Looking ahead, we plan to build on our strategy in 2020 and continue to work with our new partners in both the banknote and brand protection market. We are well capitalized and are seeing an increase in our sales pipeline in both markets. I feel very good about the company, strategically, as we move into 2020 and beyond.

At the beginning of the year, we provided guidance for this year of transition, revenues for fiscal 2019 will be down from 2018 and the company would likely have a negative EBITDA. Revenue for fiscal 2019 was down year-over-year to $6.4 million and adjusted EBITDA loss was $120,000. We exited the year with cash of $10.3 million, no debt and $26.7 million in net assets on the balance sheet. Nanotech currently generates most of its revenue from development contracts with a single customer with a goal of incorporating a Nanotech security feature on their banknote in the future. The company was awarded purchase orders for contract services totaling $5 million in fiscal 2020 to further advanced development of nanoactive security features for the future bank notes. With this award, Nanotech has secured its contract services revenue for fiscal 2020, a level similar to those in fiscal 2019. We continue to anticipate that we will generate most of our fiscal 2020 revenue from this customer. As of September 30, 2019, we've recognized about half of the revenue is on our $30 million development contract. Today, we also announced a leadership update. I'm pleased to report that Neil McDonnell has been appointed to Chair of the Board. Neil's extensive executive and director experience across several technology companies makes him an ideal fit to fill out the role at Nanotech's independent Chairman. The company's founder Doug Blakeway, continues to serve as a director and provides his expertise to management and the Board. I'm also pleased to announce that Brian Donnelly has been promoted to Executive Vice President of Sales and Marketing. Brian joined us in January, bringing 25 years of innovative stores and business development leadership to Nanotech. Since coming on board, he's been pivotal in ramping up our sales activity and driving our new customer -- sorry, our new commercial product line into several new markets. This is not trivial. Since Brian and his team are essentially building a new product category into those markets and it is those efforts that are starting to generate results. Lastly, I would like to congratulate Monika on her promotion to Nanotech's CFO. For the past year, she has maintained an excellent leadership of Nanotech's finance team at an acting CFO role, and I'm pleased that she is -- that we've now formalized this arrangement. I would like to thank Neil, Bob, Brian and Monika for all their contributions this past year, and I look forward to leveraging their expertise to continue to build out the company together. That concludes my initial comments on the fourth quarter and full year of fiscal 2019, I'd like to now pass the call back to Monika to discuss the detailed financial results. Monika?

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Monika Russell, Nanotech Security Corp. - CFO [4]

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Thanks, Troy. Before I begin, I would like to mention that all the dollar amounts I refer to are in Canadian dollars, unless otherwise stated. Starting with our fourth quarter revenue. Revenue decreased 52% year-over-year to $1.5 million. The quarterly revenue decline was due to the timing of contract services revenue as certain purchase orders were awarded for fiscal 2020, instead of falling into the fourth quarter of 2019. This decrease was partially offset by a strong quarter of optical thin film delivery. Fourth quarter gross margin of 77% was consistent with 78% in the prior year. We continue to contain our operating cost. For the fourth quarter of 2019, operating costs were $1.8 million compared to $1.7 million in the fourth quarter of fiscal 2018. While overall costs did not increase significantly, the mix of costs changed with more spending in sales and marketing versus general and admin. Net loss for the fourth quarter of 2019 was $705,000 and adjusted EBITDA loss was $300,000. The decline from 2018 was primarily due to lower revenue in the current quarter. Turning to our annual results. Fiscal 2019 revenue fell 22% to $6.4 million as a result of reduced contract services revenue, partially offset by increased revenue from products as we booked our first revenue in the brand protection market and increased optical thin film sales. Full year fiscal 2019 gross margin was 76% versus 82% in 2018. This decrease was primarily due to the reduction in contract services revenue in 2019. Full year operating costs were $8.3 million versus $7.4 million in fiscal 2018. Fiscal 2019 operating costs included a restructuring cost of $788,000 that was incurred as a result of the CEO transition in the first quarter of fiscal 2019. Nanotech incurred a $2.8 million net loss in fiscal 2019 compared to a $46,000 net loss in fiscal 2018. Higher revenue, higher gross margin as well as the lack of restructuring costs accounting for a better bottom line in fiscal 2018. Our fiscal 2019 adjusted EBITDA loss was about $120,000 compared to 2018's positive adjusted EBITDA of $1.3 million. The basis was primarily due to reduced revenue and margins in the current year. The company remains debt free. We exited the year with $10.3 million of cash and $26.7 million in net assets, leaving us in a strong position to continue executing our business plan. Our operations generated $803,000 in cash in the fourth quarter of 2019, partially due to the $1 million of noncash working capital versus $386,000 in 2018. We made capital investments of $156,000 in Q4 of 2019, compared to $223,000 in the prior year.

For the full year, operations generated $926,000 in cash in 2019, and $1.5 million in 2018. Capital investments were $249,000 in 2019 and $3.7 million in 2018, when the company purchased a new (inaudible) EB lithography system and expanded our (inaudible) for the strongest facility. This concludes my comments on our financial results for the fourth quarter and fiscal year 2019. I will now turn the call back to Troy to provide an update on our outlook for 2020. Troy?

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [5]

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Thanks, Monika. I would now like to discuss our strategies for fiscal 2020 and will provide you with the goals and objectives for the year. In fiscal 2020, we will continue to focus on advancing our dual-pronged approach to the government and banknote market and the brand protection market. In the government and banknote market, we remain focused on advancing our development contracts and working towards eventually delivering a security feature onto the currency for the Central Bank. Well, we don't currently have clear visibility on the -- on exactly when this will ultimately happen, we are pleased with our progress and our recent purchase order of $5 million from this customer, which will be recognized in 2020. Another strategic initiative for 2020 in the banknote markets as (inaudible) recently announced new product, KolourDepth. KolourDepth complements currency authentication product portfolio by offering visual effects that include 3D depth, multiple colors and movement. With KolourDepth, Central Banks can design bank note security features that tell a rich and memorable story, intuitively capturing and holding the person's attention as the banknote is being inspected for authenticity. Our go-to-market strategy with KolourDepth is to work with partners to leverage their sales channels. We are currently speaking to several large OEMs in the market who are interested in manufacturing and potentially selling KolourDepth to the government and banknote market. These discussions are in the early stages, but initial conversations are very encouraging and banking -- and feedback on product is exciting to say the least. We also plan to continue to pursue new optical thin film orders. In 2019, we won key new recurring orders, including the government ID and the Middle Eastern Banknote. We also invested considerable resources to get optical thin film qualified for several other countries' banknote. As we enter into 2020, we are aiming to convert these recent qualifications into new recurring revenue opportunities. In the brand protection market, we will continue to market our new live optics products and have several opportunities in our sales funnel. We recently announced a multiyear deal with the World's Baseball Softball Confederation. And I hope that we will be able to sign more deals, and we'll continue to prove out our solution and lead to larger contracts in the future. We have also set out a goal to develop strategic relationships with established OEMs in the brand protection market in order to promote Nanotech's products in their existing customer banks. I'm pleased with the pace that we have built out the new growth segment for the company and should expect to hear more about it as we progress throughout 2020.

On the manufacturing and product side, we'll continue to pursue strategic partnerships both in enhance our supply chain options and to expand our product protection portfolio and offerings. For fiscal 2020, where we were moving away from formal top and bottom line guidance, I do want to provide some direction that can help investors understand our goals for the year. Contract services that have already been awarded for fiscal 2020 amount to $5 million, which is comparable to that which was recognized from our large development contract in 2019. We believe there are some opportunities for additional rewards and revenue growth from this contract in fiscal 2020, but have nothing to report at this time. Management has also set the strategic goal of diversification and growth for 2020, and the growth is planned through product based revenues with new customers. The company will continue to expand its product line and make further investments in its sales and marketing team and initiatives in order to expand Nanotech's market reach. In the near term, management expects the modest quarterly adjusted EBITDA losses will persist, which cost increase -- cost increases will outpace the revenue growth for fiscal 2020. However, these additional expenditures are expected to support revenue growth beyond 2020. I will conclude the call by saying I'm very excited about the successful transition in 2019 in our current strategic position as we head into 2020. We have a strong team. We now have products that are resonating favorably in the respective markets, and we're getting very positive feedback from customers and partners that want to work with us. I look forward to updating you on future quarterly conference calls as our strategy continues to play out. I would like to once again thank everyone for participating in the call today, and I'll now pass the call back to the operator to open up the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We'll now take our first question from Gianluca Tucci at Echelon Wealth Partners.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [2]

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Just a couple of questions from me. So just on the banknote side, what caused the contracts to come in at around the same amount as last year, and but, for example, not $10 million? And I think you mentioned this, but how much to date has been generated in sales from the $30 million development contract?

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [3]

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Gianluca, thanks for these questions. So the $30 million development contract, I'll address the second half of that first. We've recognized about half of that, about $16 million of the $30 million has been recognized, leaving the remaining sort of $14 million to come. One of the challenges that we have or one of the process points that we have to do to work with this customer is, yes, they have the approved budget, but they have their own cash flow and timing issues as it relates to when they can award annual drawdowns on the budget, if you will. And so when we look at 2019, we had awards of about $5 million, which fits their sort of budgetary cycle. As we go in 2020, they now rewarded us another $5 million. One of the main reasons for our drop off in revenue and, in fact, are the main reason for the drop-off in revenue is in 2018, they had awarded a $7 million in revenue. So when we look at our decline in revenue from 2018 to 2019, it effectively is 100% related to the timing of them awarding that development contract. So as we now move into 2020, they have awarded at the same level we have this year, it really is a little more than just the -- their own financial constraints as they move through their fiscal years. It really has no alliance or ties to how the project is progressing. The project has been going through more gates. We're getting more people involved, and I would say, our customer is extremely happy with the progress. And in fact, is pushing us hard to move things along faster and faster.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [4]

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Okay. Great. Just one follow-up to that question. In terms of the next steps with this particular customer, can you walk us through -- can you like walk us through how the next 12 months should shape up from, I guess, the development or a milestone perspective?

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [5]

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Yes. I think a lot of our conversation now with the customer is not just dealing with the development people that we've been partnering with for the last, whatever it's been, 3 or 4 years, but they're also now starting to talk to various stakeholders. Again, I got to be careful that I -- recognizing the confidentiality of this agreement, but they're talking to their designers, their politicians, their other agencies that have impact on decision-making, and they're feeding that information -- gathering that information themselves and starting to feed that to us. So with our design, it's become much more customer specific. Historically, we've been doing design specifically for random imagery and things like that. Now they've asked us to start to do designs that are very much related to their country, very much related to their banknotes. And a lot of the focus this year is going to be on capturing that right design the various stakeholders are interested in and ensuring that it's at the quality that they're looking for to get on to their next banknote.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [6]

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Okay. That's fair. And if I can ask on your commercial efforts, can you speak to the progress on diversifying your business outside of the banknote space? I think you instilled kind of your vision at the start of this fiscal year, and I guess I'm asking what inning of the game is that at the moment. And you didn't provide formal guidance this year, but can you provide some expectations from the commercial side for fiscal 2020?

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [7]

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Yes. So you're right, Gianluca. So when we started out in the year, we were effectively a banknote contract company. The vast majority, 80%, 90% of our revenue is coming from this development contract, and we have 1 or 2 optical thin film orders. That's been our business for the last 3 or 4 years. When I look at this past year, we have been successful in commercializing our technology in that -- in the first 90 days. We launched security products for the brand protection space. We secured supply chain so that we could deliver that. And then within 6 months, we've built out a pipeline and have actually started to see some wins. We have the World Baseball Softball Confederation win. That pipeline has gone from effectively -- if I look at Nanotech as a whole, we effectively had nothing in our pipeline outside of the development contract, and there's one recurring optical thin film order.

I would say as we -- actually, this calendar year, we have upwards of, I would say, 40 different opportunities in our pipeline. And now really, it's not something I want to update and share with everybody on a quarter-to-quarter basis how big our pipeline is. It's something that's been growing. And in over 9 months, we've got it up to about 40. That's nowhere near where I want to see it, and just going to continue to invest in our sales and marketing because we are starting to get some good traction. We are getting customers that want to talk to us about designing products and build in the brand protection space but also in the banknote space. And I can also say in that pipeline, it's really about 50-50 between banknote and brand protection.

In the banknote space, yes, we continue to pursue our KolourDepth product solution for a future banknote. But at the same time, we are getting a lot of traction in our optical thin film. We've been qualified now with a number of new countries, and we hope in fiscal 2020 that we can convert those sort of qualification efforts that we performed last year into recurring future revenues for us. And so yes, you're right, we haven't given any real guidance with respect to a specific number on future product growth revenues. But between the opportunities on the optical thin film side and the healthy pipeline that we're building out, I am quite optimistic that we are going to see some nice growth in 2020 as it relates to future product sales.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [8]

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Okay. So $5 million, I guess, of the development contract. That's a good baseline. And then your commercial activity in the year is essentially upside on that $5 million baseline. Is that what I should think about it?

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [9]

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You're absolutely correct. And then I would add to that that there is some upside opportunity on the banknote development contract as well, the $5 million is sort of the baseline, there are some opportunities that we can increase that, and we're still talking to them about other accelerators and things like that could happen in the year.

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Gianluca Tucci, Echelon Wealth Partners Inc., Research Division - Research Analyst [10]

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Okay. Perfect. And just my last question here, can you give us an update on your internal marketing and sales transformation effort. Is that all completed now and it's just a matter of the team executing?

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [11]

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We've come a long way, but I wouldn't say that we're, by any means, complete in that area. We've been at it for about 9 months. I think Brian Donnelly has been doing an outstanding job. He built out a team. He's hired Chris Darling from the hologram space. Chris has got over 20 years' experience selling holograms to the brand protection market. He's joined on. We still have Igi LeRoux who's driving our banknote and government ID market. So we've got a good team. But we're seeing some traction now. So based on that, we do have the posting out right now. We're looking for an additional salesperson in the brand protection space. We're just in the interviewing stages now, but I would think in the next 3 months or so, we'd like to add that person to the team. And on the marketing side, I think we want to continue to spend more money in the marketing side that further enhance our products, provide more things that we can sell to our customers and really continue on with the commercialization that we've sort of done in the first 9 months. So there will be more spending there, but I think we're spending for good reasons. We're spending because we're starting to get some traction in the market.

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Operator [12]

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We'll take our next question from Anthony Prost at Stifel GMP.

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Anthony Prost, Stifel Nicolaus Canada Inc., Research Division - Associate [13]

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My first question for you is regarding your product sort of launch time lines. So this year, we saw, I mean, a couple of new products launched, most recently the KolourDepth. And I want to know, are there going to be any other like larger announcements? Or do you expect any larger announcements in the next fiscal year? Or are they just sort of looking more at maybe just like a few updates to your existing ones? Like is this more a question of evolution or revolution as far as your product development in this fiscal year?

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [14]

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Yes. That's a good question, Anthony. I'm not quite prepared to tell you all of the launches that we've got planned for the year. But I kind of put them into 3 categories. One, we do want to take some of our existing products that we're offering and expand the application of them. So it's not necessarily a new design or a new technology but having the ability to have different applications. So instead of just a stripe needed to be provided as a thread or a patch or a wallpaper design, so we were looking to leverage current technologies and current capabilities. We're working with our production partners so that we can offer that in a wider offering till it's more applicable to more customers. It's very important in the brand protection space because right now, we're offering our PSA label with things like QR code utilization that we can leverage some of the capabilities from our partners. We can offer that in different formats and that would be like more stuff for us to sell. That's certainly one category, and we do have plans for that across all of our products that have already been launched.

The second category is we want to continue to leverage things that our production partners can operate. So this year, we added QR code capabilities, utilization. And as we go into next year, we're looking at leveraging partners again for things like track and trace capabilities, so customers can track their labels to a supply chain or have more customer engagement. And so it's more of a full-time solution as opposed to just something that's going to be a label to prevent counterfeiting. So there's many other offerings. As we start to engage with these large -- very large OEMs that are production houses, they can provide us a whole bunch of other things that we can sell fully, which puts more stuff in our sales tool kit. It doesn't all have to be invented at Nanotech, so to speak, for us to help drive revenues.

And then the third bucket, which is the exciting one, which I'm not going to necessarily commit to at this time, is we are working on some next wave technology. We continue to do that. We continue to spend a significant amount of money and resources into advancing our nanotechnology. And we do have some pretty exciting things that towards the latter half of the year, we'd hope to launch these new products that will once again add more things for that marketplace.

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Anthony Prost, Stifel Nicolaus Canada Inc., Research Division - Associate [15]

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Great. That's a great color. Following up on one of Gianluca's questions. With respect to your customer concentration and your goal for increasing diversification, do you have a target for the number of clients that you'd like to have perhaps at this point next year?

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [16]

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I do. It's not something I necessarily want to share publicly at this point in time. I've got a number of targets as to how we measure success around, in particular, the brand protection market. I look at kind of both markets. In the brand protection market, the first thing that we're looking at right now is how is the pipeline building out. We recognize that the brand protection market, as I look at how holograms are being sold into that market and competing products, getting some experience from people like Chris Darling who's been selling into that market for upwards of 20 years, he's talked to us about -- that it's typically 9-month sales cycle. Well, we've now been selling this product for about 6 or 7 months, and we're starting to see traction in that space.

And so our first rule of measuring is how is the sales funnel coming, how is that pipeline building out. And over that period of time, we've built that out. We're starting to see a nice flow of activity going into that sales funnel. As we add more salespeople, I would like to see that expand. And so we're setting -- we've got internal targets with respect to how many prospects, opportunities, qualified leads that I want to see in that sales funnel and, in particular, at various stages of the sales funnel. So we certainly set that up, and that number is going to be very high in the sales funnel. And then as we start to convert that into conversion rates, we'll start to see what comes out the other side. It's hard for us to start to pin down is that going to be 5, 10, 30 wins during the year, but it starts with the sales funnel, and that's certainly our focus.

On the banknote side, we certainly have targets again on the optical thin film side. As I said, coming into this year, we really had 2 customers in that space that we've been selling to for the last 3 or 4 years, and those are great customers. And we enjoy that revenue, and it's been -- it's very nice for us. We want to expand that still significantly. And I think this past year, we have 2 more wins. And I think already this year, we've seen another couple of qualifications that are going to set us up for new wins. And so yes, I want to start to see our optical thin film opportunities move from sort of 2 where it was a year ago to many more, so that we're more diversified in that, we have more customer opportunities that we're supplying to. So not prepared to necessarily give you numbers, but we -- obviously, we have targets there and very much what we're focusing on, and it starts with the pipeline but then expands into revenues.

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Anthony Prost, Stifel Nicolaus Canada Inc., Research Division - Associate [17]

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Great. And following up on the OTF comment. I believe last quarter, we spoke about some capacity upgrades that you're putting through at Thurso. Are those complete now?

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [18]

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Parts of them were. We did complete the stuff that we're -- we have been talking about last time. There's kind of been 3 projects going on at Thurso. One project was to expand the facility. We need to expand about 15,000 square feet, I'm guessing. And we're bringing in some new equipment that was purchased for us under our development contract. So the expansion itself is largely complete. I think in the next couple of weeks that will be kind of finished. The equipment, we're hoping, will arrive in the next few months. And that's progressed very well for us. We're doing some additional work on the machines right now, some $50,000-type work, $50,000, $75,000-type work. And we're doing that because one of the qualification customers that we've gone through this past year requires a slightly different format of optical thin film. And so for us, in anticipating of us being successful winning that business, we want to make sure that our coaters can handle that thin film in an efficient way. So we've already started on that, and we hope to have that project finished in kind of the next, I guess, month or so.

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Anthony Prost, Stifel Nicolaus Canada Inc., Research Division - Associate [19]

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All right. And at that point you'll have the capacity in place to cover whatever from this large -- this 5-year $30 million client and whatever additional stuff that you'll have that will build -- you don't think...

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [20]

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Yes. I mean from a production point of view, we're actually pretty well positioned right now because from a brand protection market and all the -- whether it's PSA labels or foils or whatever we're producing and selling in the brand protection space, we're, at this stage, in a position where very fortunately, we've secured a great North American supply chain partner and a European, very large, well-respected international partner. And so we believe there's no constraint there. As we bring orders in, we just pass them along. We do the work here in Vancouver as far as the origination and nano-optics side of things produced, that those are in place, and we're able to just pass that on to our production partner, and they effectively got unlimited capacity. So that part is great.

The part that we do produce ourselves is the optical thin film. And on the last slide, that part is done in Thurso, and we've got very significant capacity there. And some of these upgrades we've had have just allowed us to put a slightly different product together. It's effectively a wider product offering. And so that's going to be -- obviously, we've gotten more efficient at it but lots of capacity there on that optical thin film side. And then with regards to the banknote development contract, I mean, that's still in the development stage as far as production of that. Whether that's done in Thurso or through a production partner, we can always decide that as we get closer to the finish line.

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Operator [21]

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(Operator Instructions) There appears to be no further questions at this time. At this time, I'll turn the conference over to Mr. Bullock for any additional or closing comments. Please go ahead, sir.

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Troy Bullock, Nanotech Security Corp. - President, Corporate Secretary, CEO & Director [22]

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Thank you. I would like to thank everyone for your questions and for joining our fourth quarter and year-end conference call for fiscal 2019. We are looking to generate near-term revenue and feel confident in our go-forward strategy to expand our sales and marketing activities, launch new products and diversify beyond the banknotes market. I'm look forward to updating everyone on our continued progress and look forward to talking to you on our next call.

I'll now pass it back to the operator for closing comments, but I guess just as my last goodbye, I'd like to wish everybody happy holidays and talk to you in the new year. Thank you.

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Operator [23]

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This concludes Nanotech's fourth quarter conference call. A replay of this call is available at 1 (844) 512-2921 for callers in Canada and the U.S. The pin number to access this call is 2324198. The replay will be available until Sunday, January 12, 2020. Thank you. And have a wonderful evening.