CEO: Dr. Bill McGann
WSA: Good day from Wall Street. This is Juan Costello senior analyst with the Wall Street Analyzer. Joining us today is Bill McGann the CEO for Implant Sciences Corporation. The company trades on the OTCQB. Ticker symbol is IMSC. Thanks for joining us today Bill.
Bill: Good morning Juan. Thank you very much for inviting me to speak with you this morning.
WSA: Great. So starting off please give us a history and overview of the company for some of our listeners that are new to the story.
Bill: It would be my pleasure Juan. So you know Implant Sciences is a company that has been around for a couple of decades really and has been in that period of time through many sort of re-incarnations, or re-inventing itself. The most recent focused version of that story for the company began around 2009 when it sort of divested of all of its other areas of interest in semiconductors and healthcare technology application and started to focus on Homeland Security and for about the past six years the company has been on a focused journey and that journey is to provide the best in class security technology for Homeland Security in the detection of explosives and drugs for law enforcement.
So beginning in about 2009 the company embarked on putting that focused effort together and you know I’m here today pleased to tell everyone that in the last quarter beginning in about April of 2015 our fourth quarter and our fiscal year 2015 we really started to drive the executions of business having spent those previous years really laying the foundation and the ground work to be successful and that execution journey began two quarters ago and we just reported our first quarter results and – for the fiscal year 2016. So in that comparison the fiscal year for 2015 the company generated about $13 million in total revenue for the year and then in our first quarter of 2016 we generated over $14 million. So in one quarter we exceeded the entire revenue for the previous fiscal year and more importantly this is the first time in the company’s history that we’ve ever generated a positive EBIT in the first quarter of about 15%. So we’re pretty excited about all of our efforts in the past and really putting tremendous focus on execution around aviation security as the beginning starting point for our company to really drive these kind of results.
WSA: Can you bring us up to speed on your QS-B220 Desktop Explosives as well as your Drug Trace Detector products?
Bill: Sure, I’d be happy to. So the real driver of our growth and profitability in this past second half of our fiscal year 2015 and to present date in fiscal year 2015 has been around the Desktop Explosive detection system known as the Quantum Sniffer B220. And again as I said a minute ago, principally focused in aviation security what we’ve then started to do is capitalize on the demand for European aviation security and what is called the European Civil Aviation Conference or ECAC. A mandate came out this past year whereby all of the airports in the European Union that serve greater than 500,000 passengers per year were required to install at their checkpoint screening venues, some sort of explosive detection technology and in over 70% of the tenders for those European airports that we competed for, we won those awards.
So in the month beginning in about, call it June last month of our fiscal 2015 to the present date we’ve delivered over 900 of our B220 systems into Europe. And that’s been a very, very great challenge – a great problem to have so to speak where we really had to ramp up our manufacturing, maintain our quality, fulfill large order volume and keep our customer satisfied and I’m here today to tell you as we sit here in December looking back on that, it was an amazing accomplishment by the company and our customers seem very happy with that resolved. In addition to the application for explosive detection on that particular device, the QS-B220, we’ve also begun to focus strategically on drug detection and in the recent months we’ve also fulfilled our first orders in that space to some of the prisons around the world where drug detection is a really important part of the safety and security in and around the prison.
WSA: Sure. So you know in terms of QS-B220, can you talk about some of the key trends, especially with what’s going on in the world these days. How does that increase the market opportunity?
Bill: Yeah absolutely. In the Homeland Security whether it’s the US homeland or sovereign nations and other parts of the world their version of the homeland, you know border security is very important, aviation security is very important and our product really fits as a cornerstone or front underlying technology that really establishes a strong base for security in those applications and it’s not a stretch to say that the challenges in our modern time are such that this market is not going away. This industry kind of began shortly after Pan Am; you know the Pan Am event in 1999 when the Lockerbie bombing took place and that really catalyzed the growth of the industry that we now serve.
And it took about 20 odd years for the first generation of that industry to come to fruition and the QS-B220 is really the core platform technology that’s leading the way in the second generation of our industry which is really young and of course in the times – the troubled times that we’re in today with terrorism around the world growing and the number of incidents growing it will be ever more important as a lynchpin for security technologies around the world borders and in aviation application
WSA: Great. So what are some of the factors that you feel make Implant Sciences and your products and solutions unique from some of the other players in the sector?
Bill: Well, it’s a great question and like I said it’s really leading the charge in what I call the second generation of the industry and it’s driven fundamentally by the core technology platform. We have some very, very strong intellectual property in the areas of chemistry and physics and let there be no mistake about it, these are laboratory quality analytical instruments that are designed to be intelligent and ruggedized to be operated in the field in the hands of non-PhD, non-highly technical individuals, more like law enforcement and trained security personnel such as CSA and border patrols around the world. So it’s very, very powerful very, very intelligent technology and our package, our design has capitalized with the latest advances in chemistry and physics.
These devices are capable of sampling, detecting, analyzing and identifying absolute trace minute amounts of hazardous contraband, be it explosive material in the case of an aviation or a border which gives those security personnel confidence that they’re preventing incidents from coming into their secure zones and in the case of drugs really you know keeping a check on the flow of hazardous and dangerous drugs coming into the society. So it’s driven by the detection technology itself, it’s driven by the intelligent ease of use operational uptime and availability that we’ve designed into the system, these systems have become relentless work horses in the industry, and it’s taken us a number of years to get that technology established and we’re proud of it today.
WSA: So what are some of the other key goals and milestones that you are hoping to accomplish over the course of the next 6-12 months?
Bill: Well our fiscal year 2016 as I said in our earnings call is going to be a very strong year for us. We gave guidance at the beginning of the fiscal year and we made a commitment to our shareholders that we would do so on an annual basis. And coming into this fiscal year we reported we had a backlog of about $40 million and gave guidance that we could see ourselves delivering in the 2016 fiscal year a revenue number depending on whether we can ship all of that backlog plus the win and ship orders around the world to generate revenues of upwards from 40-45 million.
In other words we expect to ship the entire backlog and if not we will certainly ship at least that much with additional win and ship orders and we think that that is still very likely in our current scenario here we are coming to the end of our second quarter, and the outlook remains strong. For the balance of the year we’re going to continue to deliver on that backlog and continue to win in new orders and where those new orders are coming from is and Europe continues for the mandate for European Civil Aviation and that is going to be the smaller airports next. The next domino in the chain are all the airports around Europe that serve under 500,000 passengers and as you can well imagine there are more of those airports.
So while they’re are not bigger there are more of them and they serve as sort of the spokes on the hub and spoke idea of an airport so security in those airports are paramount because you don’t want to have a smaller airport be unsecured and allow a person or a suspicious nefarious bad actor to get in there then get into a larger airport like Charles De Gaulle or Brussels or Schiphol.
So we have to protect all the airports and that’s our journey there and on the drug side we continue to grow that space up with initial focus on prisons. And I would say if we look into the physical years ahead, a three-year to five-year plan, we’re continuing to leverage our core technology into new packaging, new configurations a new helping hand to replace our existing H150 of which we have about 2,000 units deployed around the world, and we have a new, basically a new version that which refreshes that technology makes it more powerful actually allows it to detect drugs not just explosives and chemical warfare agents. And we expect to rapidly recapitalize that 2,000 units and solve base once we launch that product later this year.
WSA: So perhaps you can talk a little bit about your background experience Bill and go over the key management as you’ve had some shifts since we last spoke to you guys.
Bill: Sure, well the executive team is quite a strong one; it’s been in place for a number of years. I mean we have a very solid chief financial officer, Roger Deschenes he’s got a lot of experience in public companies and small private companies and really is a foundational member of the executive team. And we have also our vice president Brenda Baron who has been in-charge of our manufacturing and was our team technology officer and recently I became CEO. We have reached over a period of months to work together as a team and sort of elevate the top to become the chief operating officer, which I once held that title and that role. That’s the perfect situation because Todd has a great balance of operation in engineering expertise in his past.
Then there’s Dr. Darryl Jones I mean I can’t say enough about Darryl, I have worked with Darryl in my past in the former GE Security business when we first met many years ago and Darryl has established himself a very strong team to drive execution in sales around the world. And these guys, I mean this are not you know neophytes of the industry, the collective experience of our team in terms of domain experience probably is well in excess of 100 years among five or six people.
As far as my own background, I’m one of the foundational guys going back to the 1990 era when these companies first started to emerge on trace protection. One of the original partner founders of a company called Iron Track and that got sold in about 2002 to General Electric in one of the Keystone companies in what became GE Security and then I ended up over a period of seven or eight years after running the large technology group for GE Security. Coming back to my routes and small companies such as Implant Sciences and it’s really kind of amazing to come back again to a small company with an entrepreneurial spirit and try to drive positive outcome.
It’s a real dual-purpose industry, it’s high tech, it’s entrepreneurial but there’s a real sense of dual purpose because you and your team are doing good. I mean you are serving an important role, you’re not just making commercial products or industrial products that have to perform but they also are serving a very, very important role in the global sense. It’s just not the global economy but global security so it ‘s a very interesting and exciting industry to be in.
WSA: So as far as investors in the financial community are concerned Bill, what are some of the key value drivers that you wish perhaps they better understood about the company?
Bill: Well you know people who are familiar with our company know that our balance sheet is very debt-burdened and that makes it often difficult to get your head around but we’ve had for a very long time a very supportive lender in the DMRJ Group. They’ve been with us for about six, almost seven years now I think and counting but they remain a very strong and supportive company. Now that the company has become profitable we have much more leverage and much more opportunity to sort of right the balance sheet if you will.
We have more options at our disposal and we talked a little bit about some of those things that we’ll be looking at with strategic partnering, we’ve talked about the possibility of up listing the company, we can now try to do some debt equity conversions now that we’ve got some positive EBIT and that will continue to grow. So when you’re a company that’s not making a profit and your balance sheet is very debt burdened like we have been, it’s hard to find a good option but now that our profitability is becoming in place and strongly in place and will continue — it gives Roger, the team all of us a lot more options to work in the industry with the investment community, with strategic partners in the industry and create a very strong sustainable company that will be in existence driving growth long after all of us are gone perhaps. And that is the hope and my mission purposely is to build a sustainable company that lives beyond any one person.
WSA: Great. And so once again joining us today is Bill McGann; the CEO for Implant Sciences Corporation, which trades on the OTCQB, ticker symbol is IMSC. And before we conclude here Bill to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?
Bill: Well I think today if you’re not familiar with our company the reason to invest is this is an important area for our global security in the global economy, and if you are just getting on board now, the company as I said a moment ago has a true sense of dual purpose. If you like to invest in technology companies that are spirited and entrepreneurial and are actually really driving a common good that’s a great reason, it’s a passionate reason. If you’re a long term standing investor and struggling along with the company in repeat years I would say it’s got to feel rewarding to finally see the company start to drive execution and get positive momentum around dramatic revenue growth and profitability for the first time in history.
WSA: Well we certainly look forward to continue to track the company’s growth and report on your upcoming progress, I mean I’d like to thank you for taking the time to join us today Bill and update our investor audience on Implant Sciences, it’s always good to have you guys on.
Bill: It’s my pleasure Juan, thank you very much.