Alexium International Group Limited (AJX) Earnings Call Transcript & Summary

For those who may not know me, my name is Rosheen Garnon, I'm the Chair of Alexium. We really appreciate you taking the time this morning to join us. On the call today, we have Billy Blackburn, who is our CEO and also Jason Lewis, who is our CFO. So they're going to be doing the main part of the presentation. I just wanted to acknowledge that tomorrow, 1st of September is Billy's 12-month anniversary with the organization. So I just wanted to mark that milestone. And also to comment on the fact that we had a reorganization of the C-suite when Billy came on board. You may remember Bob Brookins took on the CTO role and Billy stepped into the CEO role. From my perspective and the Board's perspective, that transition has been handled extremely well, very professionally. And you will hear today about the impact that that's had on the operations of the organization. I did want to highlight one thing for everyone. We are in an economic downturn, particularly in the U.S. Inflation is having its impact and customer sentiment is down. But if our existing customers today were ordering at their pre-downturn levels, the company would be cash flow positive. And I think that's a really important place for us to start because as the U.S. economy comes back and when that happens, we should see a bounce in our results. The team is highly motivated. We had a really good session with the team probably about 3, 4 weeks ago. And what they bring to the table now, Billy has asked them to step up, and they're absolutely doing that. The focus now is on revenue, and you're going to hear that throughout this presentation. So look, that's probably enough from me. Welcome once again, and I'm going to hand over to Jason and ask him to take us through the financial results.

Thank you, Rosheen, and good morning, everyone. Can I have the next slide, please I want to mention that all values are in U.S. dollars unless otherwise stated. Revenue of $7.2 million is down from $8.2 million or 11.8% from FY 2022. Some of the factors around the decrease include the end of a 5-year contract a customer had with a big-box store. We've also experienced the exit of another customer out of the U.S. market with that volume slowly returning through other customers. And H1 of FY 2022 was a very strong period that occurred before consumer confidence in the U.S. took a large dip in the market as we saw in the second half of that year. We also experienced the second half year in a row of sales growth, with H2 being 30% higher than the same period last year. Gross profit continued to grow from the recent low point in the same period in the prior year with gross margins coming in at 39.1%, which is down 160 basis points from prior year. This dip is mostly related to customer product mix. Operating expenses are down $177,000 or 3.9% year-over-year. We had a net reduction in head count of 4 positions throughout the year in which we will see the full year impact in FY 2024. We also have reduced our costs with less reliance on outside professional services. EBITDA for the year is unfavorable by $331,000 with H2 on par with the same period last year. Next slide, please. Net cash outflows from operating activities improved by $500,000 with the decrease of product purchases on lower cash receipts and reduced operating expenses. In terms of development costs related to intangible assets were greater by $66,000 as were continued on projects such as DelCool and Eclipsys, which will have reduced cash outlays in FY 2024. We received $1 million in cash as part of the renewal of the convertible note. Next slide, please. Most of the P&L was discussed on the first slide. Other notable items include interest expense increase of $207,000 with rising interest rates and change in effective interest on the restated note. For accounting purposes, the original note was treated as an extinguishment of debt due to the material change, which represented a loss of $576,000. This was offset by a gain on the fair value of the derivative of $794,000. Next slide, please. Net working capital decreased by $500,000 with higher trade receivables as a result of stronger sales at the end of the period, offset by a large decrease in inventory year-over-year with continued utilization of our sales and operating planning process and disciplines around our materials resource planning module in our ERP system. Trade payables and the line of credit were both in line with the balances of prior year. We executed a 3-year AUD 7 million convertible note with Colinton Capital. The interest rates are in step with market rates with cash interest at 10% and PIK interest at 12%. The note is convertible $0.03 per share with shareholder approval. We also received $1 million in cash for working capital as mentioned previously. Thank you, and please to you, Billy.

Thank you, Jason, and good morning to everyone in Australia, and also good evening to our friends in the states that have joined, and we appreciate your continued support. I want to speak to the company in general, and then I'll speak to everyone really about my first 12 months and what I've seen within the organization and what that's leading to for the year ahead. But just for those that are new to us, Alexium is a very unique business with unique chemistries and our value is really our ability to take technologies we develop and hold the customers' hand to integrate it into their products. And the ultimate goal is for our customer to sell more of their product through our technology differentiating them in the market. We've shifted over the last year our branding and marketing and go-to-market approach from being a specialty chemical business and more oriented to selling containerized chemistries to textile treating to more of a performance materials company. And I'll ask that everybody not the step change that you'll see as we talk about what happened over 2023 and as we go into 2024. One of the things I did early on, and I noticed this earlier on is that we had an opportunity to take technology that have been developed over the last 3 or 4 years leading up to FY 2023 and then commercialize that, but also, we had an opportunity to move a little closer to the end customer in the supply chain which is a new step change in the strategy that I'll articulate a little further here into the presentation. So we say Performance Materials Company now because we are actually selling materials other than just chemistry. We're selling rolled goods, wovens, non-wovens that are treated with our technologies. Again, that moves us further up the supply chain. So the focus is still on thermal regulation next to humidity reduction, heat reduction, heat dissipation. And then also adjacent to that, we do flame-resistant chemistries. And now we're actually moving into treated fabric and the potential of selling the treated fabric to the military sector. We had 25 global patents and patent applications in our field. We are considered a pioneer in phase change materials. And even a little bit further beyond that is we have really become experts in micro-encapsulating chemistry. So those of you that aren't technical that is literally putting a shell, the crystal shell around a chemistry that delivers that to the end-use typically a fabric in our case or phone. You put the heat to it, liquefies, it absorbs the heat, take the heat away from it, it recrystallizes and regenerates. It's a very unique delivery system for chemistry that has broad applications beyond bedding that we'll explore after we deliver success in bedding. So some expertise for diversification later on. And lastly, over this last year, we have moved more global, and we're going to continue that pursuit. We have had products in Asia with successful bedding placements, and we have 2 new placements starting early in FY '24 in Europe. Next slide, please. Thank you. So our core technologies are in the product suite shown here. Alexicool is traditional workhorse PCM for Alexium and really where we cut our teeth in PCM. And it's really best-in-class cooling, and we've had success for numerous years now in textiles that are used in bedding specifically, the biggest piece of the market would be mattress, and now we're moving more into top of bed for mattress toppers and pillows. An interesting thing that's happened over the last 2 years, though, as we introduced BioCool other PCM suite is it's a bio-based and bio-preferred product made us sustainably sourced raw materials, and that has gained significant ground in our percentage sales mix with Alexicool. So Alexicool historically dominated the PCM sales for Alexium. Now that's greater than 60% BioCool in the mix. And that's a trend in the market. It's on par with the traditional petroleum based Alexicool, BioCool is bio-based sustainable mix, some of our ESG goals and the customers are finding that the product is on par and meet some of their ESG goals and give them nice marketing claims for an environmentally friendly product. Eclipsys is a heat dissipation substrate. So it's a non-woven material. We are selling it as a raw good that we basically had originally targeted the mattress market. We're now finding traction for Eclipsys and top of bed, specifically about the launch of pillow line with a retail customer and the potential actually for a larger pillow line behind that, it could buy enough sales really to carry us to a cash positive result. So we're finding some nice surprises in Eclipsys where we originally positioned it in the bedding market for the upper echelon of the brands and the upper price points of the brands. We're now finding if we zone the material and work with the customer in the production and the application of it, we can get the cost to a point where it actually can be afforded in pillow lines. So we're making a nice push there. There will be a large announcement coming out later this year for a large retail launch and a betting line for Eclipsys that we've been working on for some time, finally, going commercial in FY '24 second half of the year. DelCool, really one of the most innovative things that we have rolled out in the last few years, and it focuses on thermal regulation through humidity control. So like our PCM absorbs heat, liquefies and then recrystallize when you take the heat away, DelCool does the same through deliquesce where it absorbs moisture in the vapor through humidity, holds the liquid in a barrier and then when the person is removed from the source of humidity being the person in bedding. When you remove the person, it then regenerates and discharges the humidity back to the environment. So we're going at heat and thermal regulation there through dehumidification. And Eclipsys and DelCool, we're finding as a platform along with BioCool or Alexicool depending on the customer's choice, are a very powerful platform for [indiscernible]. And then lastly, Alexiflam and Alexiguard, often we pair together and call our FR chemistry. And we've been very active with the military over the last 9 months and are getting some good traction there and some significant promise for the near future with those products. And just a reminder for our new friends, the company really was born out of flame-resistant chemistries and flame-resistant pursuits for the military, then moved into thermal regulation. So we're still sticking to our core roots there, and many years have been put into that. And this is the closest I believe we've been to a military placement in a large public placement for those products. Next slide, please. Thank you. So market development and some FY '23 second half of the year highlights. One of the things we rolled out the strategy is we really wanted to bring focus to the company on commercializing technologies we had already developed. So we really slowed down -- we didn't completely leave any development work completely on hold, but it's become the minority percentage of our focus and we really wanted to put our resources, our time in the whole alignment of the team at Alexium to our core focus, which we see as the best route to near-term results. And we were very embedded in the bedding market. So that means we were going to focus on saturating the bedding market and then diversifying within the bedding market as the initial piece of the strategy. From there, we will start moving to adjacent markets and diversifying away from the concentration in the bedding market. So it's twofold. It's grown revenue and diversified revenue in bedding market and outside the bedding market. So that's the simplest way to put the strategy, but there's a lot of moving parts behind that. So in the bedding market in Q4, we had our first commercial revenue from DelCool, and that was in the pillow liner. And this was the first time Alexium moved up the supply chain and actually manufactured the liner. So it's a tri-layer fabric, and we were making pillow liners some with some closures and some with zipper closures, varying sizes from standard Queen to King. And those liners were made in South Carolina, all made in America like our chemistry and is being sold to a large U.S. retailer up and down the eastern half of the United States. Now we have possibly 1/3 coming now placements for DelCool in retail channels. So it's getting some good traction, and we're expecting growth there. And I'll speak more to DelCool specifically here shortly. In Q4 also, we had BioCool was qualified, and we had 2 new European finishers that make bedding products for the top 5 mattress producers in the world. So 2 placements in both in Europe, both in Turkey, which Turkey is emerging as a textile finishing hub within the European Union. We had final approvals in Q4 also for our Eclipsys. This is a large volume, large mattress in the high-end brand that will be going to the market in early 2024 calendar year. We'll start seeing sales of Eclipsys to ready that and start basically ready in the beds to go to show floors, and that will happen in Q2 of FY '24. And that's been a long time in the making. With the slowness of the U.S. market, that Rosheen noted, we saw some of these projects stall-out over FY '22 and starting to come back and kick back in second half of FY '24. And it is important what Rosheen noted earlier as well, we not only have we retained our customer base, lower sales volumes, but we still have our same percentage of their business, their business is just very soft. We've actually added some new customers. So when we see a market recovery here, we expect really good results just from that alone. And then you add in the diversified products and new starts that we have, and that's really one of the path for short-term success. And then we have been enjoying the enhancements that the technical team made to our PCM over the last few years. And that has opened up selling to foam applications and a large part of the bedding market has moved to foam-based products. So your traditional textiles and inner spring mattress are still around and still a large percentage of the market, but e-commerce and beds in a box that if you can order from large retail e-commerce channels like Amazon, Wayfair, Walmart.com, have really grabbed a big piece of the market share, then the COVID impact of everybody staying at home and buying from home and enhanced e-commerce sales. So we've been making improvements to the bonding and the chemistry of our PCMs to allow it for better application for foam. That's opened up multiple new opportunities, and we have 4 new starts here in the new year for direct phone applications and we expect more growth from that. Next in an adjacent focus is Tactical Gear. And we use Tactical Gear, specifically ballistic vest as a proven ground for Eclipsys. In a just full disclosure, we launched Eclipsys before I joined in early calendar year 2022. And from that launch, we learned a lot from the customers. The material needed some improvement. We needed to pick in the micron of some of the magic material we put in the middle and we needed to really enhance how we help the customer integrate it into tactical vest. One of the things that was amazing to me and starting to study that market is I had no idea the Tactical Gear market specifically for ballistic apparel was $2.2 billion worldwide. The thing that became very apparent, we attend a show every January in Las Vegas called SHOT Show, and that's the Super Bowl or the World Cup of basically armor and weapons and anybody in that space, military, law enforcement, hunting, outdoor enthusiasts, it's a massive show in Las Vegas that ties up multiple showrooms and multiple hotels. But what I've learned is the market is extremely segmented for Tactical Gear. That $2.2 billion is not made up of 4 or 5 big players, made up of thousands of manufacturers and producers and multiple segments for law enforcement, civil service, military, and it's just wildly different. So early on, we had picked a few small beta customers to do the testing with. And we changed the strategy after I got on-board, and we changed the strategy to really getting hands on with the customers and showing them how to adhere the material. We simplified the production of our Eclipsys and then we gave a simple route for the customer, given the really one choice, which was to sell it into the construction of the vest, which is the simplest way for it to be beneficial to the user. It gave it the longevity it needed where it would stand up to the rigors of taking on and off of vest. It gave better results for the cooling. And from that, we've gotten more traction now. And so we made a course correction and this year, you'll start to see that get monetized with new starts. The other part is we're now trying to book in that strategy with the private sector being able to get it into this and have it ready to be made and sold with approaching the government and this is in the federal sector and also at state level for law enforcement to get them to start specifying it closes into tenders and requests for quotes. So that when they put out their request for quotes to all these folks that make vests, they're going to call out Eclipsys, we'll have folks in the product set who are qualified, and that's a better strategy for getting larger placements because the large placements all love public money. All right. And then FR NyCo, which is our flame resistant nylon cotton and again, for our new friends and forgive me for continuing to say that because I often forget that not everybody here has been following us a long time, so I really want to break down in simplest of terms what we're doing. FR NyCo is a nylon cotton fabric. It's an advanced nylon, 50% nylon, 50% cotton and it's treated with the Alexium's FR chemistries. So what we've done there is we've also at the supply chain, and we put together a group of industry proven partners that are already supplying to the U.S. military. We did a tender and we're working with the Army right now, and we responded to a request for quote for the Marines earlier this summer here in the States at the beginning of June. They promised a 6-week feedback. We're now some 10 weeks into that, and they're still delayed and they're citing shortage of staff with the U.S. military and testing facilities, which is a phenomenon we all see in the market right now. So we're giving them some grace, but we're asking for feedback weekly. We treated 3 fabrics that were submitted to the Marine core and the FR NyCo is unique because the nylon cotton is really a warm weather uniform or warm weather substrate for an FR treatment and what the military shares is the goal between the Marines and the Armies in the states is they're looking for a fabric that is cost-effective that could be on all those deployed soldiers and marines. So it's a combination of FR protection, breathability, comfort, tear shrink for warm weather been used for warfare. [Technical Difficulty] So we come up with the right combination, and we're passing most all of the tests. And the reason I say most all is not all of the tests or tests that we can perform in-house, Alexium has very advanced laboratories, and we're able to do burn testing, but it's not the unique testing done by the military, which is called a PyroMan, where they take basically a manikin and hit it would flame doors from 3 sides at 1,400 degrees, basically incinerate the person. So this thing has to stand up to the very serious rigors for 4 seconds at that burn test. [Technical Difficulty] Good news about the work we're doing to Army is in an open request for information with the Army, where we're able to iterate with them and do testing and share results to try and get to a final product that works for them, then you would see a formal request for bidding quote come out. The thing that changed for Alexium over the last 9 months is we changed our approach to partnering with folks in that industry. And we went to those that already had the license to do [indiscernible] military branches they have already proven [Technical Difficulty] I will point out to everyone that, that is a long-term pursuit for Alexium. That's why we have it in an adjacency because the revenue would not be before FY '25 because we would have to go through 12 months of rigorous fill tests with the uniforms if we're selected to roll that fabric out to move to the next stage. So stay tuned there, but a lot of exciting developments in FR NyCo. Next, please.

And Billy, just to give you a little bit of a break before you go to the next slide. Can I remind everyone that if you'd like to ask questions, then please go to the chat function and include your questions there, and we'll monitor them and we'll answer them through the presentation.

Yes. Thanks, Rosheen. Forgive me, everyone, I failed to mention that. I'll kind of move through the presentation quickly. We would want to spend more time on Q&A at the end. So this really is just an infographic to capture how the strategy focuses the resources and the efforts at Alexium. And this is a short term, so it's FY '23 and FY '24, which really meets our pragmatic goal of cash positive results and building a solid foundation for long-term profit growth from there. So again, we're very invested and very embedded in ironically, the bedding market. That's industry mattresses, foam mattresses. We now are moving more of our technology into low-cost, high-volume vendor box and e-commerce applications, which is really what we're looking for there is some large placements that give flywheel revenues month-over-month large revenue streams. DelCool is one of the products that really plays well for that. And then top of that, pillows and mattress top pillows. That's a good market for us, and we're gaining a lot more traction there, too, both with fiber field pillows and foam pillows for our PCM and DelCool. And a mattress is typically a product development cycle for a new mattress to go into retail with a large brand is typically 12 to 18 months at the earliest. The good news for top-of-bed applications and pillows is that can be reduced to 90 to 180 days or 3 to 6 months. So it's a much faster route of revenue. Now the big dollars really are in mattresses. But if we have multiple top of bed placements, we can cobble that together into the same level of numbers. So we're running that in parallel. And again, that's our proven products with PCM is buying most of our sales now, but we're diversifying the sales in that space with the addition of DelCool, Eclipsys both going commercial. In the adjacent areas, the military uniforms, I just broke that down fairly detailed for FR NyCo, so I won't do that again here. But we're very active with the U.S. Army, and we're awaiting feedback from the U.S. Marines and then in Tactical gear for Body Armour. The interesting part about the focus on Body Armour is that's a really good proven ground for where we want to break through later and put more focus on product development for athletic gear, and that could be headwear, footwear, and also pads, whether it's cricket pads, baseball pads, football pads. Well, when we get better results and we're showing the efficacy in tactical, we move to athletic gear from there. We will start running a parallel path in the second half for '24 because we will start moving more towards the purple and red at that point because we will have been executing for a long time against the green core, and those sales will be maturing, and then we need to innovate and move to other markets, which are really good opportunities because they are large markets. But as my grandmother always told me at Thanksgiving in the States, eat what's on your plate first, then you go back for seconds. So the green circle is us eating what's on our plate first to deliver near-term results, then we'll enhance the business from there. Next slide, please. So for the core area in bedding and where are we today. And again, this is our Alexicool, BioCool PCM, Eclipsys, our thermal regulation dissipation and then DelCool heat index through humidity, dehumidification. And those can be paired together in a nice platform and suite for this market. So the Alexicool and BioCool brands are established. We're selling to most all U.S. Tier 1 suppliers to mattress and top of bed and the mattress industry in the States uses a lot of outsized Tier 1, Tier 2, Tier 3 manufacturers in assembling their mattresses and their products. So it's very similar to like the automotive industry where they have outsourced sub-tier suppliers. That is where a lot of our products are applied as typically at a Tier 1 finisher that's selling a fabric or a finished foam into a mattress component. So you'll hear us talk a lot about Tier 1s. Oftentimes, we're serving ultimately a big brand, but we will work through a Tier 1 to get the product with our application on it into the final mattress or pillow. We have globalized to Asia and Europe. DelCool was launched successfully. It's now in high-end pillows and large department store. There's a whole shopping channel that has adopted, and that will be rolling out this quarter. And then another department store based in the Northeast United States has agreed and they're adopting, which will roll-out in the first half of this year. So we're seeing more pillar placements for DelCool, and it plays well, especially with foam and any of you that may have foam pillows or foam products, you realize that they have a tendency to be a really good insulator, which makes them hot. And if you're like me, I'm a hot sleeper, and I sleep with a sheet and my feet hanging out on my wife sleeps with piles of blankets on her. So totally different market in the same bed. So anything that could call me off is very attractive. DelCool, Eclipsys platform is being reviewed, and we are seeing best-in-class results. We measure heat in jewels, and we've seen heat absorption and heat dissipation and a record amount of jewels in a new platform that's being rolled out in a mattress. So we're in product development on that now. We would expect that mattress to launch second half of this year as well. And you would have heard Bob Brookins talk about that platform in previous years. It's now we've proven the manufacturing the product, we've proven the testing, and now we're into the phase of product development where we're working with the customer to integrate it into a mattress. So we're in that 12- to 18-month product development cycle I was mentioning a little while ago. And Eclipsys and PCM premium mattress that's launching again at the start of calendar year 2024, our third quarter FY '24. So we're seeing continued revenue growth from PCM and textile applications and top of bed and that's really enhancements of our PCM and it's just our sales effort to add new customers. Their volumes are still soft, just to remind everyone. So we do expect the recovery in that market. And as we've added more customers and retain the customers we had and actually saturated their business, that will benefit the company in recovery. So you'll see a sharp increase in the revenue just in our existing footprint. We are diversifying the revenue in bedding by moving to foam and the enhancements to PCM have allowed us to do that. And for a non-scientific person, I'll explain it like this, we had to have a PCM that was readily applied to foam, where really we would adhere to the surface of the foam, stay at the surface and stay intact and if you've ever seen a bed in the box gets stuffed into a box, the rigors of that, it's mechanically rolled and they'll take a huge key mattress and stop it into a box, it's about 1/3 the size of your desk. So the product has to stand up to being really beat up. So enhancements to the chemistry have allowed us to open that up. The other part is foam will literally drink up any liquid you put on it. And so we had to have binders that kept it at the surface and kept the surface tension intact. So that's the simplest way to explain the improvements to the PCM, but that's now opened up new customers for pillow and mattress. We are going across a wider base of the market. So that's also globalization and obviously, the top of bed, textile and foam. DelCool has paved the way for high-volume placements at a lower price point. So it's a best-in-class thermal regulation technology at a price where it could be afforded in the price point of mattresses anywhere from 500 up to 1,500, which is really the lower tier of pricing in the mattress market, but it's the highest volume segment. So we're really trying to break into high volume placement there, which would buoy revenue month-over-month. Eclipsys has paid the way for the opposite end of the market, a high-end sales. It's a much more expensive technology. Also all night comfort, it's infinite cooling because it never turns off, always moving heat away from the source. So we will see those placements take hold this year. And as I mentioned earlier, we've had a breakthrough in that area where we've actually gotten -- that's a more expensive technology. We've gotten it into a lower price point pillar by using less of the material and placing it in the right zone. And then DelCool plus Eclipsys is opening up large opportunities for some of the bigger brands to take the platform together and make best-in-class claims because when you pair the humidity with the heat dissipation, you get best-in-class cooling all night. And that's the uniqueness about both where there's not many other products in the market that can claim 7, 8 hours through the night. Most of the products that are cooling out there have a 30-minute to 1-hour shelf life. So we've put something out there now that's giving a best-in-class longevity. And the value this will create is revenue growth and customer diversification. And again, that's going global and foam, which secures our revenue base from being too concentrated in one area or with one customer, and this is within bedding. DelCool, closest coming on this year, is going to drive revenue growth, again, reducing concentration from the single product line of PCM and then an improved customer product and market mix is really going to buffer us from volatility in the bedding market. So we're continuing to grow our footprint, and we're waiting on a recovery, which would really benefit a sharp increase to the company. But we believe we can deliver positive results even in a down market if we stay the course this year and deliver the projects that are in our pipeline. Next slide, please. So for Tactical Gear, Eclipsys is -- this is really our second bite of the apple after all the learnings from last year to early launch. We came back, regrouped, went back stronger. The good news is our sales team did a good job with the relationships and kept most of the customers at the table. So they were ready to take a second try. And that's where we are with many of them right now in our developments. So those improvements led to basically a clear path forward for commercialization. So field test is what will be happening this year, and that can take a little bit of time anywhere from 3 to 6 months in the private sector where they want to collect data from the actual users. So these could be police officers or military enlisted personnel. So the field tests are active with 4 customers right now, and we're looking to now approach the public sector, law enforcement and military to start having it specified in for RFQs and RPs for public tenders. And we did start selling Eclipsys in rolls to one of the producers in the States in Q4 of FY '22, and we expect that to grow, and they also are pursuing some public tenders in other continents outside of North America for large placements in law enforcement. So the successful results from the field trial should lead to new revenue and new starts this year. And our initial traction really is in law enforcement. We are continuing to improve our sampling and testing. And one of the things to improve the testing is -- and this is we're on a cutting edge here where there's not a lot of standardized tests under ANC or ASTL for testing this product in Tactical Gear because no one has been doing it before. So we're having to take testing that we do and get labs that can do third-party validation and then move it into accredited testing standards. So when the large placements come, the customers can honor warrants and any product liability there is covered under a third-party validation of the testing. And it's a subjective thing when you talk about heat and comfort, and it's up to each user and people feel things differently. So we have to give the user experience, but we also have to give the engineering and technical data to underpin that for the ultimate product seller. So we're moving along that line now to work with folks to validate their testing that gives us that third-party independent testing. And all initial results have been very good. We haven't had actually any negative results or any noes from that. And then private sector field tests are going to open up new opportunities for 4 more supply contracts. And again, we're moving to the public sector for that piece. We had to prove it first, get the product ready, be ready to go commercial, and commercial is more than just selling it. It's being ready to actually make it and help the customer get it lost into their product. And the value to the company is new revenue streams from new customers, improved profit margins for Eclipsys and Tactical Gear are very healthy. Greater market penetration also diversifies the business out of bedding and opens-up new revenue streams long term that aren't tied to a volatile bedding market. And if we're successful, which we will be in Tactical Gear, we're already having successful results, that's a natural transition and evolution to athletic year. Next slide, please. So lastly, active and really, these last 3 topics, including this one are really around what our focus is, what's in our pipeline active right now and what we're looking to convert from qualified business development opportunities into sustained revenue. And that's what this year is all about. So in the past and how we got to where we are today, the company had created flame-resistant nylon-cotton fabric treatment and it's a combination of our Alexiguard and Alexiflam chemistries. Again, we refer to those as FR. We've delivered production scale in NyCo treated fabric. It passed the initial military test for weight, strength, flame resistance, and samples are under review by both the Army and Marine Corps, and we're moving to further manikin and third-party lab testing with the Army this fall in the States, which means September, October time-frame. We did secure the supply chain, as I mentioned before. So what that meant is we had proven partners, reputable partners already supplying to military. But most importantly, when the military says yes, we're ready to go commercial, how fast can you ramp-up. We've now aligned with the supply chain consortium. I don't want to say partners because we didn't do any formal partnership with any of these people. We are aligned with these companies and partnering on the project. But what that really leads to is, already made commercial ramp. So the folks that we're aligned with, have the capacity, just like Alexium to meet-up a sharp ramp-up for the military, if they choose to roll it out across all the enlisted soldiers and marines, we'll be ready. And the question that will naturally come behind that is how ready, how fast they ask us the questions and they're qualifying of the company and qualifying of our supply chain, depending on the volumes, the starting volumes that they ran, that's as quick as 90 days out to 180 days. So a 3- to 6-month ramp because there's not capital investments required. The capacity exists, the technology is ready. It's just a matter of turning on the production and ramping up to meet the demand. In the way the military has envisioned how they would roll this out as they would do it in stages because they have to let all the supplies that are in their current coffers play out and turn over. So there would be a 1- to 2-year ramp. Any way you place it, though, the start is significant to Alexium. It would be a huge uplift to revenue and valuation of the company. So next steps for this year, we will deliver treated fabric for uniforms, and that's the ones that are heading to the burn tests with the U.S. Army. We're expecting successful feedback from the U.S. Marine Corps RFQ. Again, whenever they get to their final results and can report those to us. And back to the Marine Corps RFQ, that was an initial qualification where they were reducing the list of vendors to supply the fabric to a shortlist that would then produce fabric roughly 700 yards to be cut and sold also for uniforms to go to further lab testing for burn tests and also on to listed marines for field tests over a 12-month period. So that will be the next steps with Marines. And then we're going to continue working on our process design improvements in preparation for scale-up so that we're ready. And that's a big piece of it. The federal government in the states will send out an audit team and they're really engineers and operation manufacturing types. And what they're doing is giving you a SNF test to make sure you're ready to launch and that you can meet their demand should they put their eggs in our basket. And we are more ready than Alexium has ever been at this point. So we hope they send the auditors any day now. So the value is new and large revenues. These are long-term sustained contracts and the dollars are much larger than the total sales of the company now. So I won't call those out here, but big boost to the company. And just to remind everybody, this would be early FY '25 and ramp from there. So it's a long-term sustained sense for the company. Again, more of it is to the strategy, diversifying us from bedding and the revenue growth. So revenue growth in diversified markets, improved profitability. The margins are very healthy in this space. Also, just to give you simple finance for Alexium, we don't have to have a sharp increase of fixed cost to meet this demand. It would be a sharp increase of revenue, so you'd be dropping a lot more dollars to the bottom line. Our team as it sits now could handle these contracts may have to add a few people on the operations side, but you wouldn't see fixed cost trend on revenue. Revenue would trend sharply up, fixed costs would stay moderately flat, margins and profit would increase. And again, these are long-term contracts on securing a healthy future for the company. Next slide, please. So most of everybody is aware, there's a global movement towards ESG commitments, and Alexium is fully committed to our ESG goals. I would point out what I mentioned earlier, we did have a pretty aggressive goal to transition from our PCM sales to 7% of the sales mix being BioCool and our sustainable bio-based product. So just short of that, we're still quite proud of the ship, and we came in at 65%. And I believe by this time next year, that will be north of 70% on approach to 80%. We will retain our cyclical sales. It's just that it's going to be in a smaller piece of the market that's more of our incumbent products. So the company and our Board are all committed to our environmental, social and government goals. We are a very transparent company. We have a lot of information out in the public. We're always available to answer questions and address any concerns. And we pride ourselves on our ethics in the way we manage the business. I'm actually quite proud of the team I work with and the Board. It's just the integrity of this group is really good. We are a diverse company. For a small group, we're extremely diverse amongst male and female, race and background, and we're going to continue on that path. But I'll tell you, we hire based on the best candidate for the job, and our diversity has just fallen out that way, and we've been very fortunate. But we're very proud of our employees and our mix there. And then environment, we generate very little to any waste. Our carbon footprint is very small. And as our manufacturing volumes grow and our ESG programs mature, we'll start reporting more against the KPIs for ESG goals, which is measuring carbon footprint and our reduction goals. A lot of that sits with our partner manufacturers right now because we outsource most of the manufacturing at this point. So those reduction goals sit with them at this point. But we will start tracking more as the volumes grow. Next, please. So Jason, I'm not sure the questions that came in, but we're happy. And Jason, I guess you might [Technical Difficulty] questions and do my best and Rosheen, please jump in anywhere here.

Yes. Billy, so we have a couple so far. The first one is from Jeff Nelson. What is it about the Alexiflam, FR NyCo that raises it above its competitors or why would the U.S. military select Alexium as a winner of FR supply contract over the companies that are selected for and also go through field trials.

The chemistry is very similar to other chemistries out there, but it's in the application method. And it's also the Alexiguard we put in that makes it unique because it also has some benefits as a software, which strengthens and adds comfort to the fabric. So it's a pairing of 2 chemical platforms. The bigger differentiator is the nylon-cotton combination with our FR at the cost point where we're selling it. So the main player in that space right now is a company called TenCate and the fabric is called Defender M that use a combination of aramids in their fabric. It's really expensive and it's cost prohibitive for the military to adopt it across all enlisted. So it's been preclusive of them getting it rolled out. So they've been seeking a cost-effective and economic way to get comfort, breathability and FR, which is what we've been able to deliver with our FR NyCo to meet those objectives. So the differentiator really is that combination with price. So it's not rocket science, right? We're not rolling out a new iPhone here. We're meeting a market need, and we're able to move quickly, and we're also able to work with their textile specialists to innovate and get to the right iteration of the fabric because the treatment creates lots of -- they want breathability, they want comfort, they want pair strength and they want flame resistance and those are attributes when you put it on fabric that compete with each other. So if you were looking at all that, like it was a dashboard and you're re-tuning the dashboard to get the right outcome, you have to have the right balance of each to get the right attributes where they can roll it out at the right cost. So that's been the differentiator. It's really our technical acumen and then partnering with the right players in that space to get to the combined fabric that should meet. And I will tell you, our submittal and these are public records, right, with the federal government, they have to publish it. Our submittals were within their price targets. We had 3 submittals at 3 varying treatment levels, least expensive, lease treated in the median, middle price and then a full load treatment that was the most expensive, all fell to the price goals. So we met their financial goal and the rest will come out in the field test and the continued lab testing if we meet all the technical requirements. I hope I answered your question.

Okay. Next one, just for me from Nick Grayson. What will banks, institutions want to see to offer better funding terms? Well, banks typically want to see a top line growth of fee revenue [Technical Difficulty] highly profitable customer contracts, which really bring contracts to the table and the track record that needs to being cash flow positive. Although our cash burn continues to improve, there still tends to be these swings in our cash, which indicates volatility. And so we need to settle those out along the way here. Some of it is due to seasonality. But nonetheless, as those ebbs and flows even out some, it shows that it's more predictable for the future. When we went out looking for the line of credit 1.5 years ago, we brought in mainstream U.S. banks. And although they like the story, it was really we weren't there yet, so we were at higher risk to them. But as we do get cash flow positive, we'll have a much better chance at replacing the alternative line or the whole suite of debt. Next question is from Jeff Nelson again. Can you provide any comment on how sales are going for the first 2 months of the fiscal year?

Yes, do you want it Jason?

It's very basic. We have a budget, and we're meeting that budget within 95% of the first 2 months. The budget does have continued growth pretty much month-over-month. In this time of the year, we do tend to see July-August to be softer as things start to ramp-up in the fall with production from our customers. So we are on-track and we have orders for September as well to kick the month off. Next question is from Heath Edison, and I'm going to read this one slowly. I think I have it, Billy I like you to answer it. Typically, H1 has been the most operationally expensive and not always the highest revenue yielding. Will the shift to top of bed mitigate the H1 expense to revenue ratio in H1 of '24. So what I believe he's asking is that will we have a stronger coverage with revenue for H1 compared to last year.

Yes, because I would say the expenses shouldn't be wildly different than half 2, right? We're fairly flat.

Yes. And year-over-year, we will be down due to headcount and external professional fees mitigation.

So yes, specifically -- yes, it's really about the starts and the time of the start. So we do have in the pipeline, shorter lead times to revenue from top of it. And those are starting in first half, how fast they start to ramp is really the key indicator. So I don't think -- we're 2 months in. We're not seeing a sharp increase yet, but we could see it in the later months of the first half. So as we approach the holidays here in the States, we expect we have 3 to 4 pillar placements kicking in around that time. We do expect those revenues to kick in, which again, would jump revenue, pass our cost and yield better result. So yes, they are faster route to revenue earlier in the year.

And that's it for questions.

And Billy, I was just going to add to that last one, which is as we look at it today, 12 months ago, we would get orders in the month and be satisfying orders in the month. What we're now starting to see is we're closing the month with orders for the next month already in the bag. And that's a difference. That's important because we're already getting a line of site on the next month. The reporting that the team goes through just to give everyone a bit of an overview of it, Jason and his team will close out within 7 days. Now he does take a couple of days to make sure the numbers are right. But there's quick turnaround. The other comment I'd make is that there's very little in terms of outstanding debtors. So one of the things that Jason and his team do really well is make sure that everything is pretty much current. And so that attention to cash flow is important. As you'll appreciate, we managed the cash till year-end really tightly. And then Jason will release a little bit of that to allow us to stock-up for product, et cetera. So there is some balancing that's going on there, but that's what we would expect a CFO to be doing for us. So the key thing is when the revenue hits, the only other comment I would make is that the forecast is to when ramp-up will occur by any of these organizations is not what you would see in other industries. And so they have got a tendency to overestimate when they think they're going to start. It tends to be a little bit longer. So that's why Billy is talking about sometime within that first half, it's harder for us to be definitive about exactly when that will hit.

Very good points. And Jason raised the point, we are driving within our strategy embedded as a new contract strategy. And that's not just for customers, also vendors. So we're looking to button up the supply chain in critical raw material and manufacturing suppliers. This year is really -- if you look forward into this year and we're 2 months in, it's all about execution of what was in the pipeline and what has been qualified in the pipeline throughout FY '23 in prior years. And it's all about rolling out the technology we already have. Now we'll be making enhancement to that technology, but we're not launching new technologies this year. We're looking to roll them out and commercialize them. So that's what is meant by execution. And then contracts is really something that's core to me and near and dear to my heart. So we just signed a supply agreement with a large brand just 2 weeks ago, and there will be more to follow and that is us buttoning up our existing relationships with terms. And as we add new relationships, we'll be starting with terms out of the gate. So you'll see the business mature around that. The other thing is we have run lean. And if you noted in the finances, headcount, we did have reduction over 2023. Some was natural and organic. Some we let sit in as we move forward. What I saw when I joined is a very capable team at Alexium and we've asked a lot of folks in the company to step forward to take more accountability and more authority and to take on more responsibility as their careers grow. And if you picture like you've seen in the movie, someone draw the line in the sand and you ask people to step across, we asked that in the organization and almost every person in the organization stepped across. So you're seeing growth here without an increased headcount. Now we will tax that as the company grows and as we add more volume and the operations expand, which is the outcome of this year as you add the sales volume, operations will expand. So that's where you'll see us start to bolster the team is in the operations in the supply chain area as we move forward to make production and deliver that volume on spec, on time, on price. So that's the evolution for this year. It's all about executing what we have developed over the last year and years prior. Thank you all for your questions and also for your continued support. With that, I'll pass it to Rosheen to bring us home.

Thanks, Billy. Thanks, Jason. To our shareholders, thank you for joining us today. We really appreciate the [ timing ] and also the support you provide to us. The team are highly motivated at the moment, the Board is fully engaged even to the point that Billy was just talking to about when we need to hire new people. We've already been through with the team, what the next hires would be, where you would find those people, what are we sort of looking for, et cetera. So always keeping an eye on the future and the work that's required. I think the key thing that I would leave you with at this point in time is, the management team have focused on making sure that we're ready for the ramp-up and whether that is in bedding with the tactical best or even with the [indiscernible]. And Billy has spoken about getting those partners on-board, and we use that as a loose description, but getting those organizations on-board that mean that we can deliver to the military around NyCo. They already operate with the Army and with the Marines. They are tested. They deliver large volumes. And so the fact that we're working with them and they're happy for us to be working with them. I think it's a testament to the quality of the product and the work that the management team have done. So with that, I'll call this to an end. Once again, we'd like to thank you for your time and also your engagement, and we look forward to providing you with further updates as they come. Thanks, everyone.

Thank you.

Thank you.