Clever Culture Systems Limited (CC5) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the LBT Innovations quarterly investor call. [Operator Instructions] I would now like to hand the conference over to Mr. Brent Barnes, CEO and Managing Director.

Thank you, Jack, and welcome, everyone. I hope you're keeping safe and well during this time. Over the past 3 months, I've met with many of you actually online using video platforms such as this one. And while it's a shame not to be able to meet in person, it's really fantastic that we have technology in place to remain connected at this time. Once again, today's quarterly investor call will be conducted using the Zoom platform, and we hope that for those who have joined via the video-enabled link that this provides a little bit more of a personal experience. I'd also like to mention that this is our 10th investor call since we started this initiative back in early 2018, and we appreciate the positive feedback from many investors that this outreach opportunity provides. As per usual, I'll talk through the activities of the previous quarter, followed by Ray Ridge, our CFO, who will take us through the financials, and I'll wrap it up with the business outlook before opening it up to question and answers. An audio-only version of this call will be made available on our website later today. I'd now like to hand over to Ray Ridge, our CFO.

Thanks, Brent. The usual formality before we commence. I would like to remind those on the call that today's update may contain forward-looking statements, which involve inherent risks and uncertainties. Those risks and uncertainties include those disclosed in our ASX lodgments that we recommend that you review. There are reasonable grounds for any forward-looking statements made today. However, due to their inherent uncertainties, we recommend that you do not place undue reliance on those statements, and actual results may differ materially from those forward-looking statements. We're now ready to go ahead. Back to you, Brent.

Great. Thanks, Ray. And look, I'm really delighted to deliver what's going to be a slightly longer quarterly review. It's been a really productive quarter for the company. In fact, I recently commented that in my 4-year tenure at LBT, I don't believe we've ever been in such a strong position to capitalize on the commercial opportunity for our technology. To get here, we completed a number of key operational milestones during the quarter, which is then combined with a highly successful $8 million capital raising. Probably our most significant achievement was the appointment of Beckman Coulter as the marketing agent for the APAS Independence in Europe. This followed over 12 months of working together with the Beckman Coulter team as they evaluated the performance of the technology and also how it aligned with their laboratory automation strategy within Europe. As you can imagine, the process was extremely detailed, involved a number of departments within their global organization, and the signed agreement reflects commitment from both parties that see potential of the APAS technology. For over 40 years, Beckman Coulter have grown to be one of the leading diagnostic companies in the world and have developed a trusted brand and a customer base that we can leverage to help significantly increase our customer reach within Europe. Just last week, we completed initial sales training with the Beckman Coulter sales teams. We will now have increased numbers of feet on the street for talking about APAS to a larger and more established customer base in Germany, the U.K. and now in France. In addition, the APAS Independence completes a suite of modular automation solutions offered from Beckman Coulter for microbiology and provides a unique value proposition for labs in the region that we believe no other competitor can match. It's a really exciting partnership, and we're looking forward to working together. I'd also like to relate that this marketing arrangement establishes a scalable distribution and sales model for Europe. We benefit from the strength and the brand of Beckman Coulter while ensuring we maintain direct market feedback through our own regional sales executives. This is really incredibly important as it enables us to maintain customer relationships and promote an open and transparent relationship with Beckman Coulter to meet the joint sales targets that we have. This hybrid model, as we call it, provides a blueprint for other regions partnering with trusted brands to deliver scale while maintaining direct, in-market activity, which enables us to have control over the sales cycle and associated priorities. I'd like to remind shareholders that there remains a lengthy sales cycle for equipment sold into labs, typically 12 months or more. We are looking forward to having Beckman generating awareness and marketing our technology at scale, however, it will take some time for that sales pipeline to develop. We are collectively identifying those shorter-term opportunities to focus our efforts and recognize the translation of early sales is a goal and a priority for all stakeholders. Following on from this appointment, we also added oneservice, another global leader, as the APAS services provider to provide on-the-ground customer installations, instrument training and support. We have already had our first customer installed -- performed by oneservice, which was in London at the Halo facility, a lab owned and run by Sonic Healthcare in partnership with several prominent hospital groups. COVID-19 has impacted businesses all over the world, including ours. With global travel restrictions in place, our team, together with our partners, were able to adapt and deliver remote training, which led to that successful delivery of the APAS Independence to the Halo facility. This is something we would have never contemplated prior to COVID-19, where we would have sent both an engineer and the scientist to perform the installation and conduct the training. This is a great example of how we've successfully innovated the service delivery model and provides a blueprint for how we can work with our customers remotely in the future. And I think during these uncertain times, this is a really compelling value proposition. Now moving to the U.S. We're very pleased to complete our first sale of the APAS Independence during the quarter. This sale is to our key opinion leader site, Hennepin County Medical Center, and follow the connection of the APAS Independence to their Laboratory Information Management System, or LIS, via middleware driver that we have co-developed with Data Innovations. This new driver provides a platform for integration of the instrument into these LIS systems that can be replicated for many labs worldwide. I would add that approximately 65% of U.S. labs already use the Data Innovation software. As Dr. Glen Hansen said in a recent article, he's put his money where his mouth is with respect to buying the instrument. And we're really happy to have him as our key opinion leader on a go-forward basis. On the technology front, last quarter, we submitted our 510(k) application to the U.S. FDA for an MRSA. This is the identification of Staph analysis module. And in June, we received feedback that additional data was required by the FDA. We have completed a productive call with the FDA and are working diligently to collect and provide this data, which we're aiming to submit by the end of November of 2020. We don't expect this delay to impact near-term sales opportunities within the U.S. market. Supporting the performance of the MRSA module, we were very pleased that U.S.-based Johns Hopkins Hospital published their independent results of APAS with the MRSA module. During the 3-month study, 4,603 patient samples were read by both the APAS Independence and Johns Hopkins microbiologists. The headline is that there were no false negatives and 100% positive percent agreement for those positive plates. What was really interesting is that the APAS Independence identified a number of MRSA specimens that were positive that were previously missed by the microbiologists. I'd like to make a special mention of our team, which has continued to make strong progress in every part of our business during the quarter. As you all have seen, for prudent reasons, we trimmed costs and gave our staff the option to move to a 4-day working week or to be paid their fifth day in LBT shares. What I think is a great endorsement of their commitment and also the culture of our company is that almost every staff member has continued to work the full 5 days, being paid that extra day under the equity plan. I'd like to thank and acknowledge their support, which has really ensured our ongoing operational momentum during this time of uncertainty. I'll now hand it over to Ray to talk through the financial results.

Thanks, Brent. Hello, ladies and gentlemen. Before I run through the quarterly cash flow report, I would like to highlight some significant steps taken in the quarter and more recently to strengthen the company's cash position. I believe these steps are important, particularly in the context of the current volatility on capital markets. Firstly, in May, the South Australian Government agreeing to extend the time frame for the third and final drawdown of $1.5 million under the $4 million loan facility. This drawdown had previously expired in December 2019. LBT accessed that drawdown later the same month. Secondly, in July 2020, we recently completed a placement, raising $8 million before costs. This included good support from existing shareholders, new and existing institutional investors and also retail support. We also initiated a share purchase plan at the same price of $0.16 a share. While we don't expect to raise a large amount from this, it is more about ensuring all shareholders have the opportunity to invest at the same price. That offer remains open to all shareholders resident in Australia and New Zealand and closes this Friday. I will now turn to an overview of the financial results as reported in the Appendix 4C, lodged with the ASX. These numbers are all in Australian dollars and in accordance with ASX Listing Rules, they are not audited. So for the quarter ended June 30, 2020, LBT reported net cash outflows from operating and investing activities of $1.1 million, which is below our recent historical run rate of about $1.5 million. And we had net cash inflows from financing activities of $1.3 million, being the $1.5 million loan drawdown referred to earlier, less the first of the quarterly repayments under that facility. This resulted in an ending cash position of $6.8 million at June 30. As noted earlier, this was subsequently increased by the $8 million placement in July. Back to you, Brent.

Great. Thanks for that, Ray. A really important financial outlook completed from that quarter. I'll kind of shift gears now and talk around the business outlook. As I said from the outset, with the completion of the capital raise last month, we're in an exceptionally strong position as we enter this next phase of development. We have regulatory clearances for all target markets and the Beckman agreement in place for Europe, which will enable us to act on converting those sales opportunities. In terms of outlook, we're highly focused on the successful rollout of the APAS technology within the Beckman group throughout Europe. As I mentioned, we've already completed the first stage of training, and we plan to conduct further training in Germany in the coming weeks. The teams are also working closely together to identify a list of key accounts to target in the near term as well as the first demonstration of APAS as part of the Beckman Coulter suite of workstation automation solutions. While I know many investors are wondering when that first sale will flow from the Beckman relationship, it's really just too early to say. We're doing everything we can to create the right sales environment with a focus on some of the shorter-term opportunities to build momentum in the market. On the regulatory front, our team will be working hard to prepare the information required by the FDA for our 510(k) application in time for submission at the end of November. We'll also be continuing to develop our next analysis modules to extend the product. That's the VRE analysis module for infection control and the AST analysis module for the antimicrobial resistance. Clearly, the question facing most companies at this time is how we continue to adapt to the challenges posed by the COVID-19 pandemic. We've already taken steps to ensure the safe, ongoing operation of our product development in Australia and have established a platform to ensure that -- sorry, a platform for virtual demonstrations of the technology in the U.S. Encouragingly, in Europe, conditions are improving, and our sales executive has been able to get back out on the road and meet customers in person once again. So we're hard at work with a number of key objectives planned for the rest of 2020. I'd now -- I'd like to thank you for attending the call and hand it back over to Jack to facilitate any questions and answers.

[Operator Instructions] Our first question comes in via text, so I'll read that out. It's from [ Garone Reed Price ]. Could you give us an update on the installation in Germany? Is that up and running and doing tests?

Yes. So thanks for the question. Assuming we're talking about the Labor Wisplinghoff, our key opinion leader. So he's actually got 2 instruments. And I can say that tests are being conducted routinely for the MRSA specimen.

[Operator Instructions] So the next question comes from [ Craig Murphy ].

I'm just curious about -- you've announced that there's one APAS instrument trial in the U.K. Is that the only device being trialed at the moment? Or -- because in previous quarterly calls, you've intimated that other -- there are other devices being trialed in other labs.

Yes. Look, we've -- so we've got that one in the Halo group in the U.K. And look, there are evaluations that are being conducted and probably not wanting to go into all of the details of the geography and where all of those particular installations are at. But we're really happy with the installation at the Halo group. And as I said, it's -- what I was most pleased is that in this era of not being able to travel anywhere, we were able to appoint oneservice as a service provider. We did all of our training with them remotely. And then the first time they physically ever saw an APAS instrument -- obviously, we did it via video, but physically saw the instrument was when it showed up on the dock at the Halo facility. And it was a couple of days where they were able to uncrate it, install it and conduct training in the same type of time frame of -- as if we had sent our experienced technician and scientists across. So really, that sets us up to have a scalable operation for future evaluations within the region, both in Europe but also in the U.S. because they have operations physically in Germany as well as the United States.

That was a bit of a politician answer but -- so I'll be a little more direct. How many -- has anyone trialed the instrument and made an evaluation of the instrument and decided not to buy it?

Not at this point, no. So we've gone through a number of evaluations, and I've mentioned a few times the sales cycles is a long one and budgeting things get pushed out. And we have seen with COVID budget being kind of applied or routed to COVID-19-related tests until there's a bit of clarity kind of going in the future.

How much time do you have? Throw in a few questions. If someone else has got a question, I can wait or...

Please go ahead, [ Craig ]. We've got one more following.

Got it. What was the issue with the MRSA? Was it something that's going to be -- is it fatal? Or is it something that could be easily just fixed and cross -- dot some Is and cross some Ts and send the MRSA back in?

Yes, we're really confident. We still expect to receive FDA clearance. And I think the Johns Hopkins data is a really positive data point to demonstrate the performance. So look, for commercial reasons, I don't really want to go into the specifics, but it's more -- we believe it's -- we're confident we'll get the data, repurpose it and respond to the FDA based on the questions that they've given to us. So we don't see it as a critical issue, I think, as you mentioned.

Good. That's good to hear. And in relation to the Beckman Coulter announcement, this is the marketing agreement that's the -- is going to replace what you said -- you said a few times, the distribution agreement in 2020. Is this the marketing agreement? Is this the same thing you've mentioned? Or is there something more to come?

No. Yes. Look, I think it's a distribution strategy. And so what we've got -- when we look at how do we distribute in Europe, we've established a service organization. So we've got that stitched up. And we've got this sales and marketing agreement with Beckman Coulter, which really leverages their brand and all the things I mentioned already on the call. So -- and we have our own sales executive. So what we've effectively done is that we've put together the building blocks in a way that we think is actually very opportunistic for us from a revenue standpoint, where we're utilizing the brand reputation. We've got the service on-the-ground support as well as having a direct presence to maintain that prioritization and accountability.

So [ Craig ], we will now move on to the next questioner, if that's okay.

Yes. All right. Yes.

Thanks, [ Craig ].

So the next question comes from David Blake via the text option. What did you learn from the remote install that you can use to improve future remote installs? Would this become the default approach?

It's a really good question, David. We were really pleasantly -- surprised is probably not the best word. But we're really, really happy on how it was carried out. I think what we learned is that the instrument itself is -- and I guess it's not new, but it is robust and easy to use. And we had really positive feedback from oneservice. We also, I guess, learned that the oneservice engineer is -- are really good, and their experience with servicing a number of different instrumentation within the lab has translated into really positive feedback about our instrument. The service delivery model is one that, look, many labs restrict external personnel coming into the lab and certainly managing the flow of people coming with COVID. And I think what we believe on a go-forward basis is that the entire service delivery model may change. It will certainly be harder for those larger instruments and more complex instruments to be scheduled and installed and trained into labs. And we think that's where APAS has a really fantastic value proposition for these labs during this time and an opportunity to really scale the service delivery model in a way we wouldn't have contemplated previous to COVID-19, as I mentioned on the call already.

And a further question from David Blake. Can you discuss the CapEx budgets that U.S. labs are looking at for current year '21? Decreasing?

Yes. Look, it's a really hard one, and I think there's many views on this. My own view is that we certainly see resource or funding allocation going towards COVID-19. We see a level of conservatism, but we also, in other parts, see investment kind of opening up and freeing up. So look, I don't have a really good, definitive answer of how that looks. I think it is an uncertain time, and we get mixed messages from different states, even within the U.S.

And now I'd like to hand over to [ Keith White ] to ask the next question.

Yes, are you there, Brent?

Yes. Yes.

Yes. Sorry, mate. Look, I was a bit confused by your answer to the previous caller. I really want to know exactly how many APAS machines worldwide are out there being evaluated at the moment to prospective customers.

Yes. Look, and it's one I kind of maybe deliberately dodged the question, right, to not be specific. Because we don't -- I mean, it's effectively kind of putting in a soft sales forecast out there, which the company doesn't want to do. What I can say is that we've obviously got an instrument at Johns Hopkins Hospital. They're continuing to do work with us on future analysis modules and evaluation. We've got one obviously at Hennepin County Medical Center, Labor Wisplinghoff has a couple of instruments, and we have one at St. Vincent's Hospital in Melbourne and one at the Halo lab in the U.K. So they're all the labs, I guess, that we've disclosed openly to the market. So that's a total number of 5 that we're talking about.

And the next question comes from [ C.J. Koh ] via the text. How many do you expect to sell under the Beckman agreement per year?

Yes. Good question, [ C.J. ]. Look, we haven't -- well, it's going to be similar to the previous statement, unfortunately. Look, we haven't put forward-looking sales forecast out and don't expect to do that in the near term. I can say that we absolutely have got numbers and projections that we share between the 2 parties. So the question's a very fair one and, obviously, one that we're both looking at. But we're not putting those numbers out there.

And then we have a further question from [ Craig Murphy ].

Back again. Brent, when you talk about the sales leads, you've mentioned that a few times, the numbers keep going up. What constitutes a sales lead? Is it, "Hey, this is an APAS. Do you want to hear more?" Or is it actually a salesman going there and explaining it?

Yes, both. So in the U.S., we kind of spoke about having a call center doing the lead generation work. And so we've got -- there are a number of sales gates, if you like, as they go through a sales funnel process. And so the headline increasing numbers of those that have had a discussion, whether either our sales rep or our call center and have said, given feedback that they're interested. We then kind of move down the sales pipeline. That is defined in different ways, which I won't go into, but kind of leads obviously more towards the salesperson physically going in, understanding the requirement, understanding when the sales cycle is, going through an educational process and moving through the funnel.

Nice. Are you able to give any forward-looking statements in relation to the submission of VRE or AST for FDA or CE Marking?

Look, AST, I'll just say is a long way off. So this is a brand-new capability for metering zone sizes. So this is for those positive plates that are identified by APAS, looking at the antibiotic sensitivity. And so look, that's probably 18 months, 2 years away. But it's a really important development. VRE, we'd be looking at early in the new year in 2021. [ Graham ], is that you on the line?

It is, Brent. Sorry, I ticked the button. Brent, target labs on some of the presentation slides. Previously, Europe has sort of been defined as U.K. and Germany. With Beckman Coulter onboard, if ever France gets mentioned for the first time to my understanding. So does that mean that there's more target labs, literally just a new region?

Yes. Yes, it is, [ Graham ]. So you pointed that out absolutely correctly. And I guess the thing -- we haven't kind of quantified a number because we've done a little bit of work in France, but we don't know the market well enough. So this is one where we will absolutely benefit from the knowledge and experience that Beckman have in the region to start quantifying what that -- what the market opportunity is in France. So it's a new incremental territory, if you like, for us, which is obviously an increase in the -- in our opportunity.

There are no further questions at this time. That does conclude our conference today. Thank you for participating. You may now disconnect.

Thanks, everyone.