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

Thank you for joining the call, 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.

Great. Thanks very much, Jack, and welcome, everyone. Thanks for joining today's quarterly investor call. As always, it's been a pretty busy quarter, particularly from a travel perspective, traveling to both Europe and the U.S. So it's really great to be back in Adelaide and talking with you all today. I've really enjoyed being back on the road, meeting with customers and our channel partners after so long of kind of restricted travel. So it's been really good to get out and see people and getting person. As usual, I'm going to provide a company update on the activities of the past quarter; Ray, our CFO, will summarize our quarterly cash flows and financial position before I provide an overview of our future outlook and our upcoming milestones. There will be an opportunity for Q&A at the end of the call. We'll also have an audio recording of the call made available on our website later today as normal. I'd now like to introduce our Chief Financial Officer, Ray Ridge, who's on today's call with me.

Thanks, Brent. A brief formality before we commence. I would like to remind those on the call that today's update may contain forward-looking statements, which do involve inherent risks and uncertainties. Those risks and uncertainties include those disclosed in our ASX lodgments, which 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. Back to you, Brent.

Also, thank you, Ray. Look, it's been a really encouraging start to the year for the company from a commercial perspective. We've now sold and recognized revenue for 5 instrument sales so far this year. This is significantly more than we've ever sold in an entire year, and we still have a lot of this year left for further sales. We see this as a major step forward for the company as we begin to generate repeatable revenues through instrumentation sales. In May, we sold an APAS instrument with our urine analysis module to Albany Medical Center in the United States. This was a sale opportunity we've been working on for some time, but it took longer than expected, basically due to COVID kind of pause any kind of ability to move forward on that. The opportunity was excluded out of the Thermo Fisher distribution agreement, and it was completed directly by our subsidiary, Clever Culture Systems. And that means that we received the full purchase price for that sale without having to pay away any other margins. Just on that, though, we don't expect any other kind of further arrangements like this to occur, and we're really fully behind our Thermo Fisher and our relationship with them as they lead our efforts in the U.S. But kind of back on Albany, it's a really great case study for the value the APAS Independence delivers to smaller labs. Our Albany Medical Center is one of the smaller kind of throughput labs and then need for automation was driven by the staff shortages based in the industry. Our APAS Independence instrument enables them to deliver their current testing volumes with existing resources while also allowing for that kind of volume growth. This is a common issue faced by labs and has only been made worse since COVID with the impacts of burnout of lab staff, the rising costs and the great resignation being felt across many laboratories and many industries at large. During the quarter, we also completed the shipping and sale of 4 of the 5 instruments ordered by Thermo Fisher back in March of 2022, earlier this year. The final instrument is expected to be shipped in August, which will complete the purchase orders. From a sales perspective, this brings our sales total for the calendar year up to 6 instrument sales. Our sales executive in the U.S. has been working hand-in-hand with Thermo Fisher to assist in developing sales opportunities. provide ongoing product training and supporting strategic sales initiatives. This close engagement with Thermo Fisher is important as it ensures we maintain direct feedback from the market and also ensures we're providing the best support we can to make Thermo Fisher successful. In June, we attended the ASM microbe. This is a U.S. microbiology conference in Washington, where the APAS Independence was showcased by Thermo Fisher. It was a really great feeling to see our instrument front and center on their booth and to see it up close and seeing all the benefits we have with the Thermo Fisher brand behind our product. I was really impressed talking with the Thermo sales teams and really also kind of observing those interactions that they had with customers. We absolutely have a fantastic partner, and I remain really positive about this successful relationship. Kind of shifting gears to Europe. We also attended the annual ECCMID conference in April. This is the largest global conference for clinical microbiology held every year and an important event for the company. The APAS Independence instrument was on display on our own Clever Culture Systems booth and as a feature on the Beckman Coulter booth group as part of their workstation automation suite of solutions. This was the first overseas conference we've been attending since 2019, and it was great to be back seeing customers again. There are around 10,000 delegates that were at the conference in person with a further 3,500 attending via the virtual platform. We had great traffic at our booth with the Beckman Coulter teams also bringing leads from their booth to see the instrument in person. Our key opinion leader, Dr. Hilmar Wisplinghoff, at a platform oral presentation to present new clinical data from his lab using an early release of our APAS-AMR module and antibiotic susceptibility testing. The data was extremely positive and showed excellent agreement with the microbiologists at both standard reading, 18-hour reading and also early reading at 6 hours, which is a really great result. Our EU sales executive continues to work hard, progressing advanced opportunities and follows up on the lead from this conference. This includes meeting with customers to complete workflow evaluations where we model their operational workflow with the implementation of the APAS Independence. This is detailed work, but it's critical to bring customers on site and justifying the investment of the technology. From a technology perspective, our primary focus for the development team has been to build an expanded suite of analysis modules for the U.S. market. This is being done to support the Thermo Fisher sales teams in the field, ensuring our technology covers all of the major plate media used in the U.S. With the new updates, we expect to be able to support approximately 80% of plates sold in the market. The project has now entered the analytical performance testing phase as part of the validation process for the technology. The scope of this project has been the largest ever testing program undertaken by the company and has required a huge data collection exercise completed at our headquarters here in Adelaide. I've been really proud of our team, and it has been a real company-wide push to deliver this program. We are now in the process of completing the data analysis and number crunching, which will form a key component of our regulatory submission to these additional modules. I'll now hand it over to Ray to talk through the financial results for the quarter.

Thanks, Brent. Good morning, all. The quarter has been a very positive one from a sales perspective with $1.6 million booked in revenue from the APAS instrument sales for the quarter, and a further $1.4 million we expect to receive from the R&D tax incentive and other government grants. These are not reflected in the quarter's cash flows. However, we do expect to receive this $3 million in cash in the next quarter. I will now provide 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 are not audited. For the quarter ended 30 June 2022, LBT reported net cash outflows from operating and investing activities of $2.5 million. This did include a cash outflow of around $0.7 million, relating to the increase in inventory held to secure parts for future APAS instruments. Net cash outflows from financing activities were $0.3 million, and this largely reflected the quarterly repayment of the South Australian government loan. This result in total cash outflows for the quarter of $2.8 million, which leaves us with a cash balance at 30 June of $2.8 million, which is supplemented by a further $3 million in receivables as indicated earlier. Back to you, Brent.

Great. Thanks, Ray. Look, I'm going to talk to the business outlook now. The primary focus for the business over the next 6 months is clearly to continue our drive and our push around our sales program in the U.S. and also within Europe. We've completed 5 sales already this year, and we're not finished yet. The fifth instrument will be shipped to Thermo Fisher in August. So that's going to bring our total to 6 for this calendar year, and we're pushing hard to deliver on our sales opportunities in Europe. From a COVID perspective, we are seeing access to labs returning to pre-pandemic levels. Quest Diagnostics, one of the largest laboratory testing groups worldwide announced last week that their COVID testing volumes have declined by more than 30%, and Roche are preparing for a significant decline in their COVID-associated revenues, which are all positive leading indicators that we are moving on from the pandemic. This is a good sign for us and means laboratories will have more time available to consider other operational requirements. We know the longer-term impact of the pandemic has placed labs under greater pressure than ever before and our technology remains unique in the market, solving a clear unmet need for culture plate reading. Our product development will continue to focus on execution on the testing program for our U.S. urine analysis modules as our #1 priority. Our APAS-AMR module has now been installed on both Labor Dr. Wisplinghoff in Germany as well as in St. Vincent Hospital in Melbourne, obviously, in Australia. We'll work with these 2 key opinion leaders to test the modules with clinical data, which will inform the final development of these modules. Closing the quarter represents a big step forward in terms of our delivery of instrumentation sales, and we're working extremely hard to ensure we continue this positive momentum as we look to progress and close out this calendar year. I'll now hand it back to Jack and open it up for Q&A.

Thank you, Brent. We will now commence the question-and-answer session. [Operator Instructions] So our first question comes from Peter Gregory.

Brent, thanks for the update. I wonder if you could let me know with the 5 devices that Thermo Fisher has purchased, whether they're using them to put into actual customers' locations to test the system, whether they got them in showrooms or whether they're just simply in stock.

Yes. So I'd say, Peter, that the strategy from Thermo's perspective is to not go ahead and kind of do the evaluation and to ship the instruments around. I think what we've done is we -- well, they've benefited from a lot of the work we've done around the publications and kind of the [ paper work ] we've done over previous years. And so really, the purchase orders were intended to be shipped directly to customers. So those instruments have customer names associated to them. They're not being shipped around the country for evaluation. They are for end customer sales.

So Brent, are they in customers that are likely to put more into extra facilities they've got?

So it will be a one for one. So it will be of the 5, it would be 5 different customers.

No. But I mean those 5 customers; they just got one lab or they got several labs? Is this purchase a trial to see how it works with the possibility of repeat sales from those customers?

Yes. So I think not for all of them, but certainly for a couple of those, they're part of larger buying groups that represents an opportunity to evaluate through that one particular site with opportunity to extend beyond that definitely.

Okay. And Thermo Fisher are doing this work pretty much on their own? Or are they getting a lot of support from yourself and other guys in the team?

Look, we -- they're certainly becoming self-sufficient, which is great. And so they've got an extensive sales organization. We have a U.S.-based sales person, as you know. And so his role is really to be the backup and support. So he provides all the training, definitely goes kind of hand-in-hand, is part of those strategic accounts. So he is definitely very active in the sales process, but our whole strategy is to really have him in the background, if you like, and the front is the Thermo Fisher brand, the organization and their extensive sales team. And so I think what we've really done now is nearly been a year since we appointed them, we [indiscernible] the very end of September of last year. We've really worked hard to get their sales team mobilized. And like I said in my update, it was great to kind of talk with them during the ASM meeting in Washington and get a really, I guess, a first-hand experience to how they're talking about the instrument directly to customers. And so look, I'm really positive about the relationship and really positive about how they've adapted the technology and it's really part of their overall sales process within the U.S.

The next question comes by the Q&A books from Ajay Sharma. There are 2 questions. What is the projected sales in '22, '23? And when does the company expect to break even?

Yes. Look, really great questions, and I'm going to have to give somewhat of a politician's answer. What I can say around looking at calendar year 2022, I've mentioned a few times, there are upto 6 sales that we expect, we will ship our last instrument to Thermo, so that gives us the 6 instruments. I mean, we've only sold 2 instruments in a 12-month period. So we're definitely seeing a positive traction from a sales perspective. We're not done yet. We've still got a number of months left in the year. So in terms of the calendar year, I think we're obviously approaching that double-digit kind of number. But look, we're too -- we're not at the stage of being able to put a forward-looking forecast out at this point. Ray, do you want to talk about the breakeven part to the company?

Sure. Thanks, Brent. Well, in terms of timing of breakeven, obviously, that really links into the timing of sales, which I think you've answered that we are not really in a position to talk about that one. Although would say the biggest uncertainty around sales is definitely Thermo Fisher and how quickly and how much that tap will open, but they've been appointed since September 2021. We know that the sales cycle is a long one, and we expect them to shorten it. But they surprised us with an order of 5 as soon as March 2022. But -- so we expect some sales to start coming through this year, but it's really into next year, we expect to see the results, but how much and when and the timing of that is very hard to predict. In terms of breakeven. Look, there's just so many variables in that, but -- and some of them are commercial in confidence like cost of goods sold, for example. But I think if you basically use a cost base after development of, say, $6 million to $6.2 million, that's the cost base we've got to cover. We know the instrument we've set is around AUD 400,000, 30%, 35% of that goes to a distributor. We can't disclose the exact amount. But we've always said that even before a distributor appointment. COGS, I can't talk about it. So -- and the other variable is the number of instruments in the market because, of course, the analysis modules which are around AUD 20,000 per license are recurring license fees. So as those instruments build in the market, that recurring fee goes up, which then lowers the number of instruments needed to sell to breakeven. So sorry, I couldn't give you an exact answer on that, but I hopefully helped by talking through some of the variables.

I would say just to add to that range just to kind of -- add to that comment. Probably the important point is that the company has shifted into repeatable instrument sales. So the headline number is that we're going to -- we finish F '22 with reoccurring revenue. So we've moved into our revenue business. And I think that's an important transition that the company has now entered into. And that revenue was a repeatable business and one that obviously we would expect to grow.

The next question is also via the Q&A book from Anthony Caldwell. After no sales in Europe for the last financial year, when can you expect further sales in Europe? How many are you projecting this financial year?

Yes. This went back to sales forecast space, but let me address the European -- we definitely expect sales coming out of Europe -- this calendar year and the next financial year. So that's for sure. I can't give a number of what that specific is. But look, I'd hope in the fairly near term that we would be able -- we are going to have of opportunities there that [ yarn ] our European sales executives working on and I'd expect something in the near term.

The next question comes from an anonymous attendee. Do we have any update with Beckman Coulter in Europe? Are they wanting to extend their participation from marketing to selling the APAS Independence in Europe?

Look, I think we know what success looks like if we think about how agreements are structured. And I'm talking specifically about the establishment of a distribution agreement that's exclusive in the U.S. So that's progressed really well. So I think that's the form of agreement that we need to move towards. So when I think about Europe, and I think about what we need to do in order to perhaps get better traction, then we have is to upgrade the relationship and to upgrade the agreement that we have into that style of agreement into a distribution agreement. And I can say that we are working through that process at the moment.

[Operator Instructions] There are no further questions at this time. Therefore, that does end this conference call, and thank you for your participation.