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

Thank you for standing by, and welcome to the Clever Culture Systems Quarterly Investor call. [Operator Instructions] An audio recording of this call will be made available on the company's website later today. I'd now like to hand the conference over to Ray Ridge, Chief Financial Officer.

Thank you, Jack. I'd 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 do 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, of course, differ materially from those forward-looking statements. We're now ready to go, and I'll hand the call to our CEO and Managing Director, Brent Barnes.

Thank you, Ray. And look, to start, I wanted to wish everyone a Happy New Year. I appreciate you all joining today's investor call. As I outlined in our quarterly activities report, we finished the 2024 calendar year ahead of expectations, having made significant progress commercializing APAS into the pharmaceutical market. Growth in sales has laid the foundation for a continued expectation of breakeven or better operating cash flows for the remainder of financial year 2025. We are consciously focused on balancing top line revenue growth with our cost base to diligently establish a sustainable and profitable business for years to come. This point is really important. The Board remains sensitive and aligned with shareholders in our pursuit of delivering shareholder growth. Focusing on the December 2024 quarter and closing out the financial half year, the key highlight was our continued growth in sales, particularly with large pharmaceutical companies. When we think about big pharmaceutical companies, both AstraZeneca and Bristol Myers Squibb are among the top 10, 20 largest pharmaceutical companies, at least by revenue globally. Our strategy has been very clear: to focus on customers that manufacture large numbers of sterile pharmaceutical products. The manufacturing of biologics is a complex and highly regulated process and any changes are carefully assessed. Our customers won't change their processes unless there is a clear value proposition. Our customers have given us positive feedback regarding the advantages our APAS technology has over their current manual process for environmental monitoring. And this is a mandatory process in every aseptic drug manufacturing facility globally. Our product launch in March of 2024 was a critical first step in publishing data that supported the use of APAS to deliver what we call non-inferior results compared to the manual process. In other words, the results should be equivalent, we would say better with the added advantage that these results generated by APAS are automatically delivered to improve traceability, quality and efficiency of those results. In August 2024, our cornerstone customer, AstraZeneca, placed an initial order of 5 APAS Independence instruments. By the end of 2024, we successfully delivered and installed all 5 instruments completed at AstraZeneca's largest global manufacturing sites. In December, AstraZeneca placed a further order of 4 APAS instruments to expand their global rollout and standardization of APAS. Their formal validation of the technology is close to finished and being performed centrally for all of their manufacturing sites that APAS will be rolled out to. Once completed, it is expected that these 9 instruments will seamlessly transition into routine use for environmental monitoring. Moving into routine use will be an important milestone, particularly for those customers who will look at AstraZeneca as a case study that establishes confidence in the APAS platform. During the December quarter, Bristol-Myers Squibb purchased an APAS instrument as part of their ongoing evaluation of APAS at their center of excellence facility in the United States. We know that contact plate functionality is an important key deliverable, I guess, for Bristol-Myers Squibb as they continue their assessment of APAS for additional manufacturing sites across their global network. We finished 2024 with a large marketing push, showcasing APAS at major conferences across the United States, Europe and Australia. These events provided a powerful platform for customer presentations to share their positive experience using the APAS technology. Additionally, we took this opportunity to prelaunch our latest application for APAS, which is that contact plate functionality I just mentioned. To further strengthen our sales and marketing, we have appointed a new U.S.-based global marketing manager. This key commercial role will drive the execution of an expanded marketing program set to launch this year, ensuring that our technology reaches even more customers and continues to make a significant impact. With these strategic initiatives, we are well positioned for growth and success in this year. In August of 2024, we announced a development program aimed at enhancing the utility of the APAS platform. This initiative expands capabilities to include smaller contact plates, which are used routinely during environmental monitoring. With this advancement, APAS will become the only automated instrument globally with the capacity to process both settle plates and contact plates commonly used in pharmaceutical manufacturing. Based on customer feedback, contact plates account for approximately half the global volume, while settle plates make up the other half. This key development is expected to significantly expand the market potential for APAS, opening up new opportunities for adoption. Additionally, it introduces a second annual recurring license fee per instrument, strengthening the long-term value of our technology. This innovation marks an important milestone, reinforcing our commitment to delivering cutting-edge automation solutions that meet the evolving needs of the pharmaceutical industry. From a global service and maintenance perspective, during the quarter, we transferred all existing customers from Thermo Fisher to Clever Culture Systems for all future service and maintenance of our instruments. With the finalization of customer contracts, this transition is expected to generate approximately $400,000 in additional annual recurring revenue, strengthening our business across both the clinical and pharmaceutical markets. We held our Annual General Meeting in November of 2024, where shareholders overwhelmingly approved the resolution to change our company name to Clever Culture Systems. This change creates a unified brand that serves both our customers and investors, streamlining our messaging and ensuring a cohesive identity across all platforms. The financial component of this quarterly is again an important one. And I'll now hand it back to Ray to talk through the financial results.

Thanks, Brent. I will now provide an overview of the financial results we reported in our Appendix 4C lodged with the ASX in January. All figures will be in Australian dollars and in accordance with ASX listing rules are not audited. So for the quarter ended 31st December 2024, CCS reported net cash outflows of $0.8 million, comprising approximate breakeven cash flows from operating and investing activities, which included $1 million in customer receipts and $1 million received for the F 24 research and development tax incentive. The offsetting $2 million net cash outflows was higher than usual as expected due to the $0.5 million replenishment of inventory. Net cash outflows from financing activities accounted for the $0.8 million out, reflecting the part payment of the loan from the South Australian government, and that loan now sits at $1 million. These cash flow movements for the quarter resulted in a reported cash balance of $1.7 million. As mentioned by Brent, the company expects total net operating and investing cash flows to continue to be breakeven or better over the next 3 quarters in total, underpinned by over $3.9 million in committed resources -- committed sources of cash inflows expected during that period. Beyond that time frame, other known and potential near-term financing cash flows include the finalization of sale to AstraZeneca, which may account for up to another $0.9 million, together with any new sales orders. We have $398 million in listed options remaining outstanding that, if fully exercised prior to their expiry date of the 15th of November 2025, would raise $3.2 million with $1 million of that committed to the final repayment of that loan from the South Australian government. And of course, we will have our F 25 research and development tax incentive receipt expected to be in excess of $0.7 million. So in short, I believe the company continues to have a solid cash runway together with additional potential sales. Back to you, Brent.

Great. Thanks, Ray. Yes, look, throughout 2024, we've really positioned APAS Independence as the new solution for automated reading of culture plates in the pharmaceutical environmental monitoring sector. This progress has cultivated a strong and growing sales pipeline with a primary focus being on the world's largest pharmaceutical companies. In 2025, we will build on this and implement an enhanced sales and marketing program designed to accelerate and expand our reach even further. The success of AstraZeneca, Bristol-Myers Squibb and other early adopters is crucial in building broader credibility for the APAS technology within the pharmaceutical market. As these customers transition to routine use across multiple manufacturing sites worldwide, we remain fully committed to supporting them every step of the way. Their success serves as a key external validation of the performance and the reliability of the APAS technology, reinforcing its value on a global scale. Our strategy to target large multinational pharmaceutical customers is gaining momentum. Over the next 12 months, we anticipate further instrument placements with key customers, reinforcing our expanding presence within the industry. As we've seen with our partnership with AstraZeneca, these initial placements are more than just sales. They are pivotal stepping stones. They lay the foundation for broader adoption with the potential for multiple future sales as the APAS technology is integrated across global manufacturing networks. Supporting our customers throughout their technology evaluation remains a top priority for the company. This ongoing commitment ensures they maximize the value of APAS and paves the way for long-term industry adoption. From a product development perspective, the addition of contact plates to APAS Independence marks a significant technology advancement. This enhancement further strengthens our commercialization strategy within the pharmaceutical market, expanding the capabilities and appeal of our platform. Formal validation of the application is expected to be completed in the first half of 2025. At the same time, we plan to place additional units with key customers to gather valuable customer feedback. This direct engagement will ensure that our technology continues to meet the highest industry standards and customer expectations. In closing, I want to again highlight that the company expects total net operating and investing cash flows to be breakeven or better for the remainder of fiscal year '25. This is further underpinned by over $3.9 million in committed sources of cash inflows expected during that same period. This marks the second quarter in a row of positive financial results that is largely driven by product sales. I look forward to answering any questions, and will now hand it back over to Jack to manage the Q&A process.

Thank you, Brent. We will now commence the question- session. [Operator Instructions] We do have some questions through the Q&A, so I'll start with those. First, from [ Michael Park ]. I'm pleased to see further sales in the December quarter. Could you please provide the number of sales required per quarter to maintain positive operating cash flow, excluding government grants?

Ray, I'll hand that one over to you, but I think maybe we're kind of probably better to focus on an annualized basis than a quarterly basis, just given the timing of sales.

Yes. I agree, Brent. And on an annual basis, depending on timing of expenditures and replenishment of inventory and that sort of thing, our current breakeven sales is somewhere between 9 and 12 to give you an indication.

And then a follow-up question. Any chance you can share the gross margin of APAS?

Yes. So kind of we sell the instrument for USD 350,000. So that's the recommended retail price and our cost of goods is approximately in the USD 100,000 kind of category.

A further question from [ Michael ]. What are the pipeline expectations going forward? -- any other pharma in discussion?

Yes. Look, I mean, we're obviously not putting out specific numbers. But clearly, in the commentary, we've said that we've got a really solid growing pipeline. And really, a leading indicator is these early placements. So absolutely, there are a number of discussions that we've got with a number of pharma companies. And look, we plan to announce as and when those kind of evaluations will start. But there is confidentiality also associated with that. So we're, I guess, commercially mindful around how much we look to disclose.

And a question from [ Peter Linus ]. Who receives the $530,000 intellectual property payment?

I'm not sure I answered that --I understand the question. Raymond, makes sense to you.

Potentially, if it's asking about the analysis modules. I'm not entirely sure. I'm not familiar with the $530 million in relation to the intellectual property. It's worrying me a bit. Perhaps we get some clarification of that, Jack.

Sure. So I'll move on to another question, but feel free to further clarify that question on the intellectual property. What is the -- when is the cash from the [ CTCM ] grant expected?

The CTCM grant funding is matched funding, and it's provided quarterly as we spend.

A question from [ Peter Gregory ]. From what I have seen of pharma micro labs, space is at a premium. Has consideration been given to a compact model for this market?

Yes, you're right that space is definitely a premium in all microbiology labs, including pharma. I'd say it's probably less of a core issue in pharma compared to the clinical experience we've had. But nevertheless, I think you raised a good question around the opportunity for a smaller model. We have disclosed in previous announcements an aspiration or a market opportunity for what we've called an APAS Compact, which is a desktop model of the APAS Independence. Currently, we're looking at ways to -- we really focused on getting our R&D efforts on this contact plate functionality. We're diligently kind of focused around our expenditure. So we still see the APAS Compact or the desktop version as a really important addition to our product portfolio, and we'll look to kind of make announcements on a go-forward basis around how we would look to execute upon that opportunity.

And returning to the intellectual property payment question, referring to Item 2.1 of the cash flow statement.

I just checked that myself. I was going to say that is related to that. And what that is, is the amount of money spent on the contact plates development, which we are planning to capitalize, which is why it's shown in investing activities.

One further question. Is there an intention from the company to regain ownership on shares, given the amount of shares issued is massive?

So I think perhaps talking about a share buyback, if that's what I understand versus a share consolidation, which could be another avenue of reducing those shares on market. The answer to that is no current plans.

And a further question, is there expected to be any need for a capital raising within the next 12 months? Can you give an indication of the CapEx requirements for the next 12 months? Should there be a need to expand production in the future? Would there be a sizable CapEx requirement for that expansion?

A loaded set of questions there, [ Tony ], but just to kind of run through, I think -- what we've said really clearly is an expectation of diligent cash management relative to our sales. So really being cognizant of top line sales, but importantly, looking at our cost base. So that's kind of very clear in the commentary that the company has outlined. And based on those things put together, we don't see a need to raise any capital for operational requirements. We see the next 2 quarters, so finishing off the second half of fiscal year 2025 to be cash flow breakeven or better. And further on from that, we would kind of expect that positive momentum to continue beyond there. I would say just in terms of inventory management and manufacturing, we manage all of that very well. We look at the long lead time items. We take a kind of a diligent view around manufacturing relative to when we have our sales opportunities kind of land. So we're not building instruments to have inventory lying around. We're kind of building them to align with our sales expectations. But Ray, do you want to add anything more to that?

Yes. Just in terms of perhaps the question around CapEx for expansion. So we do outsource our manufacturing and that outsourced provider provides manufacturing to a number of companies. So they have capacity to scale up, and we have a pricing model that takes that into account. So I don't expect any large step changes in CapEx in the foreseeable future.

Another question from an anonymous attendee. Is it expected that AstraZeneca will be ordering more units?

Look, we'd certainly like to think so. But what we're really focused on now is we've delivered the first 5. We expect to deliver and install the remaining 4 that they've got on order and support them through finishing their validation and getting into routine use. I think that's probably getting those instruments and those facilities into routine use would be the top priority for us collectively. And once that's in place, once they're getting the benefits of the technology in a production manufacturing environment, I think that would be an appropriate point to perhaps reassess what further and broader possibilities there might be for the technology.

So there are no further questions at this time. Thank you to everyone for joining and participating. That does conclude today's conference call. Thank you.