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 would now like to hand over the conference to Ray Ridge, Chief Financial Officer.

Thank you, Debbie. 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 announcements, which we do 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, and I'll hand the call to our CEO and Managing Director, Brent Barnes.

Thank you, Ray, and good morning, everyone. Thanks for joining today's quarterly investor call. We finished another strong quarter with several key achievements that reflect our ongoing growth and sustained commercial momentum. Ray will talk more about the financials. However, I'm particularly proud that the quarter marked our second consecutive quarter of cash flow positive operations. This achievement stems directly from our successful commercialization of APAS Independence into the pharmaceutical manufacturing market. Since our product launch in March of last year, we have received orders of 13 APAS instruments representing approximately $6 million in revenue. The sales progress has established a solid foundation that we expect to continue. Our sales pipeline continues to expand with an increasing number of customers and instrument sale opportunities. In line with our strategic focus, these opportunities are concentrated on customers operating multiple sites who are seeking solutions to standardize operations across their global manufacturing networks. To put this in perspective, our current sales pipeline represents over $75 million in potential upfront sales and approximately $15 million in recurring annual revenue across more than 40 active and qualified customer opportunities. Several of these prospects have advanced to discussions regarding terms and timings for new evaluations. Our global rollout with AstraZeneca continues to progress well, following their second order of 4 APAS instruments that we received in December of 2024. We have completed some of these shipments and expect all 4 to be installed by the end of June 2025. This has been an important focus for our teams, where revenue recognition of these sales are recognized when the instruments are shipped. I'm pleased to report that AstraZeneca has completed their secondary validation of our technology with the APAS Independence successfully meeting required performance targets, and this allows AstraZeneca to transition these instruments into routine operation. Bristol Myers Squibb has completed their evaluation of our APAS analysis module for settle plates with very positive results. They've now extended their study to include our pre-released version for the smaller contact plate application. Based on these initial positive evaluations, a second Bristol Myers Squibb site has purchased an order for an APAS independent instrument. We anticipate this site becoming an early case study for potential wider adoption across the Bristol Myers Squibb network. Another multinational pharmaceutical company is currently conducting an extensive evaluation of APAS and we've reached more than 6,000 plates within that evaluation. Data collection has been completed and analysis is underway. Following initial positive results, we've been introduced to numerous sites within their network to begin procurement discussions for APAS instruments. Contact plates are also an important consideration for broader use, and it's expected their evaluation in this area will also expand. To capitalize on our commercial traction in the pharmaceutical market, we've increased our sales and marketing activities for 2025 calendar year. In December of last year, we appointed a global marketing manager based in the U.S. to lead an expanded program of events and advertising activities. Our marketing strategy focuses on positioning ourselves as industry leaders and broadening awareness of the APAS technology, specifically targeting the largest global pharmaceutical manufacturers. During the quarter, we showcased APAS at several industry events across Ireland, the United States and South Korea. These events featured new presentations from AstraZeneca on their progress and validation of our technology, complemented by a new scientific publication validating our artificial intelligence approach to culture plate reading. We continue to progress development and primary validation of our new APAS contact plate analysis module scheduled for launch mid of this year. This addition is strategically significant as it will enable the APAS Independence instrument to read both settle and contact plates used within pharmaceutical environmental monitoring. These 2 plate types constitute the vast majority of environmental monitoring culture plates used globally, ensuring our APAS Independence provides a complete solution to customers. The development of this contact plate application was also supported by $1.1 million in funding from the Clinical Translation and Commercialization Medtech program delivered by MTPConnect. I'm pleased to report that this funding program was successfully completed during the quarter. In the clinical market, we're working with Quest Diagnostics in the United States to integrate APAS into their routine laboratory operations and connected to their laboratory systems. This implementation will serve as an important demonstration of our technology's benefits and efficiencies potentially leading to broader deployment across the Quest network. I'll now hand it over to Ray, our CFO.

Thanks, Brent. I'll now provide an overview of the financial results we reported in our Appendix 4C launched with the ASX in April. All figures are in Australian dollars and in accordance with ASX listing rules, they are not audited. So for the quarter ended 31st of March 2025, CCS reported net cash inflows of $0.5 million. This represents continued operational and commercial achievement, underpinned by net cash inflows from operating investing activities of $0.6 million, which included $2.3 million in receipts comprising -- well, including, I should say, $2 million for sales of AstraZeneca and the first shipment shipped -- or the first instrument ship to Bristol Myers Squibb. This was a key milestone in our commercial rollout. Inflows were partly offset by the $1.7 million in operating net cash outflows which included $0.2 million final payments for the replenishment of parts required for future instrument manufacturing. Net cash outflows from financing activities was the usual $0.1 million being the regular office lease payments. These cash flow movements in the quarter resulted in a closing cash balance of $2.2 million as at 31st of March. Importantly, in addition to this, the company has $3.6 million of expected known cash inflows in the next 2 quarters, which include $0.7 million in receivables, $2.1 million in further amounts to be invoiced and received for the remaining installation scheduled for AstraZeneca and the second instrument order just received for Bristol Myers Squibb. And we also have an estimated $0.8 million for the F25 Research & Development Tax Incentive receipt, which we would expect to receive in September. Finally, the company has 398 million listed options expiring 15th in November 2025. If fully exercised, this would raise an additional $3.2 million of capital. Of that, $1 million is committed to the final repayment of the current interest-only strategic loan granted from the South Australian government. Back to you, Brent.

Great. Thank you, Ray. Look, looking ahead, the company is very much on track to close out what we believe is a transformative fiscal year 2025 marking a pivotal shift towards profitability. While the journey has required patience, the company's strategic pivot has begun to deliver strong results. Our focused strategy, targeting large pharmaceutical organizations, is proving effective. We operate with high barriers to entry, validated technology and are growing commercial footprint. Importantly, we believe we are still in the early stages of realizing the full commercial potential. As I've said often, we are at the base of a mountain of opportunity, and we're now equipped to climb it with purpose and momentum. Looking to the remainder of calendar year 2025, our focus is clear: converting promising sales opportunities into placements with new global pharmaceutical customers. These early sales will be the foundation for broader adoption of our APAS technology within these organizations, laying the groundwork for sustained growth in sales. A critical part of the journey is strengthening the scientific evidence-based data that supports the performance of the APAS instrument. High-quality validation data, particularly for contact plates, is essential to accelerating adoption and embedding our technology into routine workflows. I'm pleased to report that our contact plate validation program is on track for completion mid-2025. It will deliver a comprehensive data package that substantiates the product's performance claims, giving our customers the confidence they need to adopt the technology. This commitment to robust technology validation is one of our greatest strengths and a clear differentiator in the market. It sets APAS apart and reinforces our position as a leader in innovation and reliability. Alongside our technology efforts, we are also investing in a broad and proactive marketing program for the rest of 2025. This includes an expanded calendar of events, webinars, publications and targeted advertising. The goal is to continue delivering high-quality content that builds awareness, strengthens our brand and generates high-value leads for future sales. We're delivering all of this with acute attention to both sales execution, coupled with focused expense management. Before we move into the Q&A session, I'd like to briefly address the recent U.S. tariffs and their potential impact on pharmaceutical manufacturing, particularly as it relates to our business. Our APAS Independence instrument is manufactured in Australia and shipped directly to our customers in the United States. The recently introduced 10% tariff on imported products does apply to our instrument making the landed cost approximately 10% higher than it was prior to these changes. That said, all of our quotations and customer contracts in the U.S. include clear provisions stating that any state, federal or other taxes or duties are additional to the base price. In simple terms, the tariff is a cost borne by the customer, not by the company. At this stage, we do not anticipate any material impacts on our current or near-term deliveries as a result of these tariffs. For example, AstraZeneca has an open order for their U.S.-based facility that remains unaffected. Like all businesses, we are monitoring this situation closely. It remains a dynamic area, and we will respond as needed. In terms of a broader outlook, though, I encourage anyone interested to just simply search in a few terms like U.S. pharmaceutical manufacturing of investment or U.S. pharma companies, you'll find countless examples of major pharmaceutical companies committing billions of dollars to expand and modernize their U.S. manufacturing capabilities. At the same time, we're seeing increased cost pressures on these companies with the U.S. government recently announcing a new initiative to reduce the cost of prescription drugs, as an example. This dynamic is driving both a need for greater efficiency and a continued focus on product quality and safety. Taking a step back, we see a clear macro trend, one of ongoing investment, operational optimization and enhanced quality standards across global manufacturing facilities. We believe APAS is well positioned to benefit from these long-term industry shifts. And with that, I'll now hand it over to Debbie for some question and answers.

[Operator Instructions] Our first question comes from [ Peter Gregory ]. So thanks, Brent. Can you expand on the AI-enabled changes in the capability and value to customers, both in pharma and clinical markets?

Thanks for the question, Peter. I'm not sure I completely understand the question as it relates to AI-enabled changes in the capability. We've been quite steadfast with our APAS core technology platform, which is the imaging, image analysis platform, and we've applied that obviously to the clinical application and over the last 18 months for the pharmaceutical application. I think what really sets us apart because AI, I think, is a commodity technology and everyone is doing AI, but it's in the application that we're focused on. And the application and the customers rely on an extensive validation program. The regulators when they audit our customers using our APAS technology will expect a full documentation validation suite, which demonstrates that the technology is what they call non-inferior or, I guess, equivalent to the current practice or the current standard, which is a manual culture plate read done by 2 scientists or 2 microbiologists. So we're really kind of leading this space from a validation perspective. And that's been kind of a consistent trend that we've had really since we achieved our de novo application when we entered the U.S. FDA in 2016.

[Operator Instructions]

It doesn't look like there's any more questions. Thanks, Debbie, for facilitating that. And thanks, everyone, for joining the call. Thank you.