Clever Culture Systems Limited ($CC5)

Thank you for standing by, and welcome to the Clever Culture Systems quarterly investor call. [Operator Instructions] On today's call is Brent Barnes, CEO and Managing Director; Rebecca Wilson, Chair of the Board; and Ray Ridge, the company's Chief Financial Officer. I will facilitate a question-and-answer session at the end of the presentation. An audio recording of this call will be made available on the company's website later today. I would now like to hand the conference over to Ray Ridge.

Thank you, Jack. I would like to remind those listening to this 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 documents, 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 of course, actual results may differ materially from those forward-looking statements. We're now ready to go, and I'll hand the call over to the CEO and Managing Director, Brent Barnes.

Thanks for those formalities, Ray. And look, welcome, everyone. We're really pleased to provide today's update on the progress that we've achieved during this March quarter, along with that and how it positions us for the kind of remainder of FY '26 and beyond. Overall, the company is performing well and remains firmly on track to deliver against our stated commercialization strategy for APAS Independence. Before I get into the quarter itself, I think it's important to briefly revisit the strategic context. FY '25 was a highly successful transition year for the company with 11 APAS instrument sales and the delivery of our first meaningful financial turnaround. Underpinning that performance was a single customer, AstraZeneca, who accounted for approximately 80% of sales as they began standardizing APAS across their global sterile manufacturing sites. That outcome demonstrated the utility of APAS at a global scale and also provided a proof point of our stated land and expand strategy. With that in mind, our objective for FY '26 has been very deliberate in establishing a broader and more diversified customer base that establishes a foundation for sustainable growth over the coming years. We set expectations that unit sales would be broadly in line with FY '25, but importantly, that those sales would be driven by an expanded number of global customers. In pharmaceutical manufacturing, the validation effort required to adopt a new technology is largely the same, whether that customer deploys 1 instrument, 3 instruments, 10 instruments, 20 instruments. It doesn't really matter. As a result, the largest global pharmaceutical companies, those with that centralized microbiology expertise, global manufacturing sites represent the most valuable long-term opportunities for our company. Once validated, these customers have the ability to scale deployment across multiple sites, which is exactly what we've seen with AstraZeneca, moving from a single instrument to now 12 systems globally. Not all customers are going to expand at the same rate and at the same time. In fact, every customer will have different priorities, budgeting cycles and internal approval processes, which is why it's important for us to have multiple global customers added because over time, growing with these customers provides a win-win scenario for us, obviously, but also for our customers. Against that backdrop, I'm pleased to report that we are delivering and are on track to achieve our FY '26 objectives. Financial year-to-date, we've achieved 9 APAS instrument placements and with 2 months remaining in the financial year, we're on track to meet our FY '25 result of 11 units, consistent with our strategy. Specifically on the March quarter, like I said, we secured 3 new APAS Independence orders, bringing our total to 9 APAS instruments. Importantly, we progressed to an advanced contracting stage with 2 new top 20 global pharmaceutical companies and we do expect to convert those within the FY '26 time period. These customers would further add to the current customers that we've got that includes AstraZeneca, Pfizer, Novo Nordisk, Bristol Myers Squibb, Boehringer Ingelheim and Thermo Fisher Pharma Services. Finally, we completed 3 installations during the quarter, increasing our global installed base to 30 instruments, which continues to build that reoccurring revenue stream. What's important here is not just the number of units, but the quality of the customers that we're building. We're now looking -- we're now working, I'm sorry, with a group of leading pharmaceutical companies that represent significant long-term expansion opportunities for the company. This is exactly how our land and expand strategy is designed to work. Customers begin with that evaluation of the testing phase, move into a validation process, which is very formal and then if successful, expand across their global manufacturing sites. In addition to these sales that I've been talking about, I also wanted to highlight the strong independent validation of our technology that was achieved during the quarter. At the global GMP Pharma Congress in Germany, AstraZeneca was awarded the prestigious Professor Wallhäußer award for its implementation of APAS, which is a significant recognition of both the innovation and real-world impact of our platform, obviously, with the customer being AZ. In the Clinical segment, our partnership with Thermo Fisher continues to progress with 2 customer sales in the quarter, including 1 conversion from an evaluation from a French lab. We mentioned that in our last quarterly, so that's converted to a sale and the other being a new facility or a new site, I should say, in the United States. It's worth noting that those 2 instruments were sold out of Thermo Fisher's existing APAS inventory, which clearly benefits our annual recurring revenue. However, it's not going to contribute to upfront revenues for the company in FY '26. Worth noting that there is no further inventory held with Thermo Fisher. So look, in summary for the quarter, really, what we've done here is continue to progress in building a higher quality, more diversified customer base and a pipeline, which we believe is the key driver to sustainable long-term growth. And with that in mind, I'll hand it now over to Ray to take us through the financials.

Thanks, Brent. I will now provide an overview of the financial results we reported in our Appendix 4C lodged with the ASX in April. All figures are in Australian dollars and in accordance with ASX listing rules, they are not audited. Pleasingly, the company remains in a solid financial position with $2 million in cash at the end of the quarter, together with expected cash inflows of at least $2.6 million in the next 2 quarters, largely comprising instrument sales committed or nearing that contracting stage or close to execution and also the R&D tax incentive claim. The company has other advanced opportunities beyond that with the potential to also progress the firm commitments before 30 June that is not included in that $2.6 million figure. So for the quarter, the company had total net cash outflows of $1.1 million. That was represented -- basically all represented by operating and investing activities, which included $1.1 million in inflows from customers and $2.2 million in cash outflows from expenditures and that was higher than usual, being impacted by the final payments related to the latest replenishment of instrument parts for the manufacturer of the instruments. Overall, the company remains well capitalized and maintains a disciplined management of cash flows. Back to you, Brent.

Great. Thanks, Ray. Looking ahead, our strategy really remains unchanged, but I think the level of execution and the opportunity continues to improve. Our primary focus remains on that global pharmaceutical customer segment where we see really the largest long-term opportunity. There are 3 areas I want to kind of draw your attention to. First, expanding the customer base. We do expect to add at least 2 additional top 20 pharma customers in the next 2 months. And this is all about continuing to build that depth and the resilience in our customer base aligned with our strategy for this financial year and beyond. Second, progressing the pipeline. Over the next 6 months, we expect to advance current evaluations, moving those customers into a validation process and finally, to progress towards that broader deployment, that expand base that we keep talking about. This is central to our land and expand strategy, and we do expect this to increase to larger rollouts as we move through FY '27 and beyond. And finally, strengthening the market engagement. A great example of this is our first APAS Discovery Day, which is being held at AstraZeneca in the U.K. in June, so just a couple of months' time. It's really an important initiative that's going to bring together existing customers, new customers with some key opinion leaders. And these stakeholders will really get to understand how AstraZeneca went through their process and managed to roll out and standardize on APAS on a global level. Of course, participants being at the AstraZeneca facility will be able to see the instrument in action and have quite a lot of engagement with the AstraZeneca folks as well as a contingent from our company that is obviously going to be there to support it. Look, as we wrap up here, the final sentiment just wanted to kind of outline from a company standpoint is that we're on track to deliver what we set out to and really to close out what we believe is going to be a successful FY '26 over the next couple of months. And with that, Jack, I'll hand it over to you to facilitate any Q&A.

Thank you, Brent. [Operator Instructions] So our first question is from Stella Wang. Are the 2 more units expected in quarter 4 likely from 2 new pharma? Or -- and will they be evaluations or orders?

Yes. So the first part of that, they are 2 new pharma. So 2 global pharma companies that have not been named or identified. So it's incremental. So therefore, delivering really on our strategy of expanding that global user group. In terms of whether it's going to be an evaluation or a release or an order, look, we'll disclose that to the market as we finalize these contracts.

And a further question from Stella. Any supply and logistics challenges experienced since the Middle East conflict? And has that conflict impacted the customer decision-making time line?

Yes. I think very broadly speaking, from a supply chain perspective, short answer there is no. I think there's 2 elements. One is, can we get components to build and manufacture our instruments and that's kind of one element. And because we buy in kind of lots of batches of inventory, we haven't seen any material impacts there. And then the second one is, can we get our product into the various countries and we ship all of our products? And the answer to that is no. So at the moment, we haven't seen any issues relating to supply chain that's getting the parts to build our instruments. So no issues there. And we haven't seen issues in terms of getting our instrument to our customers.

Questions from Andrew Gray. Pfizer has been under evaluation for multiple quarters. Is there a defined endpoint to that evaluation? Or is the time line open-ended? And at what point were they still to evaluation become a concern rather than normal pharma procurement?

Yes. Great question. Thanks for that one, Andrew. Yes, Pfizer has been under evaluation for some time and this is at their Melbourne facility here in Australia. Look, I can't go into a lot of detail about their internal process because that's kind of confidential. I would say it's taken longer than we would have expected or hoped on both sides and it comes down to various priorities that the customer kind of goes through and has. We don't see it at the moment being a negative outcome. We see ultimately longer term that this is going to be a positive process with that key and important customer. So I think, yes, longer than expected. No, we don't see any kind of longer-term issues. In fact, we still see that the Pfizer group as an opportunity for us on a go-forward basis.

And a further question from Andrew. Thermo Fisher no longer holds instrument inventory. Future clinical orders must be supplied directly by Clever Culture Systems. What's the manufacturing lead time per instrument? And can you handle a cluster of Thermo Fisher orders without a supply bottleneck?

Yes. So the -- look, we're manufacturing or building 1 instrument a month and that's kind of been pretty well the cadence we've been having over the last year and that will kind of continue. We can ramp that up to 2 a month if needed. And so we don't see any supply chain kind of issues with respect to orders. I think I would say that look, our -- the sales cycle is long. And so if Thermo Fisher were to have a demand to buy multiple systems, we're going to know about that with a long lead time. And in a similar way with our existing customers, if one of those global customers are looking to expand in a similar way, AstraZeneca did, I can share by our example with AZ, we knew exactly when they wanted to kind of roll that out. So we have very clear line of sight. So we don't see any supply chain issues.

A question from Peter Gregory. Can you tell me how the instruments under evaluation are reflected in the financials? Are they still in Clever Culture Systems' inventory?

Ray, do you want to take that one?

Sure, Brent. Short answer is yes. So where there's a paid evaluation, it's quite simply a cost that's charged upfront as a nonrefundable deposit. And they have the right of return, so we don't recognize the full sale and it remains in our inventory until they've completed their evaluation.

And another question from Peter. Will Thermo Fisher be less enthusiastic now that they have cleared their inventory?

Look, I think generally speaking, we -- the Thermo Fisher relationship continued and it's great to see a bit of life actually in that clinical market as we've reported, it hasn't been a focus for the company, but we certainly support our channel partner being Thermo Fisher. We support our clinical customers through the recurring revenue that we generate through the annual software license and maintenance contracts. So look, I can't really answer it definitively. We collaborate on an ongoing basis with Thermo Fisher. I think I will note and it's publicly available that the Thermo Fisher Microbiology division was acquired just early this week by a private equity company in Europe for a bit over USD 1 billion. And so that is the division that we've been working with specifically within Thermo Fisher. So I do see part of that divestment with Thermo Fisher, creating some uncertainty, but it could actually longer term be quite opportunistic. But just too early to say, but worth drawing people's attention to that.

Question from James Tracy. Is 10 instruments enough in terms of inventory and can't these potential customers buy much more?

Do you want to take that one, Ray?

Sure. Yes. The thing is that with these orders from customers because of the long sales cycle, as Brent mentioned before, we do have visibility of them in advance. So at the moment, 10 is enough. But obviously, we would move to be purchasing more as we see the pipeline starting to fill out. And then in terms of manufacturing, and in fact, we would get better purchasing terms buying more than 10 at a time. So 20 would definitely be our next step. So I don't see that as an issue. And then on the manufacturing side, like Brent mentioned, we can produce straight away 2 a month from our current 1 a month and beyond that, we can negotiate to increase our size of our outsourced manufacturer. We can increase the size of our footprint in the manufacturing zone and increase that capacity.

And a further question from James. Is there any benefit to Clever Culture Systems from leasing instruments?

Do you want to take that again, Ray.

Is there any benefit? Yes, most definitely. It -- look, we prefer a sale upfront, but if it's the difference that gets a sale to occur, we would much rather lease it. So it's definitely in our sales. And -- but surprisingly, pharma customers really mention it, but it's definitely on the table.

And a further question from Andrew Gray. You flagged growth initially evolving in FY '27. Is that modeled around simultaneous multisite expansion across several customers, AstraZeneca style? Or is it still primarily single site validation phase for most of the new names?

I think in reality, it's going to be a combination of the 2. I mean we should -- when we talk about land and expand, we should always be trying to land, right? So we should always be trying to add new customers and the new large customers like I mentioned. But I think kind of to the second part of your question, we would certainly expect in FY '27 that expand part to start happening with some of those newer customers. And so that will commence in FY '27 and beyond. Like I mentioned, every customer is going to operate their own cadence. They've got different decision-making processes. And the importance is to expand the base and the number of those customers so that if each of them were to look to buy maybe 2 or 3, well, that starts adding up once you've got 6, 7, 8, 9 of the big customers, and that will kind of trickle through over future years. This is a multiyear strategy, not just a 1-year strategy.

A further question from Stella. What do you see as the key challenges your pharma customers, including prospective ones face currently in making CapEx decisions, including ordering APAS?

So generally speaking, with pharma customers, we don't see the CapEx or the financial limitations being the primary issue. I think really where we see kind of the challenges is prioritization. So firstly, they've got to understand our technology exists, and that's why we go to conferences, do marketing and all these types of activities. But ultimately, there is a lot of internal work that's required by the customer to adopt new technology. This isn't a plug-and-play situation. The manufacturing of sterile drugs is a highly regulated process and the customer bears all the responsibility associated with that manufacturing process. And so my point there is that any change to the manufacturing process, including environmental monitoring and new technology needs to be very thoughtfully considered and understood and then executed upon. And so those projects need to be prioritized. And once they're prioritized, we see a very clear cadence of execution. But until that point, that's -- it's kind of -- we can't progress too much.

And another question from Andrew. The 2 top 20 pharma customers are described as expected to close imminently. What specifically is the remaining blocker? And what does imminently mean in terms of weeks versus months?

Look, I think what the company said it's going to be this financial year. So that's in the next 2 months. We're at an advanced stage, and we'd like to kind of move them forward, obviously, as quickly as we can. And as soon as we do that, we'll obviously let the market know. So I can't give any more guidance other than what we've already provided.

And a question from Peter Gregory. Can you give me a feel of the cost to CC5 in terms of dollars and people effort in an evaluation. If you get, say, 5 orders in the next quarter, will this be manageable?

Yes. So if I'm understanding the question correctly, it's what's the internal effort required to support these evaluation processes. And look, I think the short answer is it 5 or whatever it might be, the short answer is yes, we're resourced appropriately. There's a combination of, obviously, our sales team that support that work on site with our customers, but we do most of it actually remotely. And so it requires our team here in Adelaide to kind of work across our global customers. So short answer is I think we've got a cost base that can support additional growth. We're not concerned there. We have got a couple of new roles that we've recently put on. We've got a software person we've just added to the team to support some of that growth. And we're actually kind of advertising for a European-based validation kind of person to help with some of that customer work as well. So the company has made some investments in that area to kind of anticipate, if you like, some of the growth that we are expecting on a go-forward basis.

There are no further questions at this time. So that does conclude today's investor call. Thank you for joining.

Thanks, all.