Micro-X Limited (MX1) Earnings Call Transcript & Summary

Thank you, everyone. The usual disclaimer. So look, I think Pat laid out the key achievements for the year very well. It's been a very exciting year. As Pat said, we've really reached an inflection point in Micro-X's development into the commercial phase of its journey. A big growth in sales penetration is a key part in -- thanks in part to the COVID but couldn't have come at a better time. The continuing insourcing of proprietary technology, our generators is the one in trend at the moment. That's really good. We've got patients supporting our CNT tubes. We won the second contract for the U.K. government in the future aviation security solutions. And of course, that led in part to helping us get selected by the TSA to design the whole of the next-generation checkpoint for U.S. airports. I can't really overemphasize how important that is. It really does put us in the box seat going forward. We've achieved U.S. regulatory clearance for Rover, significantly increased the commercial experience in our Board and management. And as Pat said, we're now very well capitalized with a good runway with $30 million raise. Highlight of the year has been just commissioning our advanced tube manufacturing facility. And that leads to -- I know you -- by virtual meeting, you can't be with us here in Adelaide, but we put together a little video tour of our new tube production facility, which we commissioned this year. Dan Pini will -- our production manager will take you through and explain what we do and how in the following video. [Presentation]

Thanks, Pat. I -- sorry, if we lost the sound there at the start of that. But hopefully, you've got the gist of it. It's a remarkable facility that, and the guys operating it there are doing an amazing job. The yields we're getting on tubes at the moment is spectacular. So we're really getting world best practice, very proud of that. So I just wanted to start off with the kind of review that is common in -- at an AGM to review where we are and where we're going. The technology status is something that's been talked about a lot recently. We're the first to market with a proven cold cathode technology. We've proven its performance, its reliability and its lifetime, and that gives a huge number of opportunities for new products. The goal of achieving this is attractive. We know others are attempting to follow us. We never imagined that we would complete this journey without competition, because a goal that is that attractive will have people looking to follow us. So the question is we will have competitors, how long have we got before they catch up. There's a couple of measures that we're using just to judge where others are coming behind us, which we know from the journey we've been on. When we set out to develop our own emitters, it was obvious and we tried lots of interesting materials, diamond and different kinds of silicon and stuff like that. Getting a very low current from a field emitter isn't actually that hard. Getting it over 5 milliamps is the real challenge, and that's what we've done, and the way we've done it is what we've patented, and that patent has been granted this year. So we're very comfortable there in our lead. To give you an idea, really an entry-level medical device tube needs 100 milliamps and our new tube that we're developing for the Mark II Rover is currently operating to 200 milliamps. So one indication of where the competition is, is certainly current. Once you've got current from your emitter, you need to know how to operate it in a tube, because turns out that all the rules that applied to conventional x-ray tubes just don't apply to a tube that's operating in this electronic environment. So based on our experience, we think we've got a 5-year lead over the nearest competitor. So the question is, what are we going to do with that in 5 years. Well, that's all about monetarizing our first-mover advantage. So what we believe is that the successful first movers in breakthrough technology have to move quickly. And the idea is for an early commercial domination to use that as a barrier to entry for others. So what we want to do and what we have been doing in recent years, we've been talking to a lot of different people about a lot of different products, but we're looking for the low-hanging fruit here, products where our technology delivers the most customer benefit and the best product margins for us. If we commercialize though, we can commercialize those high end value chain to maximize revenue, then we avoid the commoditization of the technology as long as possible. So our goal, a simple goal that I kind of want you to think about Micro-X going forward, is we have 4 production lines in mind, 4 production lines in Tonsley, making 4 global high-margin products, and we want to be there in 5 years. The first, we've established mobile DR. By mobile DR, I mean the bedside imager of the Nano Rover. The second, the Backscatter Imager for IEDs. The third is airport self-service, the checkpoint and extra component of that. And the last is the CT brain scanner for in ambulance stroke diagnosis. So those are the 4 products. Nano, of course, you know. We're continuing to manufacture Nano. We've got a lot of a lot of product out into the market this year, $3.8 million worth of orders, couldn't have happened at a better time to get an installed base in 14 countries around the world, which is fantastic. The worst of the COVID-related rush that happened in the autumn and into winter of this year is over but the -- we are still seeing sales, not in big announceable orders. But interestingly, the sales pattern at the moment is starting to be a little deja vu. Last week, we got orders in from North Asia and this week from Italy. So we're starting to wonder if the pattern isn't likely to repeat, but very pleased with that product and the proven reliability. Of course, the Rover for military and other remote users is the second variant of Nano. Now we're using Rover here to refer to the product as it's configured by Micro-X with Micro X's name on the compliance plate. The big difference is that instead of just selling the cart, when we sell the Rover, we're selling the cart and the detector as a package system. As I was saying, that's moving further up the value chain. So very close to signing a contract for the Australian army procurement. That should happen very soon. We're making some really good progress with the U.S. Army. They're waking up to the fact that the dream that they thought they could never have, which is full acute hospital x-ray performance in a unit that's light enough to be deployable, but it's realizable. We are battling -- COVID is pretty bad in the U.S. We're having some trouble getting into Army bases, but they're still keen to facilitate it despite all that. And of course, in other avenues that we're exploring, we're very pleased to secure a 1.4 million sales order to the World Health Organization. So shows that we are thinking laterally there about other ways to sell our product. I'm talking about other ways to sell the product and increase the volume through production line. We've got 2 new ideas in trend train as well. One is taking advantage of the extreme mobility and the low weight of the product to do more point of care x-ray imaging, basically door-to-door x-ray service. This is -- can be aimed at aged care homes where residents would otherwise have to travel to an outpatient x-ray department in the hospital. But also, home visits are very, very much the trend in medical x-rays and globally, trying to keep people out of hospitals and do much more point-of-care imaging. So we're exploring that, and there's already one service operating in Sydney, and we're looking to roll out some more. Also interested in the small animal veterinary market. Interestingly, we were approached by the U.S. Army a little while ago to see if we would be interested in tendering for an opportunity that they have there. But that got us to thinking in our recent research shows that, that looks like it could be quite a healthy market in veterinary hospitals as vets are changing away from the old fashion film x-rays to improve workflow and productivity. Nice thing about that, of course, is that the regulatory market means that we could do almost instantaneous sales. So the second product in the line is our IED imaging camera, one-sided viewing of IEDs, and you're familiar with that. What we are talking about today is some breaking news. Last time, when we did our 4C, I mentioned that we were hopefully about to start testing with our new detector, which has finally arrived from the U.K. The tests were run yesterday and the day before, so we're just taking advantage here to present this breaking news. Look, the images here are absolutely spectacular, probably better than we thought and certainly way better than the first variant of the design that we demonstrated to the Australian defense force 3 years ago. We -- the product research and the voice of customer we're doing shows that the product will operate in 2 modes. One is the very quick scan, and you can see on the left, the 10 second images there, which is in the EOD operatives parlance, the bomb, no bomb decision. That's a backpack there, you can see the outline of the backpack, but you can see how the explosive material, the energetic material and that device is very easily seen. You can tell that that's not somebody's lunch and in their backpack. And then the higher resolution scan going out to 60 seconds gives you the detailed threat assessment. So you can see wires there that are 0.3 of a millimeter in diameter, so it's superb resolution. So the good news is that, that imaging approach -- that whole new imaging approach is now proven, and we are setting a new direction for this product. I'll give you an idea of the previous against the new configuration. We're seeing a big drop in the weight from 36 kilograms to 22. The size is smaller. Imaging speed is faster. And the really exciting thing is a much faster and lower cost development program. And of course, because of that, a much lower development risk. The icing on the cake is our estimate now of the cost of goods sold for this product is 30% of the previous. That's not reduced by 30%, that is 30% of the previous estimate. So we've got a very, very competitive product with very, very improved imaging performance. So this new architecture is the new direction for the Backscatter Imager, and I think really will make it a very exciting proposition. You saw us 2 weeks ago announce the contract with the TSA. This is, again, a very -- I mean, this is a complete game changer for Micro-X. We knew that the TSA had been talking to the Department of Transport in the U.K. that we've been working with for some time. And the idea that we worked on there was a self-service checkpoint. The TSA has had the same idea, but they have no idea where they're going to be able to get the miniaturized x-ray component for this self-service checkpoint portal to work. So once they saw the work we were doing in the U.K., they invited us to present that in Washington, then it became clear to them that this concept was a goer, and that's when they went out with this tender, which we won. The tender is -- we would have been disappointed if we hadn't won the X-ray component of it, because we're the only people that can do this. But the really, really nice thing is that they've given us a second contract to actually design the whole portal as the prime contractor. So integrating the construction of the portal or entry the exit, the millimeter wave body scanning with obviously our own x-ray and on top of that, all the document and identity checking. So it puts us in the driving seat to design and this entire checkpoint, you could not be in a better place. The brain imager for strokes also done a lot of work in the first phase award we got from the Medical Research Future Fund in Canberra. We've done a lot of work on the imaging performance. The -- our friends at the Royal Melbourne Hospital, Melbourne Brain Center, which is one of the sort of top 5 or 6 stroke and urology centers in the world was that -- to get this concept to work, we had to be able to replicate the same imaging performance that you would get from an 8-slice helical CT like the CereTom that they're using in their mobile stroke van. And we've already managed to get that, and we think we're going to do a lot better. We've been showing we can diagnose a 1-millimeter bleed in the subarachnoid space, which is the hardest place to find a small stroke bleed, so we're absolutely confident we can get the diagnosis we need. Very pleased to be joined with 2 really credible and important partners in this, the Johns Hopkins University Hospital has -- who's been working in this area for some time and concluded that -- unfortunately, this concept wasn't possible using conventional x-ray technology is now very excited to join us, because now they see it is possible using the CMD technology. And Fujifilm Corporation in Japan is partnering to give us a bespoke detector. You can see the curve shape of that detector there, which is bespoke to this ring scanner design, and that really helps us with the imaging geometry. So we're breathlessly waiting for confirmation of, hopefully, securing about $15 million from the Australian Stroke Alliance under this Medical Research Future Fund frontier imaging deal, and we hope to hear about that in coming weeks, but a complete game changer of a product with a huge addressable market, because prevalence of strokes and the need as they say in strokes, China's brain and the need for quick diagnosis and prehospital treatment is critical, as huge financial as well as human rewards. Now backing all that off, of course, the capability -- 2 key capabilities we've established. Manufacturing operations has been really, really stretched and enormously proud of the team there. The flexibility in the panic manufacturing that we've been doing all year on COVID has been huge. They -- often it was not possible to do proper production processes because we were short of part, so we would have to partially build a number of units and then wait for a part to arrive and then complete them. And their flexibility in being able to do that and get so many units out so quickly has been huge. But underpinning everything in the 4 production lines that we're talking about in the future is this manufacturing quality and manufacturing rigor, the world-class efficiency that the guys have learned when they were in the auto industry is really helping us. And as we in-source more and more, we're heading as a policy to 95% Australian continent, reducing cost, reducing cycle time and obviously, the supply chain greatly shortened. Also, engineering design. The products are good. They're good at the design stage. And the expansion in our design capability is -- has been really good. We're now 23 engineers and scientists covering just about everything we need in mechanical design, materials, electronics control software, vacuum physics to bring everything in-house. We intend to be setting up a center of excellence in design, software and image processing in our U.S. subsidiary in Seattle, Micro-X Inc. to make that a kind of center of excellence to serve the whole company in these areas. But one of the nice things about the TSA award is that they've recognized our capability in systems design, project management and prime contracting. So we didn't win the TSA just because we've got a unique X-ray, they actually recognize our skills and ability and customer-led design to put a whole system together. So I just want to talk about a few platform technologies, because there is actually a cunning plan here where this -- the platform technologies that we're developing support these 4 major production lines that we're planning for. Obviously, the next generation of CNT x-ray tubes, the nugget tube is the one that we're in production of right now. You saw in the video earlier. The Mosaic, which is exactly the same size, weight and form factor, but operating at about 3x the par is in development, and that will be launching with the high-powered Rover in the early part of next year. The new tube that we just tested for the Backscatter Imager is Fuggles, and that will power the MBI, very highly integrated there with the generator. But the one on the right is the important one. Our new miniature tube, we call it the Summit, and that has to be a mass production tube. It's a miniature tube. It doesn't need 2 golf balls to work. Those are there just to show you how big it is. But that's the size of the new miniature tube, obviously, in a stroke scanner or in the airport checkpoint, we'll have something like 20 or 30 of those per product. So that whole tube has to be designed for mass production. By mass production, we can fast forward very quickly to a point in time where we're making 200 of those tubes a day, and that obviously drives how your design thinking goes. But that 2 technology supporting all our future. Also, image processing. And again, the image processing that we've done on the Backscatter Imager uses the same imagery construction algorithms and techniques as we are using in stroke tomosynthesis and in the backscatter reconstruction for the airport scan. So again, it's the same core body of technology feeding all 4 of the production lines that we have in mind. High-voltage supplies, another part. Now we've talked about that in the past as the in-sourcing of the generator for the Nano and Rover, which we did in the first instance because the overseas supplier was very costly. So we're doing our own design and plan to build it in our factory in Tonsley for less than half the price that we're getting it from the U.S., so it will make a huge difference to our gross margins in those products. But the reality is that our -- in the strategic sense, every one of the x-ray tubes that we make in the future needs a high-voltage supply. And the integration of that with the x-ray tube becomes another core advantage, another core technology differentiator for Micro-X. And down at the bottom there, you'll see that the future designs of miniature tubes have got the high-voltage electronics, very closely integrated to minimize the package size of weight. It's the old days of having a tube here and a generator there and a wire connecting them that doesn't give you the smallest, most competitive product. You've got to merge these and integrate them to miniaturize it even further. So the -- bringing that high voltage generator capability in-house is a big strategic move forward for us as well. So that's our 4 production lines. The addressable markets are huge. The nice thing is looking at the -- obviously, the mobile DR is established, but the backscatter, the airport checkpoint and the brain scanner, these products have all been established by customers actually funding us to do the development, because they saw the need for this product to be so great. So we've got a real issue of customer pull rather than technology push in these future products. And at the moment, we've got those addressable markets to ourselves. As I said, we won't have that forever, but our plan is to commercialize these next 3 and get them into production, generating cash as quickly as we can. That's the overall strategy. So in conclusion, where are we? We own and have proved our technology edge. We are the only cold cathode x-ray company in the world that's working with medical devices. We've got products in market. We've got revenue. We've got multiple new product lines in design with massive addressable markets. So the expansion capability for this company as a global supplier of this technology is enormous. And I think the scale of expansion that we can go through in addressing these markets in the next 5 years is going to be quite impressive. As I said, it's customer pull, not technology push. We've got the building blocks in place to support it with design and manufacturing capabilities. And our DNA will cause us to continue to innovate to drive value. The Backscatter Imager, being a good case in point, I mean, we had a design that worked that we showed to the ADF 3 years ago, but we find a better way, a way that we could make it cheaper, faster, lighter or smaller. So never stop driving value from innovation, and that concludes my overview.