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

Thank you for standing by, and welcome to the Micro-X Limited Quarterly Investor Call. [Operator Instructions] I would now like to hand the conference over to Mr. Kingsley Hall, Chief Executive. Please go ahead.

Thanks very much, Galine. Welcome, everybody. My name is Kingsley Hall. I'm pleased to welcome you all today to Micro-X's quarterly investor call, along with our Chief Operating Officer, Anthony Skeats; and our President of the Americas, Brian Gonzales, who is joining us from Seattle.

Hi, everyone.

Hello, everyone.

Today, we will be providing listeners with some details on our commercial and technology progress we've made for the quarter ending 30th of September 2023, as outlined in our Appendix 4C filed with the ASX on the 27th of October before we open up to a question-and-answer session. Now before we begin, we would like to remind those on the call that today's call may contain forward-looking statements, which involve inherent risks and uncertainties. Those risks and uncertainties include those disclosed in our ASX clauses, which we recommend that you reviewed. While there are reasonable grounds for any forward-looking statements, made today, due to their inherent uncertainties, we recommend that you do not place undue reliance on those statements, and you note that actual results may, of course, differ materially from those forward-looking statements. Now before I start with the many achievements during the quarter, I would like to address our upcoming Annual General Meeting, which we've announced to the market yesterday afternoon, will be moved to Thursday, the 30th of November 2023 at 1:00 p.m. here at Tonsley. The reason for this move is that we had an oversight in our original notice of meeting sent to all shareholders that was brought to our attention last [indiscernible]. The issue is that we did not include the necessary resolution for shareholders to vote to approve the appointment of BDO as our new auditors. You may recall back on the 15th of June, we announced that as part of our audit rotation policy, we had appointed BDO as our new company auditors, with Grant Thornton having been in the role since our IPO in late 2015. While we announced at the time that we would take this appointment to shareholders, by oversight, we failed to include this in the original notice of meeting. Both the Board and I completely agree, this sort of oversight is highly regrettable and does not reflect the level of compliance we aim to achieve and the company that we seek to be. So we took the decision to move the AGM so that all shareholders have the full 4 weeks to consider the full package of resolutions, including the appointment of auditors and vote on them accordingly. We apologize for any confusion, and we will refer shareholders to the Computershare inquiry line if you have any further questions. So to begin, the September quarter was a busy one from both an operational and commercial perspective as we started to implement the key initiatives identified in the operational review and strategy refresh released to the market in August. We now have a far better understanding of our customer needs, the areas we need to improve as a business, and the realistic timing to hit our milestones. Importantly, as a people-driven tech business, the team is responding extremely positively to our realignment of strategy, whether it's walking around the factory in Tonsley chatting with the development teams here and in Seattle, we have a renewed commercial focus in all of our activities and a more defined road map. So when I talk today about our achievements in the September quarter, it's really pleasing to see some of our new strategic initiatives have begun to deliver early success. This included just under $3 million of mobile VR sales and orders, almost all of which will be delivered from our inventory. And the contract for up to $21 million of non-dilutive funding from the Department of Homeland Security, which takes the airport check-in program all the way through to live airport testing. As I'll get on to in a moment, our Argus was another key focus and with a lot of activity completed by the Argus sales team with the support of our engineering teams. This product is being demonstrated to distributors and customers in the U.S. over the next couple of weeks. The team was here over the past 2 weeks intensively testing the Argus here in Adelaide, and putting the system through its paces in a large range of simulated exercises. Turning now to some of the specific activities for the quarter. Our mobile DR business showed a pleasing turnaround, generating sales and orders of $2.9 million, which is nearly 80%, all of our revenues from last financial year. As we said previously, the $6 million of over inventory we were holding is too high. And these sales and orders will reduce that inventory significantly. In other words, we are turning our over inventory into cash flow. Another key aspect of the quarter was our ability to sell and deliver systems to the government who are a major potential opportunity as they have different needs and buying behaviors to our traditional hospital and medical customers. We delivered our first rapid military version of the Rover system to the Australian Defense Force for their deployable hospital program. Shortly after that, we secured another government order of Rover systems for $1.5 million, which Prime Minister Albanese announced in Washington last week being part of the $20 million funding package to Ukraine. As the Prime Minister said at the time, we were 1 of only 4 vendors selected by the government, each being leading Australian defense technology suppliers. In that case, a key success factor for us was being able to demonstrate a can-do approach to meeting the specifications and the quick timing needs of the customer. And we will continue to build on our commercial nimble approach to winning orders. Over in Europe. We finally received the good news last week that our Rover and Rover Plus systems have received CE marking under the MDR certification, which enables us to start selling units into Europe. This process has been a long and frustrating one with the backlog of other medical devices being reviewed and also COVID lockdowns but is the final piece in our regulatory strategy to be able to sell the rovers in all major markets globally. We are reconnecting with our existing network of distributors in Europe with the aim to be selling shortly. Moving on to Argus. The commercialization of Argus remains at the top of our priority list. And this quarter, we were thrilled with the progress we've made towards that goal as we work our way through the last of our prelaunch refinements. As I mentioned in our quarterly release last week, the team took a demonstration unit back to the U.S. to commence demonstrating to both distributors and customers. Building awareness of Argus and its cutting-edge capabilities in bomb detection is crucial as we move closer to launching the product. In a continued push to build the customer pipeline, the sales team attended several key conferences in the U.S., including the Eastern National Robot Rodeo and the Technology Partner Expo. Both gave us another opportunity to get the product in front of military and bomb squad operators. In our Checkpoint business, Brian and the team have seamlessly continued their work with the Department of Homeland Security under the contract extension for up to $21 million secured in July. This is an enormous achievement for us as it provides an unrivaled commercialization partner and fully funds the development work we need to complete -- to bring our final product through to testing. The team in Seattle is now working towards the next milestones. And importantly, while we have hurdles in the contract, the first $7.25 million of funding is locked in for the next 18 months. This contract extension will run in parallel with the contract we have with the DHS for our baggage scanner, which is a key component of the airport checking station. We are preparing to deliver 2 fully functional prototypes of the baggage scanner to DHS in the near term to enable them to commence their testing. Brian, do you perhaps want to give an overview of your trip to Australia?

Thank you, Kingsley. I've just returned to Seattle after a 2-week trip to Adelaide, where I was working with the team to finish the first miniature baggage screening prototype. Over the past few months, the baggage screening team in Adelaide has worked to solve a number of technical challenges around the simultaneous use of 6 different X-ray tubes, which are used together in the baggage scanner. This is the first time Micro-X implemented a multiple tube CT imaging system and the design is truly remarkable. While I was in Adelaide, the team resolved the last of these challenges, and the system is now being finalized for shipment to Seattle in the next few weeks. When the system reaches the Seattle office, we will do final checks there and be ready to ship to DHS when DHS is ready to receive it. As Kingsley mentioned, the second DHS contract has now officially been extended at the end of July to the additional -- or $7.25 million for the next year of work. In this year, the team in Seattle and Adelaide will work together to deliver the first prototype self-screening module to DHS for testing. This prototype will include an additional baggage screening system along with the millimeter wave system provided by our subcontractor Vauxhall Radar. This work has already started and is progressing well. The combination of Micro-X's baggage CT and our self-screening checkpoint designs are beginning to capture the attention of the broader airport industry. In September, an article in Forbes Magazine was published on the potential impact of Micro-X's self-screening concept to airport checkpoints. This article was titled Through Airport Security in 30 Seconds, that's the goal of this new technology. Following that article, images from the same article were used in the presentation at future travel experience roundtable discussions on the future of seamless passenger travel. At the discussion, the audience affirmed the idea that some sort of self-screening is the future of airport security. FTE, or future travel experience, is one of the world's largest airport conferences and is attended by many of the major global airlines and airports throughout the world.

Yes. Thanks, Brian. I might now ask, Anthony, if you want to speak to the great progress made on the Brain CT program for stroke diagnosis across the quarter.

Yes. Thank you, Kingsley. Yes, the Brain CT team continues to make very positive progress on the Australian Stroke Alliance program. We received a milestone 5 payment of $1.3 million this quarter for completion of the critical design review for [ key gate] in the MRFF program, where subject matter experts review of the development work to date that in John Hopkins led anti-scaler algorithms in Micro-X [indiscernible] imagery construction, mechanical electrical high-voltage subsystem design, the user interface, control software architecture and all the proposed integration design for road ambulances, which included incentive work by our partner, the Monash University Healthcare lab team, was reviewed and accepted. In addition, work was conducted through the ASA and partners RMIT and the RFDS to review how to integrate into some of the RFDS6ed-wing aircraft. As part of CDR, the development team were able to use a test bench with the first dynamic curve detector prototype from Fujifilm. This is the only detector of this type in the world, and we are able to produce 3 reconstructions of head phantoms. Whilst the requiring further development to improve to diagnostic level, it presents a really major achievement in technical risk reduction. During the quarter, the team worked closely with the AFA clinical team and the Royal Melbourne Hospital to plan human trials early in the new year, including the definition of a clinical test plan designed to meet peer review standards and regulatory standards, preparation for ethics submissions and the necessary radiation management license that will be required for the trial. The core technology team at Micro-X progressed the design of the new mini tube. The designs were released, the material procured, ready for first miniature builds and manufacturing process development that's occurring now. Similarly, the design of the first potted high-voltage gantry with switching electronics was released following a number of experiments and trials to minimize the size and waste of the system. And we're now estimating the entire scanner may weight as low as 75 kilograms. Another pleasing commercial development with the Brain CT is the signing of a memorandum of understanding with the Norwegian Air Ambulance Service who provide emergency services and mobile stroke units by helicopter in Norway; and MayTec, a German provider of the FMO stroke units in Berlin. The intention of both MOUs is to supply preclinical prototype systems for real-world testing and voice of the customer feedback. On a broader operations perspective, during the quarter, we conducted a review across several of our business functions with a view to streamline our team structures and operational processes for improved efficiency. In particular, we implemented a new process for sharing capability and resources across multiple projects with better communication and knowledge sharing across the teams. We put in place a new commercial operations process, managing the product life cycle of our in-market products. This will ensure continuing exceptional support of existing customers, new customers and importantly, our sales team as they commence sales activities in Europe for Rover and launch Argus globally. Also during the quarter, we successfully passed our ISO 9001 audit and ETR electrical safety audit from Intertek which has included adding a new Rover Plus variant to our portfolio, enabling one of our key distributors Medlink to market the Rover Plus. Most significantly, as Kingsley mentioned earlier, we achieved the European MDR compliance for the Rover Plus, allowing us to [ cmark ] the device and sell in Europe and U.K. markets. This is a really remarkable achievement by the team, one that has had many challenges as the regulator learns how to audit devices against this new legislation. Now that we have achieved that success, it has created a solid path way for us to follow on our future medical devices. I'll now hand back to Kingsley.

Thanks, Anthony. In our corporate activities, we've also been building our external shareholder and industry engagement. This has included roadshows to catch up with shareholders, meet new investors. We've also been active presenting with broker networks. To build our story, we've been featured in a number of news items. And if you haven't seen these, they can be found on our website and social media. One of them, as Brian mentioned earlier, was in the prestigious Forbes Magazine in the U.S., which is a fantastic article, demonstrating the capabilities and the potential that, that technology has. I'll now run everybody through the financial activities for the quarter, as reported in the Appendix 4C lodged with the ASX on the 27th of October 2023. And the numbers I will be referring to are all in Australian dollars and in accordance with those existing rules, these are not audited. So for the quarter ended 30 September 2023, our headline numbers were receipts from customers AUD 1.2 million, receipts for project work of AUD 2 million, net operational cash outflows of AUD 3.6 million, resulting in an actual cash balance of AUD 1.3 million at the 30th of September. Now while the actual cash balance at the quarter end was low, I must stress that we received over AUD 7.2 million in October for amounts, which were due at the end of the last quarter. This included AUD 6.2 million from our research and development rebate and AUD 1 million from customer and project receivables. We believe this cash is sufficient moving forward as we've reduced our cost base and have approximately AUD 9 million of cash inflows committed over the next 2 quarters before any new product sales. This includes the AUD 1.5 million due from Rover orders to the Australian government delivered in October, and there will be income from additional customer orders. So we're carefully managing our balance sheet and financial requirements. Looking ahead, we've got 3 critical near-term priorities. Firstly, finalizing Argus for customer trials in November; secondly, driving more commercial opportunities with our Rover system, including now in Europe; and thirdly, delivering the 2 baggage scanner prototypes to early access. In the strategy refresh, I set out a short-term scorecard for investors to measure our target over the next 12 months. And I'm really pleased to report that we've completed or made progress on a vast majority of those KPIs. I'll now pass you back to the operator who will commence the Q&A portion of the call. Thank you.

[Operator Instructions]

Okay. Galine, while we're waiting for questions, we did receive a couple through the investor line prior to the call. So I might just -- I might just read them out, actually. I might just put the first one to Brian. There's a question, Brian, does the DHS contract extension contain any commitment to buy completed units at the end of the contract?

It's a good question. No, it does not include any commitment to -- the contract is solely for the build and delivery first of 1, then initial 2 and then finally, 3 more to demonstrate a full working thing in an airport. So there is no commitment to bypass that, but it does fund that key demonstration period that sets up for the next phase after that.

Awesome. Thank you. And then the second one was, is Micro-X in discussions with any other airport security agencies for similar contracts?

We are not current -- well, sorry, we are in discussion with several airport agencies, but they're all early days. There is no discussion right now to buy yet. The world looks to the TSA because that leadership in this matter.

Awesome. Thank you. And then we had a question regarding Argus. Have you received any preorders from customer demonstrations that have been undertaken, which I'm happy to answer. The answer is no, we haven't. And specifically, the product isn't in the market or hasn't been in the market up in really until this week. The customer and distributor trials are commencing in the first couple of weeks of November. And we are very confident that it's -- that the Argus is going to provide capabilities that don't currently exist. We think it will be well received by the market. But yes, at this point in time, we've not taken any preorders. So we'd be delighted to, if any of the demonstrations go that way. Sorry, Galine, that was it for the pre questions that came through on the line. I'm not sure if you just want to perhaps make one more call to the audience and then we might tidy it up.

[Operator Instructions] There appear to be no questions at this time. So I'll hand the call back over to Mr. Hall for closing remarks.

Thank you. So thanks once again for your support and for joining us on this investor call. The next 3 months will be critical for Micro-X as we continue to drive towards launch of Argus and doing progress in our other development activities. I look forward to speaking with you all again to report on our progress on the January call. Many thanks for listening.

This does conclude your conference call for today. Thank you for participating. You may now disconnect.