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.

Thank you, Ashley. Welcome, everybody. It's Kingsley Hall. I am pleased to welcome you all today to Micro-X's quarterly investor call, along with our Chief Operating Officer, Anthony Skeats and Dr. Brian Gonzales, our Chief Executive of our American business and our Chief Scientist who's in New Jersey today, both Ant and Brian will be available for questions and answers as part of today's call. Today, we'll be providing with some details about commercial and technical progress that was made during the quarter ending 31 March 2024, as outlined in our Appendix 4C filed with the ASX on the 29th of April 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 lodgments, which we recommend that you review. 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 might, of course, differ materially from those forward-looking statements. So to begin, I'm pleased to report that during the March quarter, the company achieved a number of key milestones across our various product lines, the most important of which was having the Argus now available for sale, giving us 2 commercial products in market and 2 later-stage development products. The $4 million placement successfully completed earlier this month will be critical as we fund our strategic road map to not only accelerate sales of the Argus but also bring our market-leading solutions in development through the market. I would add our thanks to our full substantial shareholders who all supported our placement as a show of their support for our vision and the opportunity. Last Wednesday, we launched the share purchase plan on the same terms as the placement, and I would encourage all eligible shareholders to look out for their documents and review them and review the SPP offer before it closes on Thursday, the 23rd of May. If shareholders have any questions, they can contact the company's main phone line or our share registry, Computershare. Turning now to our operational highlights. So as I've mentioned, our highest priority remains the successful launch of our Argus X-ray camera, which culminated in our first purchase order in March. This order is the first step in the adoption of our market-leading technology, and we'll see an Argus unit deployed in various national security applications in the UAE. We expect the first Argus will be shipped in the coming weeks with the manufacturing resources in place to fulfill other orders as we achieve them. While the launch of Argus was our main focus during the quarter, there were a number of other encouraging achievements in our airport security business. In our Checkpoints business line, we were awarded the full DHS contract extension for the integration of artificial intelligence software into our miniature baggage scanner. Excitingly, the DHS will now fund Micro-X to extend its data collection and software refinement to include explosives detection, a further testament to the strong working relationship that we had formed with the U.S. Department of Homeland Security. The broader and longer-term goals of our airport security and Head CT product programs continued on time and on budget this quarter, as we progress towards the delivery of the first self-screening module under our $21 million DHS contract extension, and prepare for human imaging trials at our Head CT unit. Turning now to the specific activities for the quarter, and I'll start with the launch of Argus. Firstly, following the final steps to enable the launch, we focused on building our Argus sales pipeline with an ongoing demonstration program to police and security organizations in markets, including the United States, Australia and Asia. The feedback from those early demonstrations is giving us key insights into the sales cycle and the expected demand from potential customers. More importantly, to me, feedbacks reiterated that as a new technology, nothing beats the customer being able to see and test the unit, again, a true appreciation of the value proposition and how it might fit into their workflow. Moving forward, these efforts will be bolstered by the recent capital raise with funds committed to expand our Argus sales team and equip them with a pool of units for customer trials. The ability to offer customers a trial unit is a fundamental pillar of our sales strategy, and we expect it to be pivotal in driving sales over the next 12 months. As part of our plans following the capital raising, I'm pleased to welcome Scott Bryant, who has joined our leadership team as the Micro-X Chief Sales Officer. Scott is a highly experienced sales professional who, prior to joining Micro-X, spent 6 year at ADS Inc, were he is ultimately the Director of Medical and Counter Weapons of Mass Destruction. ADS Inc. is one of the largest providers of operational equipment and procurement solutions for the United States Department of Defense. And Scott will head all of our sales efforts with these KPIs being linked to not only increasing overall sales, but as well as driving Argus penetration in sales wins. I'm looking forward to spending some time with Scott in the U.S. in the next few weeks as we meet customers and set more detailed plans to grow our sales capability. Moving now to our Checkpoints business, Brian and the team continued to make great progress on the 2 Department of Homeland Security contracts this quarter. With Brian currently joining this call from New Jersey, where he is assisting the TSA with the installation and testing of the first MBS prototype. Brian?

Thanks, Kingsley, and thank you, everyone. As Kingsley said, I'm currently in New Jersey right now, and we're delivering the first miniature baggage scanner to TSA testing facility. This quarter, DHS sends us a technical object -- a test object to demonstrate the image quality of MBS. That's kind of a fake representative item that's very well represented to really parameterize the image quality and the metrics of the CT. And following the successful review of that imaging, we're now delivering the [ MBS CT ] to DHS. Micro-X will spend the next few months working with DHS to do extensive data collection on the MBS that will provide complex and real data to train automated detection algorithms. This is a very exciting next step for this project. During March, we received an additional $0.5 million contract extension from DHS to fund AI software development for threat detection in our baggage scanner, the contract extension included an optional portion for an additional $300,000, which DHS has now chosen to award. This additional funding will cover ongoing data collection and initial algorithm development for automated detection in the system. Checkpoint, the Checkpoint self-screening station, the second contract, which incorporates the MBS had a very strong quarter as we progress towards delivery of the entire station, the entire integrated station this year. In this contract, we were joined both of our customers, DHS S&T and TSA innovation taskforce at Consumer Electronics Show in Las Vegas. Consumer Electronics Show, CES, is the largest consumer electronics show in the world, showing everything from next-generation transparent TVs to self-driving cars. And in the midst of this very exciting show, Micro-X's self-screening Checkpoint stood out, and was recognized by CNET as one of 19 mind-blowing technology concepts they can't wait to see. Following a brief meeting at CES, we were pleased to welcome Under Secretary of DHS, Dr. Dimitri Kusnezov, in February to our Adelaide headquarters, where our team gave him a tour of our manufacturing, finishing with the demonstration of the second MBS unit currently under final production. As a physicist by background, he was very much able to appreciate the core of our technology and capabilities. The Under Secretary's engagement over the early part of 2024 was incredibly encouraging and demonstrates the strength of the relationship we are forging with DHS more broadly. Additionally, TSA spent this quarter actively publishing the self-screening solution that they are currently demonstrating at the Las Vegas Airport using conventional technology. Although this version is not Micro-X's, it does not have the advantages our system provides, but self-screening concept as opposed to the conventional concept is gaining interest throughout the entire airport community and is providing Micro-X with multiple opportunities to engage further with industry partners and potential future customers. Other players in this industry, people who are -- and other airports beyond the U.S. As our airports screening business moves forward and closer to commercialization, additional partnering initiatives will become a focal point for both the Checkpoints and the Baggage Screening products. We are looking to engage strategic partners who can provide funding to upscale and market access as we bring our suite of proprietary products to airports across the globe. The funds from the recent capital raise will assist us in securing these strategic partners and enable the acceleration of these relationships. I will now hand it over to Anthony, who to speak on the progress made on the Head CT program for stroke diagnosis.

Thanks, Brian, and welcome, everybody. During the quarter, the Head CT team continued to make excellent progress working towards the next ASA milestone, which is the production of an imaging test bench that will house an array of 21 mini-tubes on a high-voltage switching array and include a current detector. This test bench will be the first integrated Head CT using the newly developed core technology mini-tube and our compact potted high-voltage assembly, specialized cathode switching electronics and new CT reconstruction software with algorithms that have been developed in our research partnership with Johns Hopkins' I-STAR Labs. The test bench will be used to image an anthropomorphic head phantom. This is a representative of a human head in a sort of plastic format, and a Jaszczak phantom, which is a nuclear SPECT/CT Phantom used for measuring [indiscernible] units, difference between soft tissue and hard and blood and hard tissue in a head. And the idea is that we will reconstruct these phantoms using our software and ASA will assess them for sufficient clarity and quality as the clinical team there and us work together on providing data sets for ethic submission at The Royal Melbourne Hospital, which is a precursor to entering [ human dimming ] in trials as we plan to do this year. I am pleased to report that over half of the mini-tubes have been made for the first array, and we continue to manufacture these according to our plan. The potted high-voltage catheter has been produced and successfully tested at over 100,000 volts with test loads. And recently, we successfully completed testing switching of 2 mini-tubes on this array, which is further lowering the technical risk of the program. Initial radiation measurements indicate that the effective patient dose is around 0.51 [ mL/kg ], it's approximately 5 chest x-rays and it's considerably lower than a conventional CT and as considered a very low dose. In terms of progress towards the first hospital imaging test bench, the engineering team is finalizing the motion stage and integration design of the mechanical, electronic and software subsystems. And we are now in the process of building that first system. This will reuse the first switching array after completing the imaging quality study and then to go internal verification, radiation and safety testing as part of our ethics requirements in order to get permission to conduct research imaging on live human subjects. The team has worked hard to ensure that the transition time and development from achieving diagnostic quality images on the phantoms, the delivery of the human imaging test bench is minimized. With the funds received from the recent capital rights, the ongoing development of our prototype stroke imaging unit was also strengthened. In line with our plan to broaden our strategic partnering initiatives, the funding will allow us to branch out from the ASA development contract and deliver additional Head CT prototype units, under the MOUs in place we have with 2 European emergency services organizations, Meytec in Germany and the Norwegian Air Ambulance Foundation. As we continue to make strides towards commercialization, these additional strategic partner initiatives will be a key consideration. Over to you, Kingsley.

Thanks, Ant. And thank you also, Brian. I mean, I think just fantastic examples of the outstanding work that our teams are doing in taking our core technology into applications that have significant markets in front of us. Finally, I'll just touch on our mobile DR business continued to make great progress converting inventory we hold into cash flow following a record-breaking December quarter. We had customer receipts this quarter of $800,000. We have a further $1.1 million of orders in hand for delivery and invoicing in the short term. And this quarter included the delivery of our first European Rover Plus unit also. And we continue to be encouraged by the results of our now streamlined mobile DR business unit. We've now recorded $5.3 million worth of revenue so far in FY '24 in the 9 months, represents improvement of 120% compared to the same period last year and is already 40% greater than the total revenue that we achieved in the full FY '23 year. And in addition to the Rover revenue growth, our margin is improving, and we continue to reduce our inventory holding converting that into cash. I'll now run through the financial activities for the quarter as reported in the Appendix 4C, lodged with the ASX on the 29th of April 2024. And the numbers I'll be referring to are all in Australian dollars and in accordance with ASX listing rules. These are not audited. So for the quarter ended 31 March 2024, our headline numbers were receipts from customers of 800 -- just over $800,000. Receipts for project work of approximately $3.3 million and net operational cash outflows of $2.8 million, resulting in an actual cash balance at the 31st of March of $2.2 million. A pro forma cash balance of $6.85 million at 31 March following the placement of $4 million an ounce last week, and an ongoing SPP to raise a further $1 million. Looking forward from a financial perspective, we've taken a number of commercial steps to reduce our cost base and streamline our operations. Our capital base is supported by current backlog of $1.1 million in Rover Plus orders waiting to be completed, $5.3 million of Rover and Argus inventory on hand and available for sale, and $14.2 million of contracted project payments due under the ASA DHS and Varex contract through to June 2025, subject to the achievement of milestones and option extensions. And we have an estimated R&D rebate of $4 million, which will be received in the second half of 2024. We are encouraged by the position we find ourselves in from a funded development perspective with 2 of our business units funded through our partnerships with the DHS and the ASA, and our goal is to attract further partners to fund the launch of each product, while growing sales of both Rover and Argus. Now looking ahead, and we recognize shareholders want to see faster commercial progress, and we are working to deliver that. We will continue our global Argus demonstration program and look to capitalize on the validation provided through the initial order and materialize the ongoing commercial discussions that are currently taking place. From a development perspective, we'll be ramping up our work with the DHS as we move towards delivering the first self-screening module in 2024, and our Head CT will continue their efforts to prepare for the first human imaging trials later this year. From a partnering and funding perspective, we are increasing our activities to build out our future launch and implementation. We will also be aggressively targeting new partners that best deliver for our future customers while sharing risk with us as the technology developer. I'd like to take this opportunity to remind everyone on the call with some important dates in the prospectus we released last week and our Notice of Meeting for our AGM, which we released yesterday. Our SPP remains open until Thursday, the 23rd of May, with our AGM to be held on Wednesday, the 29th of May. The securities available under the prospectus are currently planned to be issued on the 30th of May being the day after the AGM. So I thank you for attending today's call. I'll now pass you back to the operator who will commence the Q&A portion of the call. Thanks, Ashley.

[Operator Instructions] Your first question comes from Scott Power with Morgans Financial.

That was a very good presentation. I might just start with the Argus. You've appointed what seems to be a very high caliber person. But I'm just wondering if you could sort of tell us a little bit about why he joined the business, and then sort of some expectations perhaps around sort of sales cycle, if you've got any sort of clarity around that process between initial interest through to actually putting an order in.

Thanks, Scott. So if we deal with the first part of the question first, Scott Bryant. Why did he joined the company? I believe in when he says that he's excited at the opportunity. And I think we presented a reasonably compelling way to attract him. We sort it out. Scott's experience at ADS, I think, is pivotal, where he had, he said significant experience selling not only X-ray products -- X-ray products from a military sense, but also from a medical sense. And Scott's role in the company will be over all of our products. And so to find someone who's got experience in each of those 2 major disciplines is really exciting for us. Prior to Scott's time at ADS, he had a very distinguished career in the U.S. Military, where he commanded a couple of significant teams in combat and it has had an extensive experience from an [ AID ] perspective as well. So the fit was fantastic for us. And we were really very, very happy to be able to secure him in the end. We think he's going to be a fantastic addition to the team. What we think he can bring us is a level of expertise from a sales perspective that we don't currently have in the business. And I think that when I -- when we released our strategy back in July or August, probably 7 or 8 months ago now, one of the key platforms there was the recruitment of a Chief Sales Officer. And we interviewed [ Farhan Wade ] and some fantastic candidates, and we are very, very glad that we've been able to secure Scott. And look, Scott, in terms of the second question around the Argus sales cycle. I think what we're finding in the demonstrations and compensations that we're having is that the larger customers have a slower sales cycle than you would like. I really do think that a little bit like Rover, when you're selling disruptive technology and selling new technology, we've been -- we're finding people that quite like it, but need to understand exactly where it fits in their workflow. And I think the really important thing is going to be able to not only educate them as to how it fits into their workflow, but to also allow them to do that with a unit for 1, 2, 3 weeks, however long they need to find work fit for them and see the value in the product. It's -- we are presenting a product that currently not had access to before. And so the education process is -- it's significant as it should be because whilst we -- we think the Argus present tremendous value in the X-ray market. It's not a cheap product as none of them are. So you've got to encourage and educate people to the value proposition. And we think having a unit to install in their kind of daily workflow for a period of time is going to be really helpful in that regard.

And can I just sort of get you to expand upon your thoughts around Europe? You've made your first Rover sale there, which is fantastic. What's your expectations sort of over the next 12 months?

So I think it's interesting that the CE market process for us was -- we talked about it for a long time, it took a very long time all up over 2 years, I think, as we move into the new MDR process and Rover was not going further in because it was the first time applicant. What that resulted in was the liquid time that we're under that application process, we found ourselves having to go back and re-engage with majority of distributors and potential customers once we achieve that [ fee mark ] and we're still kind of going through that process. We've got a number of distributors signed up now, and there are more being -- more that we're having discussions with right now. I think the Nano installed quite well into Europe, the Carestream Nano, which is essentially our OEM product lower power than the Rover Plus. So I would expect that the Rover Plus would also sell quite well into Europe. We'd love to get going quicker than we have, but having to have gone back and reengage with the distributors was -- has taken some time, but we're very close, I think.

And just finally for me. The work that you're doing with the brain CT scan this week to get it into human trials. In terms of working in parallel with some of those other potential partnering opportunities, how does that actually work? Do you have to get approved the product in German first before you can advance the project negotiations with Norwegians, for example?

Scott, it's got a [ market day ] to talk about the 2 specific MOUs with the European organizations. But what I can say from a strategic partnering perspective is that what we're looking at is finding the right partners that want to be part of the commercialization journey. And I would think that the attractiveness of them to the opportunity increases the further that it gets down the development time frame. But at the same time, the earlier that somebody -- earlier that somebody presents to us an opportunity, which is compelling and that we can utilize, we will take a partner on that the earliest opportunity. I think that -- these are -- both the Head CT and the checkpoints projects are so significant in scale, that the earlier we get the commercialization team in place, the better off we're going to be when those products ultimately come to market. And that period -- that time frame is not that far away. So we're actively seeking out those the right partners for that commercialization journey now. But Ant, I might just hand over to you to talk about the 2 European MOUs.

Yes, sure. So Scott, the MOUs with the Norwegians and the Germans are in place for them to take preclinical units to further their integration development work and gain more data. The program we have with the ASA is all about proving the viability of the equipment with its application basically on humans. The idea being that we're able to build a much bigger data set for our eventual technical part that we will submit for device registrations. So we have to have human imaging as part of the clinical validation for the stroke imager, and getting more data sets in different countries makes it easier for me to make regulatory submissions in those countries. The Norwegians run all many emergency response services in the air and some on the ground in Norway. And the key opinion related to that, they're really at the forefront of technology in terms of adopting new types of technology and capability. So there -- but integrating the CT into a helicopter, as you can imagine, it takes some time. So they want to start doing that early before we've conducted the human imaging. Meytec in Germany, they already operate what they call the STEMO Mobile Stroke Units in Berlin. They have 5 of those. They currently integrate a neurological [indiscernible] into those units with big CT like the Melbourne one. And they are being asked by the German government, how that can be expanded into other parts of Germany, other cities and regional areas. So they want to get a jump head start on doing the integration work into their vehicles again. So when we're ready to do -- when we're ready to actually certify the device, they're ready to go. So essentially, both of them are early customers. And I have other opportunities on exploring. I get quite a lot of inquiries through our website of similar organizations that are quite keen to try and get in early. Some will need to wait until the device is registered due to the regulations. Some want to get involved earlier under research agreements and actually conduct studies and trials.

Your next question comes from Jaime Fitzgerald with Fitzgerald Enterprises.

It's really good to hear the enthusiasm around the Argus moving forward, but it sounds like there is any issues commercialized in the product. However, I just wanted to ask question at an ASX announcement over 9 weeks ago regarding the statement with Argus product now for sale, production-ready Argus unit filed internal tests, an external technical valuation -- verification. But the next ASX announcement saying in regards to the first commercial order actually indicates that it hasn't passed external testing, and it still needs to pass safety testing. Can you explain what's going on there and why it's taking so long for this safety testing to be completed and why there was an ASX announcement saying that the box is ready for sale?

Thanks, Jaime. I might answer it in 2 parts, and I'll allow Anthony to talk to more detail around the safety testing. But the Argus has been available and ready for sale for some time. We can't deliver it to all parts of the world until there's a level of -- until the safety certification is received. But it doesn't take -- it doesn't stop us from taking an order as we did do in March. In terms of the statement that was made around internal testing was completed and there's a range of external testing that is done. Part of that is technical verification and part of that is the safety certification. And we did say, I think in the last quarterly call or when we announced the purchase order received from the UAE customer that we would deliver it once the safety certification is received, and I think from the technical verification. What I can say is that it is frustrating when part of -- the safety certification is done externally. And that requires besides the test house that's doing the certification to be able to do its job, and we are one customer to them in line with many others. It has been frustrating that it's taken longer than we would have liked. But we haven't been in control of their workload. But -- so yes, I hope that answers your question. I mean, we're expecting -- my best understanding at the moment is that we would be expecting safety certification in a matter of weeks, not months, it's weeks. And once we receive...

That's the main issue -- is that you can't see an issue around its getting its safety verification it's only weeks away. That's what I'm getting at. Because technically, you can't make a sale or call it for sale until 100% of sale and receive money for it because you haven't received money for the units to the UAE. Is that correct?

We have not yet. No, that's right. But we can take a purchase order for the unit. We can't deliver it to every country in the world until we've got levels of certification, that's for every country. You have to get safety verification for every country. I might just let Anthony continue the conversation as he's leading the project.

Yes, Jaime. Look, there is some terminology here, I guess we should clarify. So verification testing is all around testing the product works. And we've done that, and we've gone around the -- we've also done radiation testing to make sure the product is radiation compliance. And we then go about doing what's called electrical safety and EMC safety. EMC with pass, that's actually been completed for both radio frequencies. So that can now be used globally in March with the EMC compliance statement. And that's the only mandatory requirement for us because this product is an industrial product. We have chosen to test it to the industrial safety standard 61010. Some countries require you to do that. If we want to put a CE mark on the product, we have to show compliance to that safety [ crossing to ] other countries do not. We're in a position where that testing is almost completed. We don't expect to have any tax failures. We haven't experienced any test failures. What we have experienced is delays at the test house due to the availability of specialists and equipment. And that's currently being done now. We expect that testing finish in a couple of weeks would be other fact. We got a slide on these [ number goes ].

My concern is around the way the device works in regards obviously [indiscernible] radiation and obviously, people in the vicinity of using the device.

No. In fact, as part of the radiation safety compliance, we have to batch the product in certain ways for certain labels on it, depending on which countries we have with different symbols or that kind of stuff is done. And then we have to provide inspections how to use it [indiscernible] and all that sort of thing in guidance to focus into our medical devices. Obviously, the amount of radiation that the Argus delivers is a higher amount. So people understand further away, but that's all kind of the usage of the product.

My concern around, obviously, the way the device works because obviously using backscatter radiation and it can go anywhere. I was wondering if that was the hold up for...

Well, actually, not really, the fact got radiation occurs whenever you radiate an object, the object becomes the X-ray source and X-ray feedback, and if the energy level reduces roughly about 50%, depending on the annual incidents. So the amount of backscatter radiation isn't really the issue. You probably -- it depends how close you stand to it. We have an exclusion zone that we recommend, which is not very big around the back of the device. And then we have a bigger exclusion zone in the front of the device where the direct beam part goes. So it's no difference, but we're confident that this will pass within a number of weeks.

The other thing I want to touch on and I hope this doesn't come across as disrespectful, but I'm just wondering if we could concentrate more on marketing company. Take a look at Oleg from DroneShield. I think we're missing a lot of opportunities here with ASX announcements. Understandably, I know some of the DroneShield announcements made border on whether they're current or not. But things we're missing like the -- say, for instance, the Argus, the way it's able to measure down to, I think, it's the millimeter or something inside packages, that's an amazing achievement by your engineers, and it's probably worthy of an ASX announcement. I know Smiths Detection made quite a big deal about it when they started implementing their CT standards into the airport. The newsletter is fantastic for shareholders, but we need something outside of that. Just wondering if Rebecca, your marketing manager is getting the support that she needs.

Yes. Look, I think, Jaime, I appreciate your comments. I mean it's always -- I think marketing is -- it's very important to tell you a story. And these positive and productive as you can be. And we -- I think we do that. I think Rebecca does a tremendous job. We're -- yes, I think we support the marketing activities well, but I appreciate your comments.

Thank you. That is all the time we have for questions today. I'll now hand back to Mr. Hall for closing remarks.

Thank you, Ashley. Well, thanks, everyone, once again, for your support and for joining us this morning on the investor call. The next 3 months, I think I say this each quarter, but the next 3 months will be critical for Micro-X as we continue to drive the launch of Argus, and build progress in our other major development activities. I look forward to speaking with you again to report on our progress at our next call. Thank you very much.

That does conclude our conference for today. Thank you for participating. You may now disconnect.