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

Thank you for standing by, and welcome to the Micro-X Quarterly Investor Call. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Kingsley Hall, Chief Executive. Please go ahead.

Yes. Thanks very much. Welcome, everyone. 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 Dr. Brian Gonzales, Chief Executive of Micro-X in the U.S. He's in Seattle today. Both Ant and Brian will also be available for the question-and-answers as part of today's call. Today, we will be providing listeners with some details of our commercial and development progress made during the quarter ending 30th of June 2024, as outlined in our Appendix 4C filed with the ASX on the 29th of July before we open up to a Q&A 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 may, of course, differ materially from those forward-looking statements. Thank you. So to begin, we're really pleased that we've closed out the 2024 financial year with 2 commercial products now in market, both built around our proprietary next-generation technology platform, consisting of CNT based X-ray tubes, high-voltage generators and world-first imaging software. Our cash receipts from customers for FY '24 was $7 million, which is up 80% on the prior year. On top of that, we secured our first order for the Argus X-ray camera and having finalized all safety testing. The first commercial unit has now been delivered to the customer in the first week of July this year. As I reflect on the achievements our wider team has made over the past 12 months, it's not only been across all facets of our business, but it's greatly strengthened the platform upon which we can generate future growth and value. We've been able to grow our Mobile DR business and reduce our inventory holding all with lower levels of staff and overhead costs. We've launched our second product, Argus, while growing the capabilities of our sales team and expanding sales of our core imaging platform. We've completed our third and fourth generation of X-ray tubes as now found in the Argus Baggage Scanner and Head CT applications and grown our high-voltage electronics capabilities exponentially. And our software development capabilities continue to expand through our work with the DHS and our checkpoints development and our collaboration with Johns Hopkins and our Head CT development. I can also tell you from the discussions that we've been having over the past few months, the unique technology platform we own and continue to grow is being recognized globally. As we look forward into financial year '25, we're pleased to report that we have just under $13 million of payments contracted to be received for planned development work with the ASA for the Head CT, from the DHS for both the airports portal and Baggage Scanner work, and lastly, with Varex for our technology partnership. We believe that we need to continue to support our commercial activities, particularly around Argus and our partnering goals with the appropriate resources, both human and financial. However, we will continue to carefully manage expenditure and drive returns from every dollar spent. It was for this reason that during the June quarter, we launched our capital raising, split between a $4 million placement and a Share Purchase Plan, which allowed all of our shareholders the opportunity to invest on the same terms as the placement. What was most pleasing was the strong support for the SPP, which closed well oversubscribed and brought total funds raised to $5.9 million. We recognize investors share our vision for the technology and that the time is now to deliver commercial results, which is what this funding will allow us to do. Turning now to our operational highlights. And during April, we welcomed Scott Bryant to the leadership team as our Chief Sales Officer, in his role to oversee the entire sales function of Micro-X and more specifically, lead and drive forward the launch of Argus. Scott is a highly experienced, well-connected executive with 34 years of combined experience commencing initially in the military and then later moving through a number of senior sales roles in security and defense aligned businesses. Scott is based in the United States, which is naturally our biggest market for both Argus and Rover, and this allows them to easily coordinate with our team in Seattle as well as our sales executives in Europe and Australia. We're excited to have him on Board and look forward to the value he will add. As we touched on during our previous investor call, the first Baggage Scanner prototype has been installed and is now operating at one of the U.S. Department of Homeland Security's test laboratories. The unit has now undergone rigorous testing, is performing well, and Brian will provide some further detail on that later in the call. One of our other key initiatives with the completed capital raising is to secure new potential partners to provide funded scale-up implementation and market access for our airport security and Head CT programs. While we can't comment on specifics, I'm pleased we've made good progress on a number of fronts during the quarter with encouraging engagement. Turning now to the specific activities for the quarter, and I'll begin with Argus, where despite some short-term delays, the team was able to make good progress more broadly. Firstly, putting the delay issue into some context. As we prepared to build a number of Argus units for customer demonstrations and trials, our team identified a minor component issue, which we have subsequently addressed with a replacement component that does not increase our cost of manufacture. While it was both frustrating for our leadership and sales teams not to have Argus units being sent out for customers earlier, this is not an uncommon event when scaling up manufacturing for any new product or technology. The good news is this is now behind us and Argus units are coming through the production line here in Tonsley and customer demonstrations are underway in the U.S. and other places around the world. While we addressed the scale-up issue, the Argus development team has also put together the first prototype Argus kit, which provides an even broader complete detection solution by adding conventional transmission X-ray imaging in the same seat as the cutting-edge Micro-X Baggage Scanner technology. The rationale for this advance is simple. Argus' Baggage Scanner function allows remote detection of potential threats in what can often be a number of locations or scenarios. When a threat is confirmed and the type of device known, a high-resolution transmission X-ray [ need. It ] can then identify the exact trigger or detonator for destruction by the bomb team. This development was planned for next year but was moved up as the componentry issue was being resolved. The Argus kit that includes both Baggage Scanner and transmission imaging capability was demonstrated for the first time at an International Association of Bomb Technicians and Investigators event in Las Vegas during the quarter, where it received excellent feedback from a host of industry professionals. Our team is in the process of following up on those sales leads generated through the event and aiming to get trial units in the hands of those key organizations who expressed an interest. I'd like to be really clear that our #1 priority remains driving a successful launch of Argus to drive strong sales for Micro-X and for this reason, we have multiple sales strategies underway. Turning back to our initial launch product and our Mobile Digital Radiography business recorded a solid finish to the financial year with customer receipts for the quarter of $1.3 million and a further $1 million of orders in hand for delivery and invoicing in the near term. Pleasing to say that $400,000 of that relates to the design and delivery of imaging chains. As I said at the outset, it's been a really encouraging year for the very much streamlined Mobile DR business unit, up 80% compared to the prior year, whilst we were also able to reduce our Mobile DR inventory by approximately $2.4 million. We're committed to growing this business into the future on a self-funded basis and I believe that we continue to make good progress, especially in several niche markets such as elite sports. Moving now to our Checkpoints business, where Brian and the team continued to progress on our 2 Department of Homeland Security contracts this quarter. I'll now pass over to Brian to provide some further detail. Thank you.

Thank you, Kingsley. Everyone may remember that during the previous call, I was dialing in from DHS test facility, where I was assisting in the installation of our first baggage screener prototype. Since then, we have continued to work with DHS to test the scanner to gather data that will contribute to automated detection algorithm development. I can't give too much detail on this work, but I can say I'm very excited about the work and the feedback that we received to date. The data we are collecting at the test labs is critical to the development of automated threat recognition algorithms. As we previously mentioned, we are working under an extension of the original baggage standard contract to begin this algorithm development work. Automated algorithms are a key value to the Baggage Scanner and our unique imaging system provides an innovative solution to the challenges that limit conventional CT for the use of automated algorithms. Specifically, the fact that conventional systems are limited by a single fixed imaging configuration and sequential imaging, whereas our system has a flexible imaging configuration and provides for modular scanning. Our data collection and algorithm development allows us to begin to demonstrate these key advantages. We continue to also make good progress as we build our first self-screening module as part of the second DHS contract. This project is particularly exciting because it enables us to demonstrate the full value of our Baggage Scanner CT, creating an entire checkpoint around the small, modular and automated baggage CT scanner. Although, there were no significant milestones this quarter, the project continues to be on schedule and we continue to receive monthly payments from DHS supporting this work. As Kingsley mentioned earlier, additional partnering initiatives are now the focal point of our approach as we move toward commercialization. While ongoing engagements are in their infancy, it is clear that there is a strong level of partnering interest and the foothold we have in this area of development is proving to be an attractive proposition. I'll now hand it over to Anthony to speak of 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 really good progress developing the first test bench of the Head CT unit, which is now close to completion. In summary, we have a large number of our proprietary Micro-X mini-tubes, which are a size of 2 goalposts, and these have been testing and performing as planned. We have also installed these mini-tubes into a novel multi-connector [ hotted ] high-voltage curved array that will sit around the patient's head. And we are moving to the final stage of firing these tubes in a synchronized fashion to create over 60 images of the head, which will be reconstructed using our proprietary software to create a 3D image of the brain to a clinical standard. It's worth noting that the multisource approach for stroke imaging that we are developing is highly novel, have enormous potential to redefine CT imaging. The team are highly energized to be working on this game-changing technology that really should help save many lives. Our next milestone under our development program with the ASA is delivering a clinical quality image from [ test bench ]. But more specifically, we will be imaging an anthropomorphic head phantom and a Jaszczak phantom to demonstrate our ability to reconstruct a human head and distinguish [indiscernible] unit differences between soft tissue and blood with sufficient clarity and quality. These images will be reviewed by the ASA clinical team and once accepted will not only satisfy the next milestone in the MRFF program and trigger a $0.5 million milestone payment, but will also be used for the ethics submission at the Royal Melbourne Hospital, ultimately, enabling human imaging trials to commence as planned this year. Elsewhere, we were excited to unveil the final design of the Head CT model, which was on show at an exhibition at the Melbourne Design Week themed Health By Design: The Future of Healthcare. The event that was a great opportunity for the public to experience firsthand the scale of improvement that is involved with our Head CT units and how it will be deployed in the field. We continue to receive a high amount of global interest in our Head CT from clinicians, regulators and possible future commercial partners as we continue on this exciting journey. Thank you, Kingsley.

Thanks, Ant. Thank you, Brian. I'll now run everyone through the financial activities for the quarter. As reported in the Appendix 4C lodged with the ASX on the 29th of July. 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 30 June 2024, our headline numbers were receipts from customers of $1.3 million, receipts for project work of $1.5 million, net operational cash outflows of $4.3 million, resulting in an actual cash balance of $3.2 million at the 30th of June. It should also be noted that in early July -- 2nd of July, I believe, a further $650,000 was received from the DHS, which was planned to be received in June. Additionally, there are 2 milestones which were contracted and expected to be received in the June quarter, totaling $0.5 million with the ASA and $1.5 million with Varex, which are now expected to occur in the September quarter. Looking forward from a financial perspective, we've taken a number of commercial steps across the past year to reduce our cost base. And in addition, our capital base is supported by a backlog of orders of $1 million from our Mobile DR business unit to be completed and invoiced; $5.5 million of combined Rover and Argus inventory, which is on hand and available for sale; $12.7 million of contracted project payments due under the ASA, DHS and Varex contracts through to June '25, subject to obviously the milestones and contract terms; and an R&D rebate of $5.5 million, which is expected to be received in the first half of this year. We must, however, continue to grow sales with a particular focus on Argus units and we must continue to drive our focus more acutely on our customers. And I feel very confident that we're much stronger in this regard now than we were a year or so ago. Now looking ahead, and we recognize that shareholders want to see faster commercial progress in the form of increased target structure and we are committed to delivering that. We will continue our Argus outreach program and look to capitalize on the interest shown by customers after seeing our product. I'm confident that we now have a team and strategy in place to build a customer base over the next 12 months. We're also entering an exciting period of delivery with both the DHS and the ASA. In terms of the DHS, we'll be ramping up our work as we move towards delivering the first self-screening module. And our Head CT team will continue their efforts as we prepare for the first human imaging trials, both of which are expected to take place later this calendar year. So, thank you, and I'll now pass you back to Mel who will commence the Q&A portion of the call. Thank you, Mel.

[Operator Instructions] Your first question comes from Jaime Fitzgerald with Fitzgerald Enterprises (sic) [ Fitzgerald Analytics ]

Congratulations everyone on the massive uptick of 80% in sales, that's just amazing. Thank you to Scott for joining the Micro-X family, supporting skilled and -- skilled and smart careers, not only here in Australia but also in the U.S.A. I'd just like to bring your attention. DroneShield has stated in their most recent investor conference that SaaS, Software-as-a-Service will eventually [ comp ] 50% of their revenue. It also locks in future customers to their product. Could I humbly ask the Board to seriously consider for all of Micro-X's equipment, including passenger check-in with Argus, a future SaaS system. It would work for obviously bomb threat identification, been able to fast track updates across the world and also with your brain CT and other equipment. We could probably look at subcontracting this out to [ Crown Medicus ] and I can pass on an interview with [ Alan Kohler ] about how [ Crown Medicus ] works. But obviously, if we could transition to the future of owning a SaaS system would be an amazing revenue. And obviously, it would be a passive income as well.

Thank you, Jaime, for the compliment and for the comment around Software-as-a-Service. And I think we've been pretty clear when we released our strategy in August of last year that the creation of recurring revenue streams in the future is really important to us. And I think it's something that the business hadn't had previously. The major products, the CT-based products that the company is building now have a very significant software component in terms of the reconstruction software. And we've talked often about as that software advances over time, the ability to seek recurring revenue streams from the installed base is really, really important. The actual mechanism by which that happens is something that we can look at over time. But I think your comment is absolutely right.

It looks like everything is going quite well at the moment. Congratulations, everyone, and especially, the engineers and scientists at Micro-X.

Thanks, Jaime.

Your next question comes from Scott Power with Morgans Financial.

Congratulations on a great result. Just wondering if I could just get some sort of guidance around your plans for Mobile DR in Europe given that product has now been approved over there after a long delay. And secondly, just a question, very intrigued, and I agree with your comment about the sort of global interest around the technology. Perhaps a question for Brian. Just in terms of any other technology that's out there and how it's either falling behind or making some progress in terms of further development, just the competitive landscape?

Okay. Scott, I might just deal with the Mobile DR Europe question first and then hand over to Brian, if that's okay. So yes, look, we've been signing up distributors in Europe now for the better part of 2024. We achieved our registration there late in 2023. We sold our first unit earlier this calendar year. The process since then has really been around signing up distributors. And our view is not to have a large direct sales force. And I think we learned our lesson from the U.S. or our experience probably 18 months to 2 years ago where we put in place a recently large sales team, which wasn't as productive as we would have liked. We didn't want to do that again in Europe. We're taking a more cautious approach. But at the same time, when we start to see demand driving out of Europe, we will resource it appropriately. So look, it takes some time. Europe is a reasonably diverse continent. You've got to get around and you've got to show people the unit and have demonstrations and sign them up. So, it's a process that's underway. We think Europe could be quite a strong market for Rover Plus as it was to Carestream before Rover launched there. So, I think that we will continue to pursue it on a measured ambitious basis.

And just in terms of the sort of cadence going forward, $7 million in cash receipts for Mobile DR, my sort of sense is sort of 10% to 15% growth rate going forward? Would that be reasonable?

Well, it's a good way of trying to get a forecast out of me, Scotty. But look, we're -- look $7 million is a really good result this year. And I mean I'd like to -- you want to continue to grow your installed base. But yes, I'll stop short of giving you a forecast, but we'd be very happy to see that grow. Sorry. Brian, can Brian just comment on the second part?

Yes. So, there's kind of 2 elements to answer that question of how we -- on the technology plays are placed. The first is, as far as the core technology goes, we really had tremendous development and leaps in the last couple of years, funded by the DHS and the Head CT work to be close to -- for the mini-tube to be working, for us to be doing the imaging that we're doing there, for us to have a full CT working in a test lab with DHS has really solidified and put our lead as far as new ways of doing X-ray further ahead than we were -- well, I want to be careful with that, but we're well ahead of anyone else close to us and we're well ahead in terms of the performance, particularly of the X-ray tubes. People are investigating it and playing with it, but no one is able to compete with the power and the performance of the X-ray tubes that we have or able to output. And the second part of that is that, that is beginning to drive recognition within the community. As Kingsley alluded to, we have engaged across the industry with potential partners. And those, well, as I said, some of those conversations are early days, there's growing recognition scientifically and within the industry of our unique position with this technology and the way in which no one else can really at this point compare to what we're doing that we're aware of. If someone is doing something anywhere close to what we're doing, they're not publishing and they're not making it very vocal. So, where we are on the technology side is really quite exciting as we have just built on the technological success of the company continued and it just continues to put us in a very strong position, particularly around CT applications.

Your next question comes from Brendan Earle, who is a Private Investor.

The ASA is interested in stroke care across the whole of Australia. And they are funding obviously both MX1 and EMVision. I've asked this question before and the answer has been that their helmet is more complementary than competitive with what MX1 is doing with the actual CT standard of care that they're achieving or we are achieving. Can I just ask you for an update on how you're seeing EMVision as a potential player in the ecosystem that the ASA is funding and trying to achieve across the whole of the country?

Yes. Thank you, Brendan. Great question. Anthony, I might ask you to respond on that.

Yes, no problem. Thanks, Brendan. Yes. Look, I mean, without getting into too much technical detail, what EMVision - EMVision's approach is very different and it uses a radio frequency technology. That's going to take quite a long time, I think, to prove that it can really image for the diagnostic imaging for the small bleeds. They may get there and they will do some research and it's great research if they're conducting. What we have instead is we have miniaturized what is the gold standard already for imaging. So, the pathway for us to get a device into the market in use through the regulatory barriers is a lot more straightforward and a lot clearer. I had mentioned in the past that I feel that it's complementary technology because I feel that while ours is very appropriate for diagnosis of hemorrhagic stroke, which is the primary goal to either identify or eliminate blood in the brain, their technology is quite good at mapping progress of its CAG stroke through the brain. So, it will be interesting to see how their technology advances over the next few years. They're in the very early phases of trying to demonstrate that it works. We're in the more advanced phase of actually putting it into trials for real use. Hopefully, that answers your question.

Your next question comes from Eric St.Martins with SI Instruments.

Congratulations also on the sales so far. Specifically, about the Argus, I understand there's only 1 unit has been sold so far. Is that correct? Did I get that right?

Yes, correct.

And I was wondering, you consolidate on the sales efforts. And I think you had a good sales team there. I think Scott, I met at the investors meeting last year some time, and I think he's a really brilliant sales guy. But when I see -- what I hear from your presentation this morning, is a lot of concentration is on exhibitions and quite old fashioned sort of marketing. And I was wondering, you see at the moment, even the United States Presidential Election is short videos, digital marketing costs going out in the market and that makes -- seems to be making great waves. So, I was wondering whether you could do something more specifically with the Argus on the marketing side of business?

Yes. Thank you, Eric. It's a very good observation, and we agree with you 100%. I think our view has been to date that the demonstration or the expos and the U.S. Bomb Technicians Associations in the IABTI event have all been fantastic opportunities to get the Argus seen by large groups of people. I think that it's not the only way forward. It's certainly -- it's kind of the first kind of put through the door and building brand -- building awareness for the product. But I agree with you, I think we can do -- I think we can do a lot more through inexpensive and highly targeted and effective marketing and that is within the plan also. So, I take your point. I think it's well made and quite accurate, we can do more and we're planning on doing more.

There are no further questions at this time. I'll now hand back to Mr. Hall for closing remarks.

Thank you, Mel. I appreciate that. I'd like to thank everyone again for your support and for joining us on this investor call. The next 3 to 6 months will be critical for Micro-X to set the foundation for successful 2025, as we launch Argus and further our partner -- partnering engagement. And I look very much forward to speaking with you again to report on our progress. Thank you.

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