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

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

Thanks so much, Harmony. Welcome, everyone. My name is Kingsley Hall. I'm pleased to welcome you all today to Micro-X' quarterly investor call, along with our Chief Operating Officer, Anthony Skeats; our CEO of Americas, Brian Gonzales, who is in Washington, D.C.; and for the first time, our recently appointed Chief Sales Officer, Scott Bryant, who joins us from Dallas. All 4 of us will be available for questions and answers as part of today's call.

Hello, everyone.

Hello, everyone.

Hello, everybody.

Today, we'll be providing with some details on our commercial and development progress made during the quarter ending 30th of September 2024, as outlined in our Appendix 4C filed with the ASX on the 31st of October, before we open up to a question-and-answer session. Now before we begin, I'd 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 do note that actual results may, of course, differ materially from those forward-looking statements. So to begin, we've started the 2025 financial year with an ongoing focus on execution in our commercial products being sold, our development work being advanced and our strategy to build partnerships for funding and future market access. So one of our key highlights during the September quarter was successfully completing the technology transfer to Varex for high-voltage multi-beam X-ray tubes and, of course, the receipt of the final $1.5 million milestone payment. As listeners are aware, this work commenced back in late 2022 when we first formed our partnership to work with Varex Imaging, splitting the agreed technology transfer across a 5-milestone program for which we've now received the full $7.5 million of nondilutive funding. What is also pleasing is that the technology transfer to Varex has paved the way for ongoing collaboration and expanded revenues. Put simply, the new multi-beam X-ray tubes produced by Varex will require a Micro-X high-voltage generator for their operation. As a first step on this path, Varex already ordered $100,000 of our high-power generators, and we're working towards additional orders by the end of this year. I would also add that this is a true partnership, with our engineering and technical teams working alongside their counterparts at Varex, who remain the largest OEM manufacturers of X-ray tubes globally. This 2-year effort is both a testament to the professionalism and expertise of the Micro-X team and also underpins the difficulty that other companies will have to replicate our NEX Technology and then attempt to compete against us. We also have other discussions underway with a number of prospective international partners, who I had the pleasure of meeting with recently while in the United States. While I can't provide any further details at this stage, we are progressing and seeking to build these new partnerships in the coming quarters. Turning now to the specific activities in the quarter, and we'll begin with Argus. Since we first launched Argus in earlier this year and secured our first sale, it's been exhibited and demonstrated to a large number of potential customers across law enforcement, military and civilian bodies that fulfill this critically public safety function. Whilst we're disappointed not to have achieved more meaningful sales, we have generated a significant amount of customer feedback, which has largely been complementary of the unique Argus technology and capabilities. We are, however, bringing a breakthrough technology into an established security market, which has proven challenging for us. And the incumbent transmission X-ray imaging still remains the accepted standard for the detailed analysis and disruption of IEDs. To address this challenge, we've adjusted our product strategy and are now positioning Argus as a dual system, including transmission X-ray, combined with the significant added benefit of our own backscatter imaging. We've delivered this revised product strategy through an agreement with Pexraytech, a highly regarded transmission X-ray manufacturer from Finland, and we believe the combination of the 2 imaging techniques into a single unit greatly adds to Argus' value proposition. This product iteration has been achieved at low cost to Micro-X with the new Argus kit already presented at several demonstrations. We are encouraged by the feedback so far and plan to have a commercial version available for purchase later this year. We believe this is the best strategy to realize value and deliver customers a win-win with this technology. I'll shortly hand over to our Chief Sales Officer, Scott Bryant. But before I do, I'd like to provide with a bit of an introduction. Scott joined us earlier this year in April, and he comes incredibly well-credentialed following a 27-year career in the U.S. military. He most recently spent 6 years at ADS, Inc. ADS, Inc. is one of the largest providers of operational equipment and procurement solutions to the United States Department of Defense. And with that, I'll now pass over to you, Scott.

Thank you, Kingsley. I am excited to join the call today, and I look forward to fielding any questions that listeners may have at the end. Before I get into the operational updates, Kingsley asked that I share with you guys a bit of my rationale for joining this wonderful team, Micro-X and a short summary of what the team and I have been focused on over the last 6 months. When I was first contacted by the executive recruiter representing Micro-X, I went online to learn as much as I could about the company. I was immediately drawn to the company's pioneering use of carbon nanotube technology, which I believe holds the potential to revolutionize multiple industries. As you know, this innovation directly addresses critical market needs, providing cost-effective portable alternatives without sacrificing quality or accuracy. I personally feel that Micro-X is uniquely positioned to disrupt traditional imaging paradigms that could lead to significant growth and transformation. During my initial 6 months at Micro-X, I have focused on several strategic initiatives to position the company for sustained growth. First, I consolidated our sales team to ensure alignment and central leadership, fostering a cohesive approach to our market strategy. In analyzing the market, we assessed the potential of Rover Plus and Argus to determine which product aligns best with their sales objectives and market demand. Additionally, I conducted a thorough evaluation of our distributor network, leading to a refined pricing structure designed to strengthen partnerships and improve market competitiveness. We've also shifted our emphasis towards direct sales in the U.S., a strategic move aimed at achieving higher margin and giving us greater control over our sales efforts. To support these goals, I've recruited 4 seasoned sales professionals with proven success across diverse regions and product markets, adding expertise and expanding our reach. Finally, I focused on identifying and nurturing substantially larger sales opportunities that, if secured, could significantly elevate Micro-X' growth trajectory. Now turning to our mobile radiology business. We started in the financial year with quarterly receipts of $800,000, with a further $500,000 worth of orders in hand for delivery in the near term. This includes $300,000 for sale of our proprietary imaging chains, which are a good opportunity for us to broaden our customer base and revenues as we look to sell our NEX Technology to noncompeting companies. I would also say that while we had a reasonable level of sales of mobile DR units during the last financial year 2024, moving forward, we recognize that we need to do much better, and so we are targeting larger opportunities with hospital and defense buying groups. One early step is a multistage evaluation of the Micro-X Rover Plus that's underway, which is actually the parking lot that I'm calling you from right now, with a major U.S. corporation who owns both multiple hospitals and a large medical device buying group. I'm pleased to report that our Rover Plus has passed the initial evaluation where it was trialed in 2 U.S. medical facilities and has now progressed to the second stage where we will have multiple Rover Plus units in their hospital system. We see this as a large opportunity if we're successful, with results in the first half of next year. And with that, I will now pass over to Brian to provide further detail.

Thanks, Scott. As we highlighted earlier in the call, we are focused on execution, and our checkpoint business is a prime example of that. During this quarter, we completed the build of the second fully functional baggage CT prototype for the Department of Homeland Security and TSA. The prototype was constructed at our manufacturing hub in Tonsley and has been delivered here to our U.S. headquarters in Seattle. Since arriving in Seattle, the prototype has successfully undergone a thorough testing program and is now awaiting delivery to DHS. I'm also pleased to report that while details are highly confidential, the DHS and TSA testing of our initial prototype at their test facility since April is producing excellent feedback. More broadly, under our separate USD 14 million contract with DHS, we remain on track to deliver our first checkpoint module to DHS later this calendar year. Excitingly, we are now in the process of building that first checkpoint module in our SeaTac facility. And the associated CT baggage system is under construction in Adelaide. And with that, I will hand it over to Anthony to speak about the head CT program.

Yes. Thanks, Brian, and welcome, everyone. So during the quarter, we continued our work developing the test bench of our head CT device. Whilst I'm very pleased with how business development is progressing, I do acknowledge that we expected to achieve the next ASA milestone in shorter time than what is materializing. Encouragingly though, the test bench is fully functional, and the new core technology is working with the unit, currently capable of generating images as required. Further work from both an engineering perspective in building the first hospital system and, from a software perspective, in optimization of our new reconstruction algorithms, is currently being undertaken to refine image quality to meet the diagnostics and the quality that it needs to achieve across the whole brain, which is ultimately required to satisfy the conditions of the next ASA milestone. We expect this work to be completed by the December quarter. Elsewhere, we were pleased to exhibit our head CT unit in a 1/4 scale ambulance to over 600 leading figures in stroke and interventional urology at the Asia Pacific Stroke Conference. The unit was received with much interest and excitement. The event was a great opportunity for key thought leaders from leading stroke clinics in the Asia region to experience firsthand the scale of improvement that is involved with our head CT unit and how it will be deployed in the field. And with that, I'll now pass back to Kingsley.

Yes. Thanks, Andrew, Brian, and Scott. There's a lot of work going on across the business. I'll now run everybody through the financial activities for the quarter as reported in our Appendix 4C lodged with the ASX on the 31st of October 2024. And the numbers I'll be referring to are all in Australian dollars and in accordance with ASX Listing Rules and not audited. So for the quarter ended 30 September 2024, our headline numbers were: receipts from customers of $900,000; receipts for project work of $4.3 million; net operational cash outflows of $3 million, resulting in an actual cash balance of $3 million at the 30th of September; and during the quarter, the company received $3 million under a facility advancing part of its financial year 2024 R&D rebate due later in 2024. I'd also point out that the cash balance in the September quarter was negatively influenced by the delay into the December quarter of the ASA milestone, which triggers a payment to Micro-X of $0.5 million. In addition, there were some one-off costs, which we do not expect to be ongoing in future quarters. They were some product manufacturing costs that were higher than usual due to a buildup of inventory to support anticipated demand for Rover Plus, staff costs were higher due to some additional one-off costs, and the R&D rebate was delayed and is now expected in the December quarter. Looking forward, we've taken a number of commercial steps to reduce our cost base and our unfunded development expenditure. Our capital base is supported by $0.5 million in mobile DR imaging chain orders in hand to be delivered and invoiced, $5.8 million of Rover and Argus inventory on hand and available for sale, and an R&D rebate of approximately $6.4 million to be received in December 2024, of which $3 million had been accessed at quarter end using an advanced funding facility. Now as we look ahead, we recognize that shareholders want to see further commercial traction for Argus, and we're committed to delivering that. We're responding to market feedback and taking the necessary steps to execute on our goal of building a large and repeatable customer base over the course of the next 12 months. In terms of our funded development, we're entering an exciting period of delivery with both the DHS and the ASA development contracts, and we expect to finish the calendar year having achieved a number of key milestones for those respective development projects. In parallel, we will continue to progress the strong ongoing engagement we've had with potential strategic partners. I will now hand you back to Harmony, who will commence the Q&A portion of this call.

[Operator Instructions] Your first question comes from Brendan Earle, a private investor.

A question for Anthony. On the head CT, is the clinical trial timing pushed out as well if there's been some delay on the engineering? And are you confident of meeting the diagnostic standard?

Yes. Thanks, Brendan. Yes, the clinical trial is slightly delayed. We're expecting to start it at the start of the new calendar year. We had a meeting with our counterparts at the Australian Stroke Alliance a couple of weeks ago, and the indications were that they were very happy with the quality of our imaging. There's a couple of areas that we just want to refine and improve. And once we've done that, that should pave the way for us to be able to submit the ethics submission. And we'll have the unit prepared to be shipped by the end of the year, and the human trial will start or commence in mid the year subject to receiving the FX approval.

Early indications, Brendan, is that the bulk of the imaging that we're doing is going to meet the diagnostic standards. We just got a couple of areas to refine.

[Operator Instructions] Next question comes from Scott Power from Morgans Financial.

Just two questions for me. Firstly, just one for Scott, just in terms of the mentioned redefining the pricing for the distributor network, I just wonder if you could give a little bit more detail on that. And my second question just relates to the checkpoint program and the $14 million contract. Can you give us a little bit of color on when that timing is expected to start or when that contract is expected to start? And just perhaps some idea about the cadence of the milestones over the next 12 or 24 months?

Scott, if it's okay, I might get Brian to add to checkpoint's question first. Just so that if his plane does, in fact, take off on time, you can get your answer.

Yes. Sorry, if there's any noise in the background. I'll answer. So the $14 million contract is the extension to build 6 self-screening modules for the airports. We're approximately USD 5 million, USD 5.5 million into that contract, and the delivery of the first module is a key milestone for the next phase. This will be the next $5 million. It's broken into basically phases of $5 million, $5 million-ish, not quite $5 million each, because it's $14 million. And then the milestones are all based on completing first one, then two more, then the final set of modules. Those are the key milestones. Other than that, it's an ongoing contract broken down. So the key bit is bringing together this first self-screening module near the end of this calendar year, which will then lead on into the next phase and which will go until probably September, October time next year, could go until December, and then it'll go into the final phase of the contract for the delivery of the final set of modules. And throughout this period, the government will be testing the modules as we build them. So that's kind of an outline of where the project is. We're about 1/3 of the way through it right now.

Scott, this is Scott. Yes, so your question, that pertains specifically to Rover because that's where we have pretty much all of our distributor networks at. And what I found is that there was not a lot of consistency between the pricing, the MSRP pricing, that were coming from our distributors. That's a problem because they can either dilute our brand or it can basically remove us from being competitive against our peers. So I established pricing within a window that we're moving forward with. That caps out at the highest MSRP they could sell that to prevent us from losing competitiveness and also increases the amount that we require from them. That was quite varied. And it also depends on the region, but primarily focused in the U.S. It's going to be a higher number so that we can increase our margins.

The other thing that I'd point out is that the large hospital we're in at the moment is a direct opportunity. So it's not through a distributor.

Yes. That's correct. This is absolutely a direct opportunity, yes.

And just in terms of your thoughts around Europe. Given the approval was delayed and has only just come through this year, what's your sense about the opportunity there?

Is that for me? Scott Bryant?

Yes, Scott.

Yes. Okay. So I think that I'm actually feeling confident about that. So I mentioned that I had hired a number of salespeople. Two of those salespeople are very experienced salespeople from the U.K. And they have connections and networks that we didn't have access to prior to bringing them onboard. And they have at least 15 years' experience each. I think one is closer to 20. So just that alone, as you guys know, often, it's the Rolodex that somebody has that comes with them and it's also the different markets that they've played in. That's going to help us tremendously. We've also really focused our efforts on a couple of countries within that region that we feel are the best predictor for success. So I'm actually feeling pretty good. We just started this within the last month and over the past month or two, or over the past months and what I expect to happen over the next month or 2, excuse me, is going to be great progress coming from both of those folks.

Okay. Great. That's all the questions I have. Well done, everyone. All sounds positive.

We now have a follow-up question from Brendan Earle, private investor.

Just on the Argus, is it possible to provide a bit more color about the collaboration we're doing with the Finnish company? I had a look at them online and they seem to be not a startup, but they're certainly trying to do something different. But is it fair to say the Micro-X technology is far more advanced, obviously, than what their technology is? So you could potentially offer a product without them, but they're probably getting more out of it than Micro-X is. But the benefit from Micro-X is you can obviously sell a product that can do the diagnostic but then can actually meet the standard, I guess, I'm assuming, by being over the device, which is what the Finnish device does, it finishes off the process, if you like. Can I just understand how that collaboration works and why you're confident that's going to lead to sustainable sales, please?

Yes. Brendan, I might just give a little bit of an outline, and then I'll pass over to Anthony. But in essence, Pexraytech, they're the supplier of the detector panels, which you need to take a transmission X-ray. And we could certainly buy those panels from other people, but what we also get from Pexray is they have software which will ultimately enable the Argus to talk to those panels. And they also provide a generator, a transition generator, should somebody want to take a direct transmission X-ray without the Argus. So they provide a kind of suite of materials. . We met with them, we're probably first introduced to them, maybe 2 years, maybe 18 months ago. And their product is a good product. They're not the only people in the world that make it. We could get it from others, but we've chosen them. We think it's a good choice. And you're right in your assessment of what Micro-X benefits from the relationship. Our customers will be able to use the Argus to take both backscatter also transmission, which we believe is the right solution. Anthony, is there anything you'd like to add to the Pexray relationship?

I think you covered it there, Kingsley. We did actually do an extensive analysis of different partners to supply transmission equipment and panels. There's a lot of redeeming features that the customers like about the panel that Pexray use. It's got a very wide area. It doesn't have a truncation around the bottom of the detector, which is quite important when you're imaging things on the ground like bags. And the software integrated really modestly into our [ GTAC ] system. So we're in the process of actually integrating their software application with our software applications so that you can just use a single software program to operate transmission only or transmission and backscatter combined and even overlay images on top of each other. So they were just really more best-in-class we felt as a partner to go ahead with in that transmission space.

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

Thank you, Harmony. I'd like to thank everyone again on the call for your support and for joining us on this call. The next 6 months will be crucial for Micro-X as we drive product sales of both Argus and Rover, deliver on our key funded development projects and further our strategic partnership discussions. And we all look 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.