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

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

Yes. Thanks, Ken. Welcome, everyone. My name is Kingsley Hall, and I am pleased to welcome you all today to Micro-X's quarterly investor call, along with our Chief Operating Officer, Anthony Skeats; and President of Micro-X Inc, Brian Gonzales, who is in Seattle. All 3 of us will be available for question and answers at the end of today's call.

Hi, everyone. This is Anthony.

Hello, everyone. This is Brian.

Thanks, guys. Today, we'll be providing listeners with details on our commercial and development progress during the quarter ending 31st December 2024 as outlined in our Appendix 4C filed with the ASX on the 31st of January. We'll also use this opportunity to touch on some recent material events in our business, including our strategic reset and our most recent strategic partnership with Billion Prima before we open up to a question-and-answer session. Now before we begin, we would like to remind all of you on the call today 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. Firstly, I'd like to thank shareholders for their patience in rescheduling this investor call from the original time last week, which now allows us to cover off on both the operational and financial points from our December quarterly and also provide details on our strategic reset and our latest strategic partnership in security with Billion Prima, which we announced last Thursday. I'd like to start off today with some further insight on the strategic reset we announced in the quarterly, our rationale behind that and how it will be implemented in our operations. As shareholders understand the core of the Micro-X business is our ground-breaking NEX technology and the new imaging applications that it enables, embodied in our 4 commercial and development products in medical imaging and security. We've extended these capabilities with our own proprietary high-power generator and software development, supported by strong partners and funded development contracts. While we are confident in the significant upside of the Micro-X product offerings, as a small business, a relatively small business, we realized there are challenges and resourcing constraints to successfully bring in all 4 products to market, which is also why we've been actively seeking partners to provide capital and market access. With this in mind, we've taken the opportunity to reset our strategy by narrowing our focus to the medical imaging market, where we have significant opportunities with 3 commercial and development applications, Rover Plus, head CT and now full-body CT. So in short, the medical imaging products we will now fully focus on are our Rover Plus mobile x-ray, which is being sold in over 35 countries over the last 5 years and is currently in the final stage of a large tender with a major U.S. hospital and group purchasing organization. Our head CT for stroke detection, which will be entering human imaging trials at 3 Australian hospitals later this year, and our new full-body CT scanner supported by the recent ARPA-H development contract, which provides us up to $25 million in nondilutive funding over the next 5 years to take the product all the way through to FDA approval. As part of this refocus and to best utilize our financial resources, we're now accelerating our efforts to monetize our current security applications via strategic partnerships. Put simply, our goal is to secure the right partners who can take our security applications forward, in return to Micro-X receiving consideration commensurate with the value we have created through our product development today, all of which I might add has been funded. We also anticipate an ongoing role in future revenues for Micro-X from supplying our proprietary x-ray tubes and generators to these partners, much like the Billion Prima deal that I'll talk to in a moment. Another key outcome from our reset is our decision to immediately discontinue Argus operations. For all of us, this is a highly disappointing outcome, especially given the years of work and resources we've spent to get to this point. Unfortunately, though, we no longer believe that Argus represents a viable commercial opportunity. This is not a decision we took lightly and followed 9 months of very active customer engagement after we launched Argus in March 2024. Over the course of last year, our sales team of former military bomb disposal experts extensively, demonstrated the unit at a range of industry events and one-on-one visits to military, security and police agencies locally and internationally. In late 2024, following market feedback, we sought to pivot and incorporate tax rate transmission capability into Argus with the aim of providing customers with a broader range of imaging techniques. While this generated better customer engagement and our sales funnel grew with a number of proposals issued, the sales did not materialize in a meaningful way. We, therefore, felt the best outcome for Micro-X was to make the difficult decision to discontinue Argus operations immediately. By doing this, we will reduce direct staff with an estimated annual cost saving of around $750,000 following one-off costs. As we move forward, we will continue to seek opportunities to commercialize and partner the Argus imaging chain, software and kit with partners on a cost-neutral basis. On a more positive note in security, last week, we were pleased to execute our first security partnership with Malaysian high-tech baggage, parcel and vehicle scanning specialist, Billion Prima. The total value of this partnership is $5.6 million, and the goal is to commercialize the CT x-ray-based baggage and parcel scanner within the next 12 months for Billion Prima to sell in Southeast Asian markets. The planned scanner will leverage our core Micro-X NEX technology with our proprietary x-ray tubes and high-powered generators. Once launched, this will be the world's first security scanner using NEX technology, and we see that as an ideal first step to generate awareness and adoption, not just in the baggage and parcel markets, but a range of other security applications. While listeners may not be familiar with Billion Prima, we visited their state-of-the-art development and manufacturing facilities outside of Kuala Lumpur in Malaysia, where they operate in a highly proficient manner, consistent with their high standing reputation in security and government circles. They already have a range of existing solutions from bags to parcels to large freight and are driven to increase the use of AI technology and cutting-edge solutions. We will, therefore, be building on our existing Micro-X knowledge base in security scanning to develop this new product for Billion Prima. Under the commercial development agreement, we will be paid $3.2 million over the next 12 months for our support leading up to the product launch. Once launched, Billion Prima will hold exclusive rights to manufacture and sell the unit for 20 years in a range of Southeast Asian countries, including Malaysia, Indonesia, Philippines, Singapore, Thailand and Vietnam. Importantly, Micro-X retains the right to sell the unit outside of Southeast Asia and to license the technology in other regions. We also remain a key enabler and drive attractive revenues and margins under a planned supply agreement, where we will sell our x-ray tubes and generates to Billion Prima to be used in this new scanner. The other commercial aspect of this partnership is that Billion Prima have committed to acquire just under 5% of Micro-X's shares. This will involve an investment of $2.4 million at $0.09 a share, which represents a 15% premium to the last price of our shares traded before we signed that agreement. We expect to settle that investment very shortly, and I would add that we've agreed that those shares will not be able to be traded for the next 12 months. As some investors have asked, I would like to make it very clear that the Billion Prima partnership will not impact our development contracts with the Department of Homeland Security and the Transportation Security Administration, which continue to proceed. I'll let Brian provide further details on our progress later in the call. Finally, before we get to the activities of the quarter, shareholders would have seen that we launched a $6 million capital raising last week to fund our new strategy, structured as a $2 million placement and a $4 million entitlement offer on a 1-for-10 basis. On Monday this week, we were pleased to announce that the placement as well as the institutional component of the entitlement offer was completed. Together, this raised $3.3 million. I'd also add our thanks to our substantial shareholders, our Board and our senior leadership team, who all supported the capital raising as a show of their support for our strategy and their belief in the opportunity. Today, the retail component of the entitlement offer opens targeting to raise a further $2.7 million as part of the entitlement offer and at the same price of $0.07 per share. This is important to us as all retail shareholders in Australia and New Zealand at the record date have the opportunity to apply to take up their entitlements and invest in Micro-X. Full details can be found in the retail booklet released to the ASX today and sent to all eligible shareholders. With a number of commercial milestones planned this year, I'd encourage all eligible shareholders to look out to their documents and consider supporting Micro-X in this offer, which I note closes at 5:00 p.m. Sydney time on Friday, the 28th of February. If shareholders have any questions, they can contact the company's main phone line or our share registry, Computershare. Now turning to our operations and activities during the December quarter. Our mobile radiology business made encouraging progress in the valuations ongoing for a number of large-scale opportunities. Our Rover Plus has now entered the final stage of an evaluation by a major U.S. corporation, who own and operate hundreds of hospitals and clinics in the United States. We have multiple Rover Plus units currently being assessed in this network as part of this evaluation and feedback so far is encouraging. This is a significant commercial opportunity for Rover Plus sales. We're a highly regarded hospital operator in the U.S., and we expect an outcome in the first half of this calendar year. As we've outlined previously, we are now targeting larger opportunities in hospital and defense buying groups. And in addition to the opportunity I just discussed, we're also progressing commercial discussions with a significant U.S. purchasing organization group -- purchasing organization. And with that, I'll now hand over to Brian to provide further detail regarding the progress made in our airport security business. Thanks, Brian.

Thanks, Kingsley, and thank you, everyone, for joining us today. I think it is important that I start by providing some additional clarification around what the strategic reset means for our Checkpoint and Baggage Scanner business. As it stands, we are advancing with a number of parties regarding partnering and monetization initiatives for both the Checkpoint and the Baggage Scanner products. These discussions are commercial and confidence. However, it should be noted that regardless of the outcome of these discussions, they will not impede the development contracts that we currently have in place with DHS and TSA. Our objective has always been to advance our technology and to improve airport security. With the support of DHS and TSA, we have demonstrated a new passenger-centered miniaturized CT, and we're continuing to refine the entire checkpoint around this new miniaturized CT. This strategic reset is our recognition that a full transformation of security empowered by our core technology will be achieved faster in partnership with an established security prime and will enable us to focus on creating imaging systems. From the development perspective, the team continues to make steady progress through the final stages of the baggage CT contract, which is now focused on the refinement of detection algorithms to enhance the identification and detection of threats. In conjunction with this development, the DHS continues their testing and data collection on the first baggage scanner prototype in their laboratory. The second baggage scanner is at our Seattle headquarters, and will be incorporated into the next self-screening checkpoint. Our Checkpoint development work under our separate $14 million U.S. contract with DHS performed well this quarter. The first unit, which was planned to be completed in late 2024 is in the advanced final assembly and design verification testing and is expected to be ready for delivery to DHS early 2025. And with that, I will hand it over to Anthony to speak about our medical CT division, which comprises both our head CT and full-body CT development work.

Thank you, Brian, and good morning, everybody. Well, this quarter, we announced a major new initiative with Micro-X now fulfilling our vision to expand our medical CT products from the head CT product to a full-body CT scanner. This new full-body CT ambition to extend the product range has been enabled through the award of a development contract worth up to AUD 25 million with the U.S. Advanced Research Project Agency for Health or ARPA-H as they are known to develop a full-body CT scanner. On the last quarterly call, we discussed at length the final details of the contract. So today, I will mainly touch on the key short- to medium-term outcomes. These are defined in the first contract for $12.5 million to develop the first prototype full-body CT scanner over the next 2 years. Last November, we attended the project kickoff meeting in New Orleans, and the team in Adelaide and Seattle has since been very busy, progressing the early design work. The structure of the contract is such that our development work is fully funded on an ongoing basis, and we have already received the initial payment of $700,000. It is worth noting that this full body solution will leverage the core technological advancements that we have made through our development work with the DHS baggage CT and the Australian Medical Research Futures Fund Head CT programs. This project will ultimately build on these developments to enable a full-body CT equivalent to conventional diagnostic CT scanners. Elsewhere, in our newly created medical CT division and a world first, the team successfully generated full 3D CT images of a phantom head and brain using our head CT test bench. The clinical leads at the Australian Stroke Alliance have now agreed these images showed good detail and visualization of brain anatomy, meaning that we have satisfied our next milestone with a payment of $0.5 million. Excitingly, we are now in the process of building hospital test benches that will support an application to the Royal Melbourne Hospital's Ethics Committee with human clinical trials planned to commence shortly in 2025. And with that, I will now pass back to Kingsley.

Yes. Thanks, Ant. I'll now run you through the financial activities for the quarter as reported in the Appendix 4C launched with the ASX on 31 January 2025 and the numbers I'll will be referring to are all in Australian dollars and in accordance with ASX listing rules, they are not audited. So for the quarter ended 31 December 2024, our headline numbers were receipts from customers, $0.3 million; receipts for project work of $1.8 million and R&D rebate received of $6.4 million, with net cash inflows from operations of $1 million, resulting in an actual cash balance of $2.4 million at 31 December. This, of course, is before the proceeds of our capital raising and strategic placement announced this week. Additionally, during the quarter, the company accessed $1.5 million of its estimated 2025 R&D tax incentive using an advanced funding facility. I'd also like to point out some additional context for how we're managing our capital resources. Firstly, with the discontinuation of Argus, we've reduced annual operating overheads by about $0.75 million. Secondly, in November, the Board resolved not to receive Board fees and members of the leadership team agreed to reduce salaries by 10% with this to be reviewed periodically. And thirdly, we have just under $1 million in Mobile DR orders to be delivered at the end of the quarter, $4.3 million of Rover Plus inventory on hand for sale. I'd like to acknowledge Mr. David Knox's retirement as Chair. And in doing so, also acknowledge the contribution he's made to Micro-X over the past 4 years. Patrick O'Brien has since resumed as the Chair of our Board from the 15th of January, a position he held from 2015 through to 2020. Board renewal is a priority for our company, and we remain committed to recruiting a long-term Chair with the skills, experience and energy required to deliver on Micro-X's significant potential. Finally, we realized that the strategic reset has driven us to make a number of difficult decisions about the core operations of the business, and the whole company shares the disappointment in Argus. As we look forward, we are encouraged by the significant opportunities that are in front of us, enabled by a host of key development partners and secured funding to bring medical CT solutions to market. Our strategic reset will underpin our approach, and we are confident in our decision to narrow our focus to medical CT while monetizing our Security division in the process. This year is a big year for Micro-X, and we are all acutely aware of the need to deliver for shareholders. I'll now pass you back to Ken, who will commence the Q&A portion of this call. Thank you.

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

Very insightful presentation. I'm just wondering if I could get a little bit more detail around the competitive landscape in the Mobile DR area. Obviously, this big tender that you're hoping to receive in the first half, that's going to be very important for the company. Just in terms of who else is out there that you potentially are competing with?

Yes. Thanks, Scott. I mean, the competitive landscape for Mobile DR, obviously, we are -- our product is smaller, lighter, very reliable. It competes very well, we think, with the major players. So the major players being GE, Siemens, Philips, Agfa, those guys. We kind of positioned the Rover as top-tier performance at mid-tier pricing. So we compete, we think, quite aggressively from a pricing perspective with the full suite of imaging being able to be taken. And I guess when I say that, the major step-up in Mobile DR for us over the last couple of years was the introduction of Rover Plus, which is a high-powered unit than the original Rover and the Nano that was sold through Carestream, which was limited in some of the imaging that it could take, but that's no longer the case, so Rover Plus is full suite. And yes, the opportunities that we're involved in, in the U.S. at the moment are the types of business that we really think we should be doing. And our distribution arrangements over the past couple of years have been helpful in getting the brand out into the market. And we're not looking to build a really large direct sales force, but we do think these types of opportunities where we're engaged directly with the customer on larger scale and larger volume is the type of business we should be doing. So we would expect to hear about the 2 opportunities we're in middle of at the moment, sometime in the first half of this year. And as you say, Scott, they could be quite significant.

Yes. Well, fingers crossed that you're successful on that front and perhaps just turning to Europe. What are your plans in that part of the world in terms of the Mobile DR?

Yes. So our European launch, we're still selecting the right partners. Europe -- we probably lost a little bit of traction over 2024. The strategy that was put in place to launch into Europe wasn't the right one. And we're now targeting getting the right partners in a select group of companies to start the launch in. And they will be countries where the feedback around Rover is more positive. And we think it's the opportunity to launch well in a number of countries rather than just a scattergun approach to all of Continental Europe. So it's a high priority for us, and we'd be looking to have some arrangements in place in the near future.

Okay. That definitely makes sense.

Your next question comes from Jamie Fitzgerald, Fitzgerald Enterprises Pty Ltd.

First of all, I just want to start with a big thank you to the engineers and also Mr. Scott Bryant, who's restructured the sales program, very grateful for that. But my concern is moving forward with the debacle of the Argus and this is my personal experience, I've been left with a feeling that how do you restore confidence in investors with the -- I'm left with the feeling of incompetence or misleading by the Board. Because if you look at the Argus, Alan Coller was told in 2021, this was superman like x-ray vision. We can ask whatever we like for this product, $150,000 per unit. It's a pretty big sales pitch. 2022, I went down, visited your factory, met everyone, asked strategic questions. Obviously, one of them was Backscatter and transmission x-ray. I'm holding in my hand right now a brochure that says that, that was all incorporated into that device back in 2022. And let's make no bones about it. This was supposed to have been launched in 2021. So we then move forward. And then suddenly, years later, years later, it launches without transmission x-ray. And then you guys released a statement that you had to do a deal to rebrand someone else's transmission x-ray to get it to work. I can see why nobody is buying this product. And what's going on, guys? I mean, how do you restore faith in investors when we see this? And only months ago, you guys raised capital for the commercialization and launch of the Argus. How on earth -- there's 2 issues here. How on earth did you not know that this product wouldn't sell? And then trying to take to market something that didn't have the transmission x-ray and that's just a rebranded product. So for me, you've explained what the new strategic reset is, but how can we trust you guys?

Yes. Thanks, Jamie. Look, let me -- okay. Let me launch with -- Argus was designed for [indiscernible] with initial funding from the Australian Defense Force. The product was well engineered and well resourced. Argus' development as a product was one thing, but it also enabled significant advancement and derisking of our tube and generator. The tube and generator are now being commercialized through deals like the Billion Prima opportunity. Notwithstanding that Argus has been a disappointment. The environment in which Argus was to be sold, changed throughout the latter part of the development of the product. The feedback that we were getting from -- we demonstrated this product to hundreds and hundreds of [indiscernible] professionals globally. And the feedback was that Argus was helpful. I mean, it did what it was planned to do. It just wasn't -- it wasn't demanded by them in a way that it was expected that it would be. We don't believe that there's now sufficient demand for the product to achieve meaningful revenues and profit and therefore...

[indiscernible] to investors from 2021, we were told that people were knocking down the door for this product. That's the thing. And I went through your factory in 2022, and I was told because that was one of the main questions I asked if this could be transitioned into nondestructive testing that it had incorporated in the system transmission x-ray, okay, 2022. That's a long time from when it was supposed to be launched to them finding out that it's not viable. You guys must have had some idea of whether or not this product was going to sell?

Yes. And as I said, the expectation was that it would. What I would say, Jamie, is that we're a very different company now with a much stronger commercial basis to our development decisions. Funded development is the priority for our business. And when I think about the types of development projects that we're undertaking now, there's much stronger engagement with the end customer right throughout the project development process. So we have learned some very valuable lessons through the Argus process. And as I said, our whole company is disappointed with the decision that we've had to make, but we think it's the right one.

Yes. I'm pretty disappointed too, because after that 2022 going through your factory, I invested quite heavily. And well, I'm just looking at the income here, and we are really struggling. We have promised income from this. So I cannot see how you can make such a mistake. Numerous times, we've been told this is where the cash flow was going to be.

No, I understand, Jamie.

Okay. All right. So moving forward, this -- are we going to start seeing some cash flow?

Yes. So look, what we're looking to do is commercialize Rover Plus in a really meaningful way and participate -- we're very competitive in a number of really large opportunities. I think that's the sort of business that we should be doing. And I think we're doing it really well. Our team in the U.S. are tremendously engaged with the potential customers. We've resourced the sales opportunities appropriately, the way that we should be doing business, and I'm really pleased with the progress the guys are making. The second part of funding for our business is in strategic partnerships, and realizing the significant value that we've developed in our technology. So when I think back to the Varex announcement from late 2022, which funded the licensing of the multi-beam tubes [indiscernible], then the Billion Prima deal that we announced last week, which is another $5.6 million. I mean all of those revenues are essentially driven by the value of the technology that we've created. The ARPA-H funded development, the head CT funded development, the DHS and TSA funded development, these are large strategic partners paying Micro-X to develop technology and applications that we retain the rights to. So we will continue to fund the business through those avenues.

I understand they're paying you to do it. But the second part of the reason why I've invested in the Micro-X is a future for our children in skilled and smart jobs. Are we still going to be manufacturing in Australia?

Yes. We don't have any plans to move our manufacturing out of Adelaide.

Obviously, we're losing, obviously the manufacturer of the machines themselves because we're outsourced while we're doing deals now? And what...

Jamie, just to point out, for us, the margin that comes to Micro-X is largely driven by the value of the core technology, which is the tubes and the generators. All of that is manufactured at Tonsley and Adelaide. There's not as much money in the fabrication of the units itself.

Well, it was one of the things I spoke to the original CEO about why are we going down the other route of building everything?

Yes. And so we don't believe that we need to. We want to get our valuable technology out as far and wide as we can and get paid for it.

Okay. Fair enough. And Scott Bryant is still with us.

Yes, he is. He's doing really well.

Yes. I've read what he's been doing, and it's pretty impressive.

[Operator Instructions] We do have one other question from Brandon Earl, Private Investor.

One maybe for Brian. Just looking at the ARPA-H announcement, what's the interaction? How should we be reading the interaction between MassGeneral and Micro-X on the rugged CT scanner. It looks like they're designing it and Micro-X is making it. But it's hard to tell. My real underlying point and question is, are we competing with them? Or are we working together? And then secondly, should we be concerned about the new administration in the U.S. and the volatility that we're seeing around government-funded programs?

Yes, I can answer those questions. Thanks. So first and foremost, in this program, they funded multiple parties in a collaborative situation. MassGeneral has a strong history of being interested in stationary CT and their perspective is very clinical-focused. We are very focused on delivering the actual system and actually building, manufacturing, designing a system that's capable of it and the core reconstruction algorithms. So we'll be working with them on how we actually bring together something clinical. And to that end, it's quite advantageous to have such a premier partner and a collaborator. And that's with all of the partners in this group. There's 11 different parties, and they represent some of the best of the world in research and being a part of that and providing underlying core technology that enabled that along with the full system, is really advantageous to us in both learning how to build a product that will meet the needs, but also in driving end customer awareness and also in defining what the products need to be and affirming the value of the products. The imaging community really looks to these people to set what's acceptable or not. So having them as part of this group is very advantageous to us. So we're quite excited about the opportunity to get to work with these sorts of partners in this program. As far as being concerned, I would say that we feel very confident right now with where we are positioned with new administration. It's been -- and quite frankly, as someone in the U.S., it's been an interesting experience to watch everything. I mean, interesting in a quite wide sense. There's been a lot of things happening, but the programs that we are involved in, we feel very confident are quite safe. They are in line with the administration's priorities, and they are contracted rather than grants. So a lot of the things that have been pushed back have been on grants, not contracts. So we feel very confident in where we sit despite all of the back and forth that is happening in the U.S. politics right now.

Your next question comes from Robert McCallister, Private Investor.

Thanks for the update and so forth of the current business plan. Look, I've been wondering myself about the Varex project. It seems, no one seems to have talked about that. There was a technology transfer going on there. And in reading some of your statements and releases in the past, it says that they're going to be making the stuff. My concern is, have we got all our technology tightly locked down under patent control and so forth? Are you retaining your intellectual property?

Yes. Look, I'll answer that, Robert. Yes, so the Varex project was a technology transfer agreement that ran for a period of about 18 months, and we've now transferred the technology and the knowledge necessary to use that technology only for multi-beam emitted tubes, and not the single-beam tubes that we plan to commercialize. Varex has continued to order product from us in terms of generators to drive their tubes that they've manufactured. What they, I would imagine are now doing is finding a customer to sell those tubes to and they will then start manufacturing them for sale and order generators from us to go with those tubes. So that's where that agreement is. Varex always obtained the right to manufacture multi-beam tubes under that licensing agreement. But our core technology and the IP that's inherent in our core technology is secured by patent, yes.

Good, good because that's going to end up being the cornerstone, isn't it, really?

Yes. I might add a little bit more color on the patents, if I may. Obviously, we've actually advanced all of our patents now from the general PCT to full in-country registrations, including China. So we've got quite a high level of protection for all of our core IT.

Well, that's good to hear at least. It is disappointing to hear about the redirection on the Argus project. But I do support you in going full on with the medical field and trying to develop that CT scanner further. I think that's going to be a really good proposition in the long term.

That concludes our question-and-answer session. I'll now hand back for some closing remarks.

Yes. Thank you, Ken. Well, thanks to everyone on the call. Thanks again for your support and for joining us on this investor call. The remainder of 2025 is crucial for Micro-X as we bed down the strategic reset and with a number of key outcomes that will fall due. I look forward to speaking with you again to report on our progress. Thank you.

Thank you. That concludes our conference for today. You may now disconnect your lines.