Micro-X Ltd
ASX:MX1
Earnings Call Analysis
Summary
Q2-2024
The last quarter marked a series of achievements for Micro-X, headlined by technical progress and record customer receipts of $3.7 million for Mobile DR. Excitement builds around the Argus camera designed for global security markets, following successful product demonstrations and pending final compliance for commercial sales. The firm also celebrated the completion of a miniature baggage scanner prototype, now primed for DHS testing, and received a $0.5 million contract for AI software to enhance threat detection. On another front, the Checkpoint portal advances under a $21 million contract, with the initial self-screening module set for an August debut. Moreover, showcasing the Checkpoint VR at CES bolstered international recognition.
You don't have any saved screeners yet
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, Lexie. Welcome, everyone. I'm Kingsley Hall, and I'm very pleased to welcome you all today to Micro-X's quarterly investor call, along with our Chief Operating Officer, Anthony Skeats.
Hello, everyone.
Today, we'll be providing listeners with some details on the commercial and technical progress we made during the quarter ended 31 December 2023, as outlined in our Appendix 4C filed with the ASX on the 30th of January, and we'll then open up to a question-and-answer session.
Now before we begin, I 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.
So to begin, I'm pleased to report that the December quarter included a number of technical and commercial milestones across each of our Argus airport security and brain scanner products, while we also had our highest ever quarterly customer receipts for Mobile DR. We believe this is due to both our greater commercial focus and the streamlined operations we initiated some 6 months ago as part of our strategy refresh.
We are conscious of the need to continually improve and, above all, to execute on the commercial opportunities in front of us as we enter 2024, which is a critical period for Micro-X. Our highest priority for the immediate future is the commercial launch and first sales of our Argus camera for the global security market with its applications for police, defense and security. A key enabler for the upcoming Argus launch was having production-ready units with our sales teams to run actual customer demonstrations this quarter, which is a critical achievement.
These Argus units are, to all intents and purposes, the same ones that we will manufacture and sell to customers once the final compliance checks are signed off. As I'll discuss later on the call, we've completed a number of Argus customer demonstrations in both the domestic and international markets, with feedback validating the Argus' unique value proposition.
While final Argus prelaunch activities were the focus during the quarter, we also made strong progress in our airport security and Brain CT development programs. In our Checkpoint activities, we've completed and validated the first miniature baggage scanner prototype, which is now in Seattle and ready for the DHS to commence their testing. As Anthony will discuss a little later, our Brain CT team successfully captured the first images on our Micro-X mini tube, which is amazing technology, with each mini tube as small as 2 golf balls.
The manufacturing and Rover teams were also busy this quarter as we delivered against 2 major Australian government contracts for the Micro-X Rover. Firstly, the Australian Defence Force's contract through SAAB, the new mobile field hospitals, and the Australian government aid package for the war in Ukraine. Coupled with our distributor sales, this saw us receive over $3.7 million for the quarter, a new record quarter, with a further backlog of $600,000 worth of orders ready to be completed in the March quarter.
Turning now to some of the specific activities for the quarter, and we'll start with what has been the focal point of recent attention, Argus, where we took a number of preparatory steps to build the pipeline and prepare for launch. Firstly, from a technical perspective, Argus completed all of its internal technological validation and has now commenced final safety compliance testing with an independent certifier. This certification is the final step prior to us being able to sell Argus commercially, which we hope we'll be doing shortly.
To attract sales for Argus, we need to demonstrate the product and engage with our future customers on their needs. Argus is a completely new experience for the majority of people receiving demonstrations, and it takes time to educate on how their workflow might change by bringing Argus into their kits. The demonstrations with Argus so far have been with a range of potential customers. These include the likes of the State Police Department here in Australia, where our sales specialist, Shaun Graham, a veteran Australian Navy Clearance Diver and Bomb Disposal Technician, can put the Argus through its places in the customers' facilities.
This shows then the ease of use, the quality of images they can receive. For example, if I needed to decide if a suspicious package was a bomb or not. Another example of this might be a simulated bomb in a backpack on a train or a plane or a suspicious package inside of a car, which you can image without the need to access the vehicle.
Across in the United States, which is arguably our largest market globally, our U.S. sales team has been running Argus demonstrations since November. As with any new breakthrough technology, demonstrations not only build awareness and grow the pipeline for our product, but they're also giving us invaluable feedback on the Argus' unique value proposition. We're also presenting at key industry conferences with Argus, including the Critical Skills Challenge and the Emerging Technology Event run by the U.S. Bomb Technician Association last December.
This is a great opportunity for us to get in front of leading bomb technicians from various defense and police departments. And at that event, we mounted the Argus to a Peraton Remotec robot, which is widely used in the industry, gave us the ability to showcase the Argus' key feature being remote threat screening. And I might ask you to give some color to those events. I know you're at one of them.
Yes, Kingsley, I was at the Critical Skills Event in Orlando, where we were able to show attendees such as the LAPD, FBI, various U.S. military teams and police teams, Orange County AOD team, in particular, the excellent long-range communication, the simple user interface and effectiveness of the bag scanner imaging in rapid threat assessment scenarios.
The customer groups were highly inquisitive. They saw lots of potential and opportunity for using Argus, and this opened up opportunities for us to arrange one-on-one demos with some of the aforementioned key opinion leaders in the coming months.
Yes, fantastic event. Thank you, Anthony. With security an issue in every country practically every day, we firmly believe that Argus is a global product. We saw an example of this late in the quarter when we were contacted by multiple interested parties in emerging Asian markets. We have a roadshow planned there in March as we continue to build our international sales funnel. I know all listeners want to know when the first Argus sales will occur. Unfortunately, that's still difficult for us to predict.
What I can say is that, every day, we are driving the team to engage with our customers and build our pipeline as we look to convert the early interest into actual sales. For those that may not follow Micro-X on LinkedIn, we released our new Argus marketing video in December, which is on our website. It's a great promotion of this groundbreaking product, if you haven't seen it, I recommend that you do.
Moving on to our Checkpoints business, where Brian Gonzales and the team in Seattle continue to make excellent progress on the 2 Department of Homeland Security contracts this quarter. We were very pleased to finalize our first fully functional prototype of the miniature baggage scanner, which we transported to our Seattle office.
Following final checks upon arrival, that unit is now ready for the DHS to commence their own testing, which will involve them running thousands of bags and associated pieces of luggage through the unit in their specialized test lab to simulate real-world scenarios.
This delivery also represented the next stage in our partnership with the DHS and TSA. And their ongoing support for the project was, again, highlighted with a further contract extension for $0.5 million, which will fund AI software development so that we can improve the automated threat detection in the baggage scanner.
On our Checkpoint portal development program, the team in Seattle continued their work under our $21 million contract extension, which we received last July. And that includes a range of small and larger milestones. We're very pleased with our progress so far. The project remains on track as we work towards delivering the first, self-screening module in August of this year.
What was probably the highlight for us was attending the world's largest technology event, the Consumer Electronics Show in Las Vegas in early January where we had a virtual reality experience at our Checkpoint project on show at the DHS and TSA booths.
There was no better place for us to debut the new Micro-X Checkpoint VR experience to over 135,000 attendees at the show and to do it at the invitation of, and alongside the team from, both DHS and TSA, of course, helps us hugely with international recognition.
So to explain what we did, there were a total of 5 virtual reality experiences at the DHS and TSA booths at the trade show, where attendees could strap on a VR helmet and experience firsthand how Micro-X sets to change the airport security landscape. The VR demonstrations really opened up people's eyes to the possibilities. It was great to see how excited the visitors became about the Micro-X Airport offering.
At the show, we're also able to talk to key thought leaders at both DHS and TSA booths, which included a visit by the DHS Under Secretary for Science and Technology, Dr. Dimitri Kusnezov, who saw the Micro-X technology in action and had a great opportunity to spend some time with Brian Gonzales. Following the Consumer Electronics Show, we attracted international media attention with leading technology publication, CNET, publishing an article detailing Micro-X's one of the most exciting new technology concepts they saw at the show.
I might now ask Anthony to speak to the fantastic progress made on the Brain CT program for stroke diagnosis.
Yes. Thanks, Kingsley, and welcome, everyone. During the quarter, the Brain CT team continued to make strong progress achieving a significant milestone of capturing our first X-ray image using the Micro-X NEX Technology mini tube. As Kingsley mentioned, this mini tube is an engineering feat being roughly 1/4 of the size of our current [ TNT ] tubes that's used in Rover, and that's about approximately the size of 2 golf balls. All of this, of course, is only possible because of our proprietary carbon nanotube technology, and this is what really sets us apart from all the other X-ray companies.
In more detail, the test we successfully completed included a series of x-rays using the mine tube on a human-like skull, demonstrating full tube specification performance and excellent 3D x-ray images. It's then triggered a final stage milestone 5 payment of $300,000 from the ASA, which was received in December.
Since then, we've taken multiple images replicating the positions of the multi-tube array. And they have been provided to our team in Seattle and research partners at the Johns Hopkins University I-STAR Labs to further develop and refine our current array CT reconstruction algorithms, which are novel for this product, whilst our only team continues to build more of the mini tubes and the high-voltage connection system that leverages our in-house expertise in high-voltage insulation [ plotting ].
Additionally, we have provided an effective patient dose measurement of 0.52 millisieverts to the Australian Stroke Alliance as part of their requirements for ethic submission by their clinical team to proceed with live patient imaging trials at the Royal Melbourne Hospital. To give you an idea, this is about 1/3 of the dose of a conventional CT or roughly 5x a chest x-ray, which is very low-dose imaging, a very low-dose head CT imaging, and everyone is very pleased with that outcome.
The next ASA milestone is a full 3D image of the human-like skulls and other x-ray phantoms using the first completed curved array, which will then lead to some performance in imaging testing as a precursor to receiving authorization to commence the live patient imaging trials, as planned, in 2024. These trials will provide crucial data on the clinical diagnostic viability of the head CT. It's the [ whole ] purpose of the program. And there were necessary steps forward towards our regulatory approval submissions.
Phase 1 of the trials will assess effectiveness at the Royal Melbourne Hospital by scanning patients to collect data. These patients have already received their diagnosis and treatment following a hospital-grade CT. The data that we collect will be used in a subsequent clinical reader study. Following this, 3 hospital sites are planned for expansion of the trials to collect a larger statistical data set for further peer review. The clinical study is intended to show that the miniature head CT is capable of providing diagnostic quality imaging in the determination of the presence of blood or not for stroke patients across a variety of demographics.
Along with the crucial imaging component of this program, the development team and our collaboration partner, Monash Health Collab, have completed the concept design of the road ambulance workflow and integration of equipment into a standard Mercedes Sprinter ambulance. This clearly shows that the small compact design fits nicely into these vehicles, with minimal change required for the interior and can be simply operated without a large crew that is currently required in conventional mobile stroke units.
It's a terrific outcome from a really extensive voice of customer exercise, including many clinical specialists from the ASA and Ambulance SA, and it paves the way for ease of adoption as the program advances. Much of the engineering of the internal component has been built into operating test bench to provide feasibility testing in Micro-X labs.
Once the clinical imaging test benches are installed and collecting data, the development team will focus on the detailed design for the ambulance integration trial to demonstrate the effectiveness of the head CT product in a pre-hospital mobile environment. I encourage the audience to take a look at the Head CT section of our website, which has some of the updated visualizations on the ambulance integrated design to get a true understanding of how game-changing this CT device really is.
That's about it for me. Over to you, Kingsley.
Yes. Thanks, Anthony. I mean it's an unbelievable progress being made in that development project. And finally, to our now streamlined mobile digital radiology business, which continued to show its value, achieving a record $3.7 million worth of product receipts for Rover and the Rover Plus.
As I mentioned, this record number was realized through key deliveries during the quarter, being the final shipment of Rover Plus systems for the Australian Defence Force's deployable hospital program and the Australian government's $1.5 million order of Rover Systems for Ukraine. We built these units primarily through our stock, which we already held. It further reduced our inventory as we target a level of inventory consistent with our business needs.
Excitingly, as we discussed in the previous quarter, Micro-X's granted CE marking for both the Rover and Rover Plus in the quarter. This was welcome news to our European-based sales team and distributors who have been busy engaging with potential customers across Europe and the Middle East. The team have wasted no time. And during the quarter, we made our first European sales, and we hope this will be the first of many future sales into that region.
I'll now run you through the financial activities for the quarter, as we reported in the Appendix 4C lodged with the ASX on the 30th of January, 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 December 2023, our headline numbers were receipts from customers of $3.7 million, receipts for project work of $1.6 million, receipt of the research and development tax rebate of $6.2 million, overall net operational cash inflows of $4.3 million, resulting in an actual cash balance at 31 December of $5.3 million.
Looking forward, from a financial perspective, we have a backlog of approximately $600,000 in Rover Plus orders waiting to be completed and invoiced. We're budgeted to receive $8.2 million in project-related income for the March and June quarters, being contract payments from Varex, DHS and the ASA. And our sales team continues to convert the $5.4 million of inventory into cash, which includes $3.9 million worth of Mobile DR inventory, which is down substantially from the $6 million we had some 6 months ago, again, in line with the strategy that we announced in August of last year.
We've taken a number of steps over the past 2 quarters to reduce our cost base and streamline our operations while focusing on our funded development opportunities. As we've discussed previously, our 2 major products have the development funded through partnerships with both the DHS and the ASA. These partnerships, as well as our collaboration agreement with Varex, have allowed us to focus our resources and pleasingly will contribute approximately further $8.2 million worth of contract payments over the remainder of financial year 2024.
In terms of future outlook, I'm pleased with the progress we've made during the December quarter. Looking ahead, we've got 1 critical near-term priority, which is the focal point of our attention, that's launching Argus and securing meaningful first sales. We will continue our global demonstration program and look to capitalize on the ongoing commercial discussions that are currently taking place.
From a developmental perspective, we'll continue -- we'll be ramping up our work with DHS as we move towards delivering the first self-screening module in August of '24. And our Brain CT team will continue their efforts to prepare for the first human clinical trials in 2024.
I'll now pass back to the operator, who will commence the Q&A portion of this call. Thank you.
[Operator Instructions] Your first question comes from [ Miriam Lee ], private investor.
There are so many exciting things in development, so congratulations on that. I've got questions mainly about the [ radiography ] and then the Argus. Of the $3.7 million in revenue, how much of that came from the deployable hospital contracts and also from the Ukraine? Because I assume those are finished, and you're not going to be getting any more money from them.
Okay. Well, I'll take that in 2 parts. Thank you, firstly, Miriam. In terms of the receipts from the quarter, a little -- probably a little under 2/3 or about 2/3 of probably in total about $2.5 million was from those 2 larger contracts. So the normal, what we would call normal, run-of-the-mill distributor sales was still quite significant for the quarter. I don't think it's necessarily the case that we won't be getting any more of those government sales.
I mean they are part and parcel of the way we do business. We have revenues from our distribution arms, but we also are taking any opportunity that we can find aggressively and ambitiously with governments, both in Australia and globally. So look, I think those larger orders are extremely helpful. And I think as we continue to become known for the product that we have, hopefully, there will be -- we can continue to be competitive when we bid for those types of orders.
And the third point is the U.S. military contracts for their mobile hospital. So what I'm saying this very well, but that the contract that was, perhaps, missed because it wasn't submitted early enough. Are they still considering -- still considering you or has that fallen through?
No. Look, it's just -- it's a longer process because the -- I think, if I'm right, in the opportunity you're talking about, we continue to talk to the U.S. government about trialing our Rovers for a range of applications. It's just a longer buying cycle. But I feel like we're certainly in the front of their mind.
Right. And can you give an idea of the nondeployable hospital and Ukraine sales, where they went to? I mean, are you having any more progress on the sports teams? Or are they going to hospitals? And...
Yes, they are, across the quarter, split between smaller hospital units and their sports teams was where they went. And some of our distributors in the U.S. have bought some stock to sell into some tender opportunities that they have. .
Well, I'm glad to hear about the sports teams because that would be -- that's a big opportunity if you could give them a unit into just about every sports team across the U.S. And are you able to say where the first Argus -- first unit in Europe went to?
Yes. it went into the U.K.
Your next question comes from Scott Power from Morgan Financial.
Kingsley, can you hear me okay?
Yes.
Great. Just a question on the inventory. It's great to see that sort of coming down. Just in terms of supply issues, you -- any -- are there any supply issues in terms of componentry looking forward? And my second question, just around the Brain CT program. What's the likely time frame in terms of achieving that next milestone and then the subsequent funding for it?
Yes. Thanks, Scott. I'll answer the inventory question first, and then I'll hand over to Anthony for the Brain CT trials question. From an inventory perspective, I think our guys have done a really good job in managing our inventory requirements. We have reduced our Mobile DR inventory from just over $2 million. We remain -- as I said, we've got a backlog that we're working through at the moment. . We're not facing any supply shortages in the short term. We'll continue to manage it pretty dynamically. It's a balance between not wanting to carry too much inventory, but at the same time, being able to take advantage of both short-term larger opportunities that we've been successful with in recent times. So we continue to actively manage it. But I think -- it feels like we're in pretty good shape. If that's okay, Scott?
Anthony, do you want to talk to the Brain CT question?
Yes. Hi, Scott. Well, the -- we're actually planning, with the ASA, the first installation in the Royal Melbourne Hospital in the next like coming months. That is subject, of course, to receiving some ethics approval and us providing the completion of validation of the test bench. So we're anticipating having at least 2 systems in trial over the next couple of quarters and a third system towards the latter part of the year. So that's looking very positive.
In terms of funding, the -- we have a number of different opportunities that we're exploring, both ourselves and with the ASA, particularly around the continuation of the MRFF scheme, There's Stage 3 of that, which is designed to support the next phase of these programs. There are a couple of Commonwealth and local government funds available to help us try and bridge the gap into real ambulance trials, which are very useful for funding, but also to give us access to equipment and people to conduct the trials that we need to do. So we've got a few items in the fire in terms of where we're going to get some additional funding to help support that program.
[Operator Instructions] Your next question comes from Jamie Fitzgerald from Fitzgerald Enterprise.
In an Alan Kohler interview way back on the 16th of November 2021, Alan was concerned about cash flows and where the next serious revenue was coming from. As a then CEO I have enormous respect for, I responded quite enthusiastically in regards to the Argus, mentioning that they are in the final stages of testing and evaluation and approval. Remember, this is back in 2021. He said, "We'd be selling this product just about the end of this financial year, possibly May, June of 2022."
So the question I ask is, when do you believe investors will actually see enough revenue to pay wages instead of having to substitute this through share investor dilution? How do you alleviate my concerns that we are accumulating a lot of the IP, but we're at a risk of a takeover with such a low company valuation.
Okay. Thank you, Jamie. I'll take the first part of your question as a comment, and I don't dispute what you said at all. I think we've made -- we're 2 years on from the interview that you're referencing with Alan Kohler back in late '21. And I think we've made various statements along the journey that Argus has taken longer than we would have liked and was later into market than initially the company thought that it would be. And that's just unfortunate.
It's a difficulty with groundbreaking technology. It doesn't always go to plan. We are where we are right now, though. We have production-ready units that are being demonstrated with vigor and enthusiasm, are at the very final stages of compliance testing. I'm not going to promise when those sales will start.
But what I can tell you is that the features and the value proposition, which is being put to potential customers, is being well received. They talked effusively around the ease of use and the quality of the images. And our unit does those things that it said it will do on the box. It provides rapid threat assessment that's not currently available to the security defense and private contractor markets that we're targeting.
And the team are doing everything they can to sell units. So yes, I'm not sure how more I can alleviate your concerns around that. We are full steam ahead with the Argus. It's later than the company would have liked it to have been back when those comments were made, and we're on it. And it's actively being demonstrated in the market.
The revenues that flow from that and our mobile DR product and our contract development business is -- are growing. And we've taken some costs out of the business. We're prudent with the way we spend our money. Our resources are focused on our funded development projects. And we continue to manage our cash on a regular standing [ only ] basis with our Board. We are looking, as a regular part of our business, on how we can leverage the IP that we have developed. Those conversations are ongoing. I think a great example of that was the Varex transaction done some 15-odd months ago, where we bought $7.5 million worth of non-dilutive funding into the business. Those opportunities will continue to be looked at.
Okay. And have we got any new or potential revenue streams with the high-voltage generator, selling that as a stand-alone item?
Yes. Look, and that's one of the great opportunities that we do have. The business has transitioned in a way. It's really added to its capabilities by in-sourcing the development and the manufacture of the high-voltage generators. That's an option that we have in front of us. We don't have any -- I don't have anything concrete to talk about at this point.
To be perfectly honest, we have been very focused on Argus over the last short term, 6 months or so, in terms of getting it ready to get into the market. But our high-voltage generators are very powerful and very small relative to what you can find globally, which is one of the reasons that we started making them ourselves is because we couldn't find anything that did justice to the size of our X-ray tubes. And it's at the forefront of how we're going to look to monetize our IP.
Are we going to see sales from the Argus in this financial year or the next financial year? .
Yes. Look, Jamie, as I said earlier, I can't promise when those sales can be. What I can say is that we are very active, very aggressive and very sharp in the conversations that we're having with potential customers. And we are looking to get Arguses into the market as soon as we possibly can. And the response from the people that we've shown it to has been encouraging.
Excellent. Well, as you know, there's this large number of us that obviously went through your facilities there a couple of years ago, now are all very passionate investors, but we've been long-term investors and were down quite a fair bit, down quite a fair bit. And we need cash flows to protect us from a takeover because we have enormous IP, which I can not begin to describe my respect for the engineers and scientists that you have working for you. But we're vulnerable. We are very cheap at the moment. We're very vulnerable, and we've lost that many ASX companies in the last 2 years. We need cash flow to get that share price up.
Yes. I don't disagree with that comment at all, Jamie.
Okay. In the last quarter, in the hearing regarding the tendering process to American military, that was pretty bad missing that tendering process. When is the next tendering process cycle happening?
Look, I'm not aware of one right now. I know that the conversations that we're having, the U.S. government departments that we're talking to have a -- still have a period of time remaining on their current contract. But we are doing everything we can to be at the front of their mind throughout that process. And we will -- yes, we will ensure we're part of the next process.
[Operator Instructions] That does conclude our question session. I will now hand the conference back to Mr. Hall for closing remarks.
Yes. Thank you very much, Lexie. I appreciate that. And look, we appreciate the support of all of our shareholders moving forward, and thank you for joining us on this investor call. The next 3 months will be critical for us as we continue to drive the launch of Argus and do progress in our other development activities. And I look very much forward to speaking to you again to report our progress on those fronts. Thank you very much for today.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.