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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. Peter Rowland, Managing Director. Please go ahead.
Thank you, Melanie. Welcome, everyone. This is Peter Rowland, and I'm pleased to welcome you all today from Seattle to Micro-X's quarterly investor call. The format for the call will, as usual, include an overview of our operations and financial matters for the quarter ending June 30, 2022, which we outlined in our appendix 4C filed with the ASX on the 29th of July and then updated on the 1st of August. We will then open up to questions and answers. And for those that are not able to attend, a recording of this call will be on our website shortly.
We hope that this format continues to provide you with additional information about the company and also the opportunity to better engage with us and hear about our progress.
Now before we begin, I would also like to welcome our Chief Financial Officer, Kingsley Hall, who is also here with me in Seattle on the call today.
Thanks, Peter. Good morning to everyone. It's great to be speaking with you again today. Before we start, I would like to just cover off on one brief formality and remind everybody 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.
I'll now hand back to you, Peter, to run through the highlights for the quarter.
Thanks, Kingsley. As I said, we're talking with you today from our U.S. office in Seattle, Washington, which is our base for U.S. commercial and technical operations near the SeaTac Airport. We're working here for a few days with our dedicated team of engineers and management staff. But I have to say, are really buzzing with enthusiasm for the game-changing products and technology that we're bringing to market. Earlier this month, we had a very busy week at the European Congress of Radiology in Vienna meeting with senior management of distributors, potential distributors and future partners. In this past week, Kingsley and I have been involved in a number of collaboration meetings in the U.S., which we see as critically important as the center of gravity of our business shift towards the United States, where some of our larger customer business and sales opportunities for our products are growing.
So firstly, we closed out the 2022 financial year and the June quarter with a number of key commercial achievements in the Mobile DR division and with total revenues of $3.8 million for the year. Our Argus IED X-ray Camera development is now at a stage where integrated preproduction unit is in imaging test. We've continued to hit our technical milestones and checkpoints in CT divisions, both on schedule and both on budget.
I'll now run through the details of our progress across all our 4 divisions, as usual, in order of commercial readiness before moving on to the corporate matters. Starting with the Mobile DR business unit, where the focus continued to be on the buildup of a global network of quality distributors for our long-term sales success. The key turning point this year was our corporate presence at RSNA last December, which has provided us with the first steps in brand recognition, which we need in global radiology market. This crucially has enabled the commercial team to attract and engage much larger and more capable distributors for the Rover product than was previously possible. This is particularly true in North America, where prior to RSNA, we found we were only able to connect with the smaller state-based distributors, and we were envisaging a large number of these state-by-state dealers would be needed to attain a comprehensive geographic coverage.
Now following RSNA and the radiology industry's new perception of Micro-X, we've been able to sign up the 2 largest national distributors in the U.S., and we now have a truly nationwide sales footprint, which is not only more cost effective to manage and, of course, support but much more in keeping with the brand positioning we're trying to achieve with the Rover.
We sought to repeat this brand impact on the market with strong presence earlier this month at the European Congress of Radiology meeting in Vienna, Austria, which is Europe's largest annual radiology industry meeting. And as in RSNA, there was a great response from a number of delegates and retention distributors.
A testament to the success of recent efforts in Micro-X's brand marketing can be seen by our appointment in the last 2 quarters of the 2 largest independent radiology distributors in the U.S. market. who, since RSNA are both keen to come on board and sell the Micro-X Rover. As proof of the increasing commitment level from distributors, Medlink Imaging, who bring to our a network of 100 sub-distributors across the United States has also contracted by a minimum of $1 million of Rover carts from us each of the first 3 years there from their initial appointment.
This will commence from approval by the FDA of our Rover integrated with their proprietary Vieworks software and detectors, which we expect will occur before the end of this year with sales then flowing.
To further develop our U.S. distribution team, 3 smaller but capable distributors were added this quarter and we're in advanced discussions with 2 other large U.S. distribution organizations, which with MXR and Medlink, we believe will have comprise of very high-quality nationwide distribution capability in North America to grow long-term market share.
The sales cycle for mobile X-ray units in North America is typically 6 to 9 months. So Mobile DR revenue growth is expected to build during this year, as these planned distributors sign up and those already engaged build their pipelines and fill their order books. The Micro-X sales management team in the U.S. is active and strongly supporting our new distributors with promotions, road shows and other events to accelerate their sales conversion of the early opportunities.
During the quarter, we secured a helpful promotional boast in the U.S. when the Seattle Mariners, a major league baseball team acquired Rover for use by their high-performance team at the stadium. Lead Sports is a highly visible and previously untouched market for us that has an exciting potential to create widespread attention and interest in Rover's capability for point-of-care imaging.
We've also been busy with preparations in Europe with 5 new distribution channels for the EMEA region now signed up and training underway. While we have had FDA and TGA clearances for almost a year now, it was actually 20 months ago that we started the process for CE marking of the Rover to be able to sell it in the European Union. However, this new application process seems to be quite demanding and protracted and experience, which many medical device manufacturers have reported as they work with their notified bodies to comply with these new MDR regulations.
We are planning ahead for when CE marking is achieved. Hopefully, that's going to be during this coming quarter, with another 7 European distributors ready to commence once CE marking is granted. And many of these will purchase a demonstration of the unit immediately importation is permitted.
In other regions, the Micro-X Rover will now be distributed by Leader Healthcare Group, one of the largest medical imaging equipment suppliers across the Middle East. We have recently signed new distribution partners in Thailand and Vietnam, and we are exploring new distributor options in Australia.
Moving on to upcoming product development, the higher capability Rover Plus is now in the final stages of manufacturing validation, and we've started building stocks of our in-house generators and new x-ray tubes in order to transition the Rover production line to this new model.
While we are pleased with what our Mobile DR divisions achieved commercially this year in what has been a volatile period globally, we are, of course, impatient for more rapid sales growth. I really do believe that now we have the right partners and the right strategy to deliver the long-term sales results for Rover. And we are confident in the success of this new and growing distribution network.
The strategy of multiple parallel paths to market is crucial to achieving our targeted market share. This is a mixture of OEMs selling Rover carts under their own brand, of imaging chain components being incorporated into new OEM products or new distribution partners selling Rover with their own software and detectors. And, of course, high-profile independent distributors selling the Micro-X branded entire Rover product.
Now turning to our IED X-ray cameras business unit, the first integrated unit prototypes of Argus, which are representative of the production units are in development work up and test. Team is overcoming subsystem technical issues and has started the initial imaging work, which has delivered results in line with our expectations. Team will continue in integration of the Argus subsystems, which will then be followed by validation testing of the product.
We expect to have representative imaging to share with customers during this quarter and units available for independent demonstrations in the U.S. and potential sales during the December quarter.
Another key commercial activity this quarter for Argus was a substantial amount of work that went into completing a fully compliant submission for the Australian Department of Defence's request for tender under project Land 154 for X-ray equipment for IED Search. This RFT calls for 64 lightweight, robot-deployable standoff backscatter x-ray imaging units with potential contract award in early 2023. And we feel that the Argus unit is well placed. If successful, this contract would bring strong validation for other security and defense forces evaluating the product.
Moving on to our Checkpoint's business unit. We continue to make excellent progress across both of our development programs for the DHS as they remain on time and on budget. Following the acceptance of the prototype design of our mobile baggage CT unit by the DHS in the previous quarter, the technical team are on track now to deliver a fully functional prototype to the DHS for review in mid-2023.
With less than a year to ago, we've started building customer awareness in this mobile baggage CT unit as a stand-alone product and have had meetings with potential customers across multiple airport security markets, including at a recent restricted international aviation workshop that we were invited to in Europe.
During the quarter, Micro-X's design concept for the passenger self-screening Checkpoint Portal was also accepted by the DHS, which not only involved a payment of $600,000 from DHS, but more importantly, this milestone secured the remainder of the contract to completion, which is worth USD 1.3 million.
As part of the next phase of development, which is worth USD 700,000 over 6 months, team will model the portal system with simulations, including in-person testing, with passenger's airline and airport representatives and of course, DHS representatives.
Finally, our CT business unit remains on time and on budget for the brain CT development with focus on refining both the hardware design and the imaging algorithm software, CT point-of-care stroke imager. The new mini CNT x-ray tube being developed in parallel is also progressing well in its initial design.
International awareness of the CT project is building, and we are in discussions with the Norwegian air ambulance service to possibly fit a preclinical approval prototype version of Micro-X's brain CT imager to one of their Airbus 145 helicopters to create an airborne mobile stroke unit. This led the Norwegians inviting us to attend and display on their helicopter mockup at a recent international Helicopter Emergency Medical Services Conference -- air conference in Austria.
Turning to our investor activities. And in early June, we were very pleased to host our second annual Investor Open Day following a 2-year hiatus because of COVID-19. I hope many of you listening were amongst the 100 or so attendees on the day who took guided site tours with the technical and manufacturing teams to witness firsthand the company's technology in manufacturing in action.
Before I hand back to Kingsley for the financial results, investors will have seen from the quarterly that we recently undertook a review of our resource allocation, planned expenditures for the 2023 financial year to best manage our cash resources in the current market conditions. We believe these decisions and allocations we have made balance prudent and necessary cost management with investment in the areas of business critical for continued growth. Kingsley will provide further details of this cost reduction program now when we run through the financial activities for the quarter.
So over to you Kingsley.
Yes. Thanks, Peter. I'll start with the financial results as reported in the Appendix 4C lodged with the ASX on the 29th of July and as amended on the 1st of August. 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 June 30, 2022, we built, shipped and invoiced approximately $500,000 of Mobile DR units and parts. We received $850,000 in customer receipts from sales, $1.5 million from our contract with the DHS and a little over $100,000 in other income.
We had cash outflows from operations of $7.7 million, resulting in net operating cash outflows of $5.2 million. We had cash outflows of a little under $400,000 from investing activities related to buying some additional capital equipment. And finally, we had cash outflows of approximately $150,000 from financing activities, essentially being the principal component of operating lease repayments as calculated under AASB 1016.
In summary, we had overall net cash outflows of just under $5.8 million and a cash balance of $10.3 million at 30th of June 2022. After the reporting period ended, we received a further $1.6 million from the Australian Stroke Alliance and we expect to qualify for approximately $3.3 million as part of the R&D tax incentive rebate program with the Australian Tax Office. The company remains funded into the first half of calendar year 2023 with a conservative sales forecast and no [ such ] commercial or development activities. However, we will continue to prudently manage our cash flow and explore multiple funding options.
As part of this and as Peter mentioned a short time earlier, we've completed a major cost reduction program for the financial year 2023 and a realignment of resources across all of our business units. We think of our expenditure in 2 distinct categories. First category being that expenditure that's required to progress our key projects and achieve those milestones, both at the TSA and the ASA.
And then secondly, that expenditure that's required to run the trading side of our business, so Mobile DR, X-ray cameras and our overheads. Whilst our project-related expenditures will increase this year, they're largely funded by those 2 key projects. Our nonproject expenditure being Mobile DR, Argus and our overheads will be approximately $4 million lower than it was last year, which is [ about ] by 23%.
Some of the details of the cost reduction program includes a reduction in cash expenditure of approximately 40% of the Mobile DR division. This was achieved due to the completion of the high-power generator project, meaning fewer technical staff and associated costs are required moving forward. We also had a reduction in technical staff and manufacturing headcount to align with new production levels. And we've transitioned -- we're transitioning to a distributor model only in Australia, which meant a reduction in direct sales staff. Further, in lieu of new hires, several technical and manufacturing staff were redeployed to the Argus and Checkpoint's division as they begin to ramp up.
With respect to the Argus division, as it transitions from its development phase to its commercialization phase, we expect to see similar levels of expenditure next year to what we saw last year, approximately $3 million for the year, but lower than we'd originally planned. And this, again, has been achieved by reallocating some resources from both technical staff into commercial activities. Finally, corporate overheads are expected to reduce by about $1.1 million this year, with those savings made across compensation, travel, entertainment, marketing and general overheads.
I'll now hand it back to you, Peter.
Thanks, Kingsley. As we close out the 2022 financial year, I'm very pleased with our achievements across all 4 business units, which are now positioning themselves well for the growth we'd hope for in creating this new structure. The next 6 months will be exciting with some milestones coming up. With the Mobile DR distributors already in place starting now to gain traction, more key distribution contracts being progressed and the availability of the Rovers Plus and CE marking in Europe expected soon, we are looking forward to a pivotal growth year in the Mobile DR division.
Global launch of the Argus IED X-ray camera remains one of our top priorities. The completion of development testing of integrated preproduction units were paved the way for customer demonstrations and trials as a precursor to first sales. Shareholders can also look forward to our third product line in the coming year, the miniature CT Baggage Scanner, the first prototype of which is expected within the next 12 months.
So I will now pass you back to the operator who will commence the Q&A portion of this call.
[Operator Instructions] Your first question comes from Scott Power with Morgans Financial.
Thanks for that presentation, very informative. Just a couple of questions from me. Firstly, just -- in terms of your inventory and supply issues, have you been able to sort of overcome a lot of the supply chain issues that you're having previously? And the second question, Peter, I was really interested in what you were talking about with the Australian Defence fully compliant contract. Could you just give a little bit more detail or perhaps even just repeat what you were saying because I was very intrigued with what you were saying there.
Okay. Yes. In terms of inventory, are you talking about that in general or in relation to a particular project or...?
Just in general. I know there was a big sort of buildup in inventory to try and sort of counter any supply chain issues. Just wondering how that's all going?
Look, we've done reasonably well insulating ourselves. Of course, the new generator, which is in-house makes a big help with that because that brings the total kind of Australian content of the Rover, particularly to over 90%. So that's good. Probably electronic components is still the only issue that we have trouble sourcing. But we've got -- we've a very good team on that. And I think things are easing. We're buying ahead for August as well because we don't want to get caught with shortages there. But the new world of supply chain management just means multiple sources, finding equivalent devices for everything. So we're in pretty good shape there is the answer to that.
So the defense tender is -- yes, is a really, really helpful thing. The Australian Department of Defence obviously gave birth effectively to the Argus content, when they funded us all those years ago to produce the content demonstrator because they were the first people to articulate this concept of could we get a device which could be carried by a robot, so that the bomb tech doesn't need to go down in range and danger himself over the device.
So last year, they went out for a request for information. Of course, they were kind of expecting they knew what we were going to supply because obviously, we've created the content. But the -- that RFI that we responded to last year, then informed a tender, which was released a couple of months ago for 64 and the quote is lightweight, robot-deployable stand-off backscatter x-ray imaging units, which, of course, is pretty much exactly what we've got.
So a very helpful contract. And if -- I mean, not all defense contracts run according to the schedule that they initially advertise in the defense capability management plan. But if they do, the timing won't be perfect for us in terms of a key reference customer who invented the need for it to buying it in big quantity.
Great. Okay. And just in terms of the customer demonstrations coming up this quarter, just what else needs to be completed before you can put it in front of some of these key customers?
Yes. Look, we've -- as I said in the quarterly, we have had some delays. It's not unusual when you're doing high technology. And this is a very, very different x-ray tube from one that we've done before. Some of the components that came in from suppliers weren't exactly what we'd asked for and there were deficiencies there that impacted the performance of the tube. So we're -- we think we've corrected that and we're doing another cycle of development.
The -- we have, in parallel, been working on integrating all the units together. We've got our first images, and that's looking exactly as we were hoping to. So setting that to work and finalizing it is the key thing. And then when we're happy with that, and we've got our validation testing done, then we can get -- we will get customers in to look at images beforehand, but we'll have by the following quarter units that we can give to the likes of the FBI and some of the big [ bond ]. We've got a list of 8 or 9 customers here in the U.S. that really want to see the very first unit and a distributor that's very keen to see the first unit so that they can -- everybody wants to know is it going to do what it says on the packet. And they're pretty excited to buy it when they can see that it does.
Okay. Great. Very exciting.
You said it.
Yes. Not too far away.
Your next question comes from Brendan Earle, who is a Private Investor.
Just furthermore on the Land 154 RFP, just to your knowledge, who do you think you're competing with on that procurement? Because I think previously, we felt that the Argus was quite unique. But obviously, this process will throw up any other competitive products that are able to [ meet the spec ]?
Look, it -- we're pretty convinced that it's unique. We have spent a little time imagining how you could respond to this tender without our technology. And the answer is you can cobble a range of different products together, but the sum of those will not be compliant. So people will be able to offer some parts, but not other parts and things that do some bits, but not other bits. So it's likely to be a mismatch of other systems that none of which meets the full scope of what they're asking for in the tender. So yes, that's what we're expecting.
[Operator Instructions] Your next question comes from [ Miriam Lee with Admiru ].
Yes. Sorry, the bell just rang at the door, which compounded -- put the question at the same time. Yes. So a couple of years ago, there was something on your website about the U.S. Army taking some of the medical units. Does anything happen to that?
Yes. We announced last year that the congressional bill for defense actually instructed the Chief of Army to evaluate the use -- sorry, evaluate the possibility of introducing new technology to improve x-ray imaging in deployed hospitals for the benefit of combat soldiers, which was a very useful instruction. Some of this is achieved in the U.S. system through lobbying. And of course, we've got a -- we're very fortunate here in Seattle because the -- we're in the Ninth Congressional District of Washington State, which happens to be the Congressional District of Adam Smith, who's the Chair of the Armed Services Committee. And he's obviously very keen to see our business here in [indiscernible] and Seattle grew in his district, grow and thrive. So that's been very helpful.
And we're in the congressional defense budget that will be published in a few months. I think there's a very good chance that we'll actually see a follow-up with some funding allocated for this program, which is -- so basically, what this does is the U.S. Army weren't in a cycle of a major reintroduction of a new x-ray unit. Now Congress has told them that even though they wouldn't normally look at redoing the fleet of x-rays that they use across the U.S. Army, they should [ autocycle ] -- evaluate new technology and just funding provided to provide a new procurement then that will go to tender next year.
So that's really good progress. There's a small administrative problem we have in the -- you've got to be listed as an approved defense supplier in the defense logistics agency database that was opened up again in the early part of this year for a tender, we applied for that. But there's still a U.S. Army base that as soon as we're on that list has got the money and wants to buy the first 2 units for local use. So we're -- it's taking a little longer than we thought, but with that congressional support and doing it at the top level where we're getting ourselves nicely set up for a major reequipment program for deployable here.
I had actually sort of extra question. Some time ago, I think I read that if you're supplying things to the U.S. defense system, you've got to have manufacturing in the U.S. Am I right about that? Or does this not apply because it's actually a medical device that you'd be supplying if it works?
We'll be supplying units to the U.S. Army from the -- our Seattle base here, so that the contract will be with Micro-X incorporated. The facility here will be buying the carts off the production line in Adelaide, but it will be doing the software integration and the integration of the detectors here and the final testing and selling off for that contract here.
Right. And how has the trend...
Which was exactly what we did with the procurement of the units that went last quarter to the Ukraine.
And just back to the luggage inspection. I shouldn't actually say this because it will probably cause people to sell it. I think there's a lot of competition. But I mean, do you feel that -- I mean, to your knowledge that has the U.S. Department of Homeland Security got the right term. And has they got similar -- I didn't put it properly. As they, got similar things in place with other suppliers, are they assessing half a dozen different systems? Or is that just something that you wouldn't know?
No, no, no. The Department of Homeland Security have had this dream of the self-service Checkpoint for many years. And they just didn't know how they could get the x-ray component of it to work in a space that would make sense because you need a very small x-ray to do that self-service portal. When they learnt of our technology and the work we've done for the British government, that was when they went out for an open tender and the, and they call it -- well, it's a broad agency announcement is what they call here. We replied and informed them about our technology and how we could use it, and that led to the 2 contracts that we've got now. But they haven't let those contracts to anyone else because we're the only people with that technology.
Well, had tremendously exciting.
It is tremendously exciting because they -- and the DHS are getting more and more excited, I mean, they're starting to give presentations to other agencies about what this revolution is going to look like and they've gone from some of this would be a cool idea to actually this works, and this is going to happen and they're starting to plan on the next stage. I think there's even a possibility we might get an extension to the existing contract. So the enthusiasm within DHS is really, really growing. And our engagement here, we've got a lovely [ out at the back ] here, they built a full-scale mockup of 2 of the portals, life science and the DHS come in here. We get to see what it looks like from the human perspective. And so it's becoming very real and the excitement in that is normal. No one else could do it. The fact that we were invited to this private workshop in Dublin during the quarter, Brian Gonzales, who is managing that part of the business.
We're speaking to all the key people in the industry. This is a thing [indiscernible] clearance, security clearance to be invited to this conference. That's how tight it was. But the airport manager, security chiefs, people from government, people from industry, all the key players in the industry were there, and Brian was up there with the DHS explaining what we were going to do. So it's really getting people's attention and excitement building.
Can I have one more which is that I can't remember exactly when, but sometime in the last couple of years, I invested a couple of years ago. I remember seeing on the -- in the announcement or website about some German system that you were going to be integrated with. How did that -- were something was going to be scanned at first and then you're going to be...
Yes, in the -- we've got 2 separate contracts. One is to develop this little miniature CT scanner for the bags and your personal property. The other contract is quite separate is to integrate that with all the other things that you need in the portal, such as facial recognition, passport reading document boarding card reading and that kind of with a sliding glass doors access. That includes the body scanning and the -- which is the -- using the millimeter wave, the stuff that you might have seen where you have to hold your hands in a spread eagle manner. We're working with a German company that [ started ] an idea of how to do that in a different way, and they're one of our subcontractors on this portal design.
Right. It's been so encouraging. It -- you can imagine that how -- well, you can imagine what a good company and it could be in the future. Well, I mean I don't know which is a good company. You can imagine the reach that it would have if everything works out or even if some of it works out anyway, all the best.
Well, thank you for that. It looks very real when you're actually here in country and you see this mockup here. It's -- yes, I'm very proud of what everyone is doing.
Your next question is a follow-up from Brendan Earle, who is a Private Investor.
Just on the stroke scanner, ASA gave your contract and also EMvision. I think the technologies are slightly different and MX1 seems to be a lot further progressed on EMvision, even though they give themselves a lot of publicity. Just how do you think ASA is thinking about the 2 different types of technologies that they -- are they thinking about them as filling different parts of the ambulance supply chain? Or are they putting them head-to-head and seeing which one they like the best at the end of it?
Look, I think the ASA, and I shouldn't talk on their behalf, but the EMvision technology is very, very new, and it's quite exciting because it -- but it's not doing what we are trying to do, and it's not doing what you would need to do in the ambulance. The key thing in the ambulance is you've got to be able to rule out that there's a bleed in the brain before you administer TPA, the clot busting drug. That's the key thing. And to do that, you've got -- the current medically accepted safe practice is you need a CT image to guarantee that there isn't a bleed in the brain.
And you've got to have a scanner that's capable of resolving -- well, the current ones resolved about a 2-millimeter bleed is the smallest they can see. And we believe with the work that's been done here in the U.S. by the Johns Hopkins University, they believe that our unit once we finished it, we'll be able to resolve better than a 1 millimeter bleed. So we'll actually outperform the current technology.
But that's the critical thing because the medical profession -- this is a very dangerous diagnosis. If you say there's no bleed and there is a bleed, you're going to kill the patient. So it's a very high stakes diagnosis. And so the performance of the scanner and having the confidence to know that if there was a small bleed there, you would see it. And if you don't see it, therefore, it's safe to give the TPA is the key criteria that we're working for.
And I mean that's just what our focus is. EMvision is looking at a new way of imaging brain tissue, which is -- isn't going to point to that diagnostic choice, might still be a very useful medical instrument as an adjunct, but there's nothing there that says they can meet the current diagnostic criteria.
There are no further questions at this time. I'll now hand back to Mr. Rowland for closing remarks.
Thank you very much, Melanie. And thank you, everyone, for your support and for joining us on this investor call. Our next 2 quarters, we're going to be very busy and some important milestones are expected. I look forward to speaking with you again to report on our further progress. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.