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

Hello, everyone. We will be waiting just a moment or 2 more to see if anyone else joins before I get started. Okay. Well, we will get started then. Hello, everyone. I'm Brian Gonzales, and I am pleased to welcome you to Micro-X's quarterly investor call. Joining me today are our Chief Operating Officer, Anthony Skeats; and our Chief Financial Officer, Peter Dickman. All 3 of us will be available during today's question-and-answer session.

Hello, everybody. Anthony here.

Morning. Peter here.

Today, we will provide a presentation outlining the strategic reset of the company, detail on our recent capital raise as well as an update on our commercial and development progress during the quarter ending 30 June 26, as outlined in our Appendix 4C filed with the ASX on 31 July. We will then open up for -- the call for questions, and Anthony has agreed to facilitate our Q&A. Before we begin, I would like to remind everyone that today's call may contain forward-looking statements involving inherent risks and uncertainties. These include risks and uncertainties disclosed in our ASX lodgments, which we recommend investors review. While we believe there are reasonable grounds for the forward-looking statements made today, you should not place undue reliance on them. Actual results may differ materially from those expressed or implied. To start with, I would like to thank Kingsley Hall for his service as Chief Executive Officer of Micro-X over the past 3 years and wish him every success in the future. As a brief introduction to myself, I have been working on carbon nanotube X-rays combined with computed tomography, or CT, imaging my entire career, starting with my PhD research at North Carolina State University and the University of North Carolina in the United States. Nine years ago, I joined Micro-X first as a lead scientist and most recently as the Chief Scientific Officer and CEO, Americas. Throughout my time at Micro-X, I have developed strong connections and relationships across the Micro-X team with our key government partners and with many of our customers, and I'm honored and humbled to be leading Micro-X into the next phase of Micro-X's growth. As I take on this new role, I'm conscientious that in recent years, Micro-X has achieved significant technical milestones but has delivered disappointing commercial outcomes. Whilst we have substantially advanced our core technology in its applications, delivering functional CT imaging for both security and human imaging, and we have grown our development and consulting revenue, reflecting increasing confidence in our technology from the U.S. and Australian governments and strategic partners, including Varex and Billion Prima, our product sales have not met our expectations, contributing to an accelerated and ultimately unsustainable cash burn. Micro-X has continued through this period because of the significant support of our shareholders, and I'm deeply grateful for that support and for the confidence investors have continued to place in our technology and our team. As we begin this financial year, Micro-X is entering a new phase. Our objective is to build on our technical achievements while directly addressing the commercial, financial and operational challenges that have limited our performance. Our strategy is centered on 3 priorities: a stronger medical -- a focus on medical CT, stronger financial discipline and accountability and a restructured Rover sales. Let me begin with a focus on medical CT. Our technology platform can be applied across a broad range of X-ray imaging applications. However, we believe CT, particularly medical CT, is where our technology has the greatest potential to create highly differentiated products and meaningful long-term value. CT is one of the most important diagnostic tools in modern medicine. It is used to diagnose stroke, cancer, infection, cardiovascular disease, trauma and many other serious conditions. However, conventional CT remains large, heavy, expensive and dependent on significant hospital infrastructure and highly trained operators. As a result, many patients cannot access CT imaging at the time and place where it is needed most. Our opportunity is to use Micro-X's NEX technology to change that. We aim to deliver advanced CT systems that can move beyond conventional radiology departments and bring high-quality imaging closer to the patient, including in ambulances, emergency settings, regional hospitals, mobile clinics and other locations where conventional CT cannot practically operate. Our first product in this platform is our portable Head CT, which is currently progressing through human imaging trials. Its initial application is stroke imaging, where rapid access to diagnostic imaging can directly influence treatment decisions and patient outcomes. I would like to acknowledge the amazing work that has been completed to date by the Micro-X team on delivering this device. It is an incredible innovation that receives a huge amount of global interest, and I'm confident that this product will save many lives as well as delivering strong commercial growth for Micro-X. We will not go into detail of the progress in this investor call. Suffice to say that the project is on track and has completed milestone 3 of the IGP program on schedule. Our plan remains to deliver this game-changing product in the coming year and continue to build on the foundation, expanding into a broad range of medical CT products. Next, our second priority, stronger financial discipline and accountability. This has already been initiated with our new Financial Officer -- Chief Financial Officer, Peter Dickman, completing a deep dive of our financial models and identifying areas for savings. Pete brings strong financial discipline, clarity and accountability into our business. He has already identified approximately $3 million of annualized cost savings and implementation of those savings is underway. These savings include approximately $2 million of employment-related costs and approximately $1 million of corporate overheads. However, this is not simply a cost reduction exercise. As Micro-X enters the next phase, we must apply stronger financial controls, clearer accountability and greater discipline across every area of the business. We must ensure that our resources are focused on programs and commercial opportunities that can create the greatest value. Our third priority is restructuring Rover sales. This is the most significant short-term commercial change we are making. So I'd like to spend a little bit more time explaining what has been done and what is now being implemented and why I am increasingly confident in the future of Rover sales. Earlier this year, I was returning to a question that has frustrated me for several years. Why does Rover consistently receive outstanding feedback when clinicians and customers see it at trade shows and/or experience the demonstration of the Rover, but our commercial sales have remained inconsistent and below expectations? To answer that question properly, we engaged Altus Alliance, a U.S.-based revenue growth consultancy specializing in small and midsized technology companies. Altus completed a 10-week review of our Rover go-to-market strategy and sales organization. As part of that review, they interviewed Micro-X employees across the business, existing Rover customers, prospective customers and customers who considered Rover but chose not to purchase, as well as participants from across the competitive landscape. That review identified 4 important areas for improvement. First, a clear and more consistent value proposition. We need to communicate Rover's value more clearly and consistently. Historically, we've often led with Rover's portability and ease of use. These remain important advantages, but the strongest customer response is often to Rover's outstanding image quality at very low radiation dose. By leading with image quality and lower dose, Rover's other advantages, including portability, maneuverability and ease of deployment, become even more compelling. This is becoming the center of our sales and marketing message. Second, a more disciplined sales process. We need a much more structured and disciplined approach to sales. Historically, our sales tracking, opportunity management and use of data have been inconsistent. This has resulted in wasted time, effort and expense and has made it difficult to accurately assess and manage our pipeline. With Altus's support, we are implementing a more rigorous sales process, including a stronger CRM discipline, clear opportunity qualification, improved pipeline management and more consistent sales reporting. This will allow us to focus our resources on the opportunities with the greatest potential and improve both accountability and forecasting. Third, a balanced direct and partner sales model. We need a balanced approach that combines direct sales with the stronger channel partnerships. Micro-X must retain the ability to engage directly with customers, understand their needs, own key customer relationships and pursue major strategic opportunities. At the same time, we need to strengthen our network of sales and distribution partners and provide them with the tools, training and support required to effectively communicate Rover's unique value. This mixed model gives us the opportunity to maintain control of important customer relationships while also expanding our reach and efficiency through capable partners. And finally, a stronger customer success function. We need a stronger customer success function within Micro-X. Our responsibility does not end when a Rover is sold. We need to ensure customers are well supported, successfully adopt the product and develop into long-term advocates and repeat customers. A stronger customer success function will help us deepen customer relationships, improve customer satisfaction and create additional opportunities for repeat and referral sales. None of these findings may appear revolutionary. However, what mattered was having an independent review that challenged our assumptions, identified underlying weaknesses in our approach and provided a practical road map for improvement. With Altus' support, we are now restructuring and rebuilding our sales function around that road map. We are beginning to see early signs of progress, including a growing and better qualified pipeline. Rover sales typically involve long, complex sales cycles, particularly for larger health care, government and defense opportunities. Therefore, improvements in our sales process will not immediately translate into reported revenue. However, the quality and growth of our pipeline gives us increasing confidence that we are moving in the right direction. Most importantly, we now have a clear value proposition, a more disciplined sales process, a stronger partner strategy and a better organizational structure to convert customer interest into sustained product revenue. This concludes my introduction as the new CEO of Micro-X. I will now hand it over to Pete, who will summarize the convertible note and the quarter financials.

Thank you, Brian. Good morning, everyone. It's my pleasure today to present to the investors of Micro-X in what is my second presentation to you. So as Brian said, if I start with the convertible note, as announced yesterday, the strategic reset is supported by $8 million of commitments for replacement of unlisted secured convertible notes to institutional and sophisticated investors, comprising of $6 million of applications and $2 million underwriting commitments remaining subject to settlement and issue. Key terms are it's a 3-year note from the date of issue carrying a 12% per annum compounding monthly interest rate payable either in cash or capitalized at the company's election, convertible at $0.08 per share with a mandatory conversion at $0.20 on a 20-day VWAP basis. Any notes converted -- not converted are redeemed at maturity and the notes are secured under a general security deed under substantially all of the company's assets. On participation, Bindella Capital, who's an existing shareholder who's committed $5 million, would become a substantial holder on conversion. A further $0.8 million has been committed by both our directors and also KMP with the notes to be issued to directors subject to shareholder approval at the next general meeting that we will convene. The $10 million underwriting commitment has been provided by TIGA Trading, which is a private investment company associated with Thorney Investment Group, which is -- who is already a substantial shareholder. Their underwriting fee is 7.5% of the underwritten amount, which is deducted from proceeds of settlements, which is to occur no later than the 2nd of October 2026. On dilution, conversion of the $8 million principal at $0.08 per share would result in 100 million ordinary shares with additional shares issuable on conversion of any capitalized interest, as I mentioned. As to what the money does, as we've outlined in our investor presentation that we lodged yesterday, the indicative allocation of proceeds is approximately 25% towards the head CT R&D, 20% to the head CT commercialization, 20% to updated Rover scale-up and 20% towards operating costs and overheads of the business as well as 10% to general working capital and finally, associated transaction costs. In short, as Brian has mentioned, the capital is prioritized towards the head CT program. Now a second point on the financials. Turning to the Appendix 4C for quarter ended 30 June, which we lodged on the ASX on 31 July, operating costs -- operating receipts for the quarter were $4.6 million, comprising of $2 million from the medical milestone program payments from -- primarily from the ASA, $1 million from ARPA-H and also significant receipts from DHS and Billion Prima programs. We had $1.5 million of R&D incentive and IGP program grant receipts and unfortunately, only $0.2 million of product sales. As I say, the product sales were lower than we would like. However, encouragingly, we've got a further $0.6 million of Rover sales confirmed post 30 June, of which $0.4 million has been received in cash and $0.2 million invoiced for payment. So we do anticipate a much stronger start to quarter 1 of FY '27. The operating outflows for the quarter were $7.8 million, giving net cash used in operating activities at $3.2 million, which is essentially paid for by financing inflows of $2.9 million, primarily $3 million from the proceeds from borrowings relating to the R&D loan, closing the quarter with $3.1 million cash on hand. Since joining at the end of March, primary focus has been conducting a deep dive, as Brian said, around our cost base, looking at what we're calling internally our bridge to scale plan, i.e., how do we go from where we are now to commercializing CT and how do we allocate our capital appropriately. Picking up again on what Brian said, it's been a team effort here with Anthony and Brian as we've taken a deeper dive together on the operating cost base, focusing around head CT, as I say, and allowing us to run a much leaner business moving forward. As Brian mentioned already, we've identified more than $3 million in annualized savings, which is around 15% of the core operating base. The majority of that, approximately $2 million is in employee and people costs, unfortunately, right across the business, be it the engineering team, R&D, head office, sales team, marketing restructure as well. And then we've also done a [indiscernible] review through the operating overheads where we've identified $1 million in operating overhead, half of which is in the consulting space, but also in the investor relations space, some efficiencies around Rover scrapping wastage and also some software savings. But I think really, I want to make a couple of points about the savings. First, obviously, they're annualized run rate savings that we've identified to date, so they're not yet reflected in the results that we've just presented. And secondly, really, this is just the start of an efficiency progress. So it's not really a question of we've done $3 million and we've finished. We're really starting a new mindset here and looking at how we can put our best foot forward in terms of the economy efficiency, effectiveness of the business. Beyond the net proceeds, we've also got, as we've noted there in our 4C and activities statement, $8.1 million of contracted development program receipts to be received from FY '27 onwards. That's our nondilutive funding from partners and agencies, including DHS, ASA, ARPA-H and IGP and Billion Prima. Taken together, these note commitments, the cost reductions and the contracted development receipts really extend our funding runway through -- all the way through FY '27. Yes, whilst we still have a relatively small amount of funding available to us, our job really now is to make sure we direct the funding that we have to areas that drive the business forward, which is refocusing our priorities and ensuring the money we have is spent in those right places, testing every spending decision, as I said, against the economy efficiency and effectiveness, improving Board reporting and putting our best foot forward really into '25 -- FY '27 with some new vim and vigor really. With that, I just want to hand over now to Ant to facilitate Q&A.

Thank you, Peter. Thank you, Brian. Okay. So this is a new format for us. So apologies if it doesn't work very well. But we're going to try and facilitate a Q&A session. [Operator Instructions] Scott, you're up first.

Yes, perfect. Well done, Ant. Look, just a quick question. Just with the R&D changes coming through, how do you think that might impact your ability to claim back cash in FY '27?

So we've been looking into the R&D changes and what it looks like going forward. We -- our objective is to be above the threshold where we would be considering it as far as our revenue objectives, but we are keeping track of where we are against that and how that tracks. They have raised the threshold. So it is a possibility. We also believe that we only likely have 1 year left based on the new rules. We are still getting advice and trying to understand where we fit into that as the new rules come in. But it is something we're actively paying attention to. And if we -- if there's a chance that we can get it, we will work hard to ensure that we can.

Anybody else? I do have some questions that were sent via e-mail, which I can go into. Meanwhile, Brendan, I'll disable your microphone first before we go into those.

Brian, thanks for that intro. That was probably the most candid I've heard on Rover sales, and it's appreciated because if you can't diagnose the problem, you can't fix it. And I congratulate you for that work. It's important work. Ant, can you comment on the CT head clinical trials? Just give us a bit more color around that. And then also, you didn't mention monetizing the security work that's been done. Is that still something that you're pursuing?