CurveBeam AI Limited (CVB) Earnings Call Transcript & Summary

[Audio Gap] ended December 2024. [Operator Instructions] On the webinar from Curve Beam AI today, we have the Managing Director and CEO, Greg Brown; CTO and COO, Arun Singh; and CFO, Ura Auckland. The initial presentation will last for approximately 15 to 20 minutes before we take questions. I'll hand it over to Greg. Please go ahead.

Thanks, Matt, and welcome, everybody, to the fiscal year '25 Q2 4C conference call. Just bring your attention to the disclaimer and the use of forward-looking statements. 4C summary of activities for Q2. We received for the quarter, 10 device orders, purchase orders, which represents around $5 million in future sales for the quarter. Now this is showing about 150% increase on Q2 of fiscal year '24, which was around 4 devices. So purchase orders were moving in the right direction. 8 of those orders were for the HiRise. And so that represents a record quarter for us to date, and 5 of those HiRise orders came through Stryker. So when we look at the first half of the fiscal year and compare it to fiscal year '24 to fiscal year '25, there was around 100% increase in purchase orders from 7 in '24 to 13 in fiscal year '25. So some positive results in placements and especially that record of 8 orders for the HiRise. On the enhanced HiRise validation, there was progress over the holiday period. And right now, we are continuing to process the first match -- 5 match data sets of the 10 that are currently being processed with the vendor. And we remain confident in our target of achieving this by Q3 fiscal year '25, so the end of this quarter. Another major event that occurred in Q2 was we moved on a term sheet with Stryker. We signed that term sheet for an extension of our commercial agreement with Stryker to the Australian and New Zealand markets. So building this opportunity of expanding with Stryker, that really does help us in establishing a home market, a home market that is really going to be driven by our ability to educate to the benefits of weight-bearing CT to the surgeons locally. And we see this as a major step forward in being able to not only improve that education, but also expand our access into the imaging centers and the hospitals, especially the private hospitals across Australia and New Zealand. On the BMD FDA clearance, we did the Q-Sub meeting with the FDA on the 17th of December. That meeting went ahead on the new strategy of the multidetector CT to multidetector CT BMD clearance. The good news was it continues to be a 510(k) filing. So it didn't go down the way of de novo. However, the agency did request that a percentage of the patients also have a BMD DxA result. So that will add about a 6-month delay on the filing with FDA for the BMD SaaS model. I'll go into a bit more detail on that in further slides ahead. So when we look at that quarterly purchase orders analysis, what we can note is that Q1 of '24, where we had 3 devices, it was similar in our fiscal year '25, which was disappointing. It is seasonally always going to be a tough quarter, but it was very encouraging to see on the second quarter where there was 4 orders, 2 from the U.S. that in this quarter, we have had 8 from the U.S. and 10 orders overall compared to the quarter. So the quarter-on-quarter growth is very encouraging and the number of purchase orders coming out of the U.S. is also very encouraging. I do note that 5 of those were Stryker orders in the 8 for the U.S. market. Now when we look at the fiscal year '24 first half to fiscal year '25 first half, very good growth in the U.S. with a total of 9 purchase orders in the first half and 4 for rest of the world and with a total of 13 versus 7 for the previous fiscal year. So good trends, good growth, and we're encouraged by the interest and the traction that we're starting to see in the U.S. with HiRise. So when we start to look at specifically the HiRise orders, what you'll note is that, again, Q2 of fiscal year '24, there was 4 devices, 2 from the U.S., 2 from Europe or rest of world. Now when we move forward to Q2, our Q1, there was no orders in the U.S., but now our Q2 is showing 7 HiRises in the U.S. with 8 purchase orders overall and 1 from Europe. So a really nice trend in HiRise traction, especially in the U.S. market. So cash flows from operations. When we look at what the cash used in operations for Q2 fiscal year '25 was $2.7 million. That's down from $5.3 million in Q2 of fiscal year '24 and down from $4.7 million in Q1. So from a cash perspective, that's really helping us with the receipts. And I note that we had a record in receipts received in the quarter. So when we look at the cash outflows, there was 2 items of note, one being the extra pay run and then also some of the costs that were associated with some of the inventory around subassemblies. So the cash at the end of quarter 2 was around $8.8 million, which results in about 3.2 quarters of cash for the 4C. So 3.2 quarters of cash. I also would like everyone to note that just on existing orders, there's around $6 million in receipts that are due in the second half of fiscal year '25. That's not including any orders from Q3 or Q4. These are receipts based on devices shipped and being installed in 3 and 4 based on the orders from the previous year. So on the project for the robotic systems validation, the key validation steps were completed, they were sent through. And right now, for the protocol for the hip and knees, the validation made progress over the holiday period, and it continues in early 2025, and the first 5 matched data sets are currently being processed. Now we would expect to see those results within the next 2 weeks. Now post this validation, we would also expect to see a step change once we have our robotic system validation in place. On the multidetector CT BMD module, as we discussed in the Q1 4C, we moved the regulatory strategy from directly on HiRise due to delays with the robotic validation on the enhanced HiRise. So we moved it to an MDCT strategy as the primary step, then moving to a 510(k) special for the HiRise. So this change in strategy, we had to put it through a Q-sub. And for that primary MDCT pathway, we met with the agency on the 17th. The good news was that it remains on a 510(k) Class II pathway. And that means -- and what I have showing here on the left, the multidetector CT is where you lie down and you have your CT done. That's what's done for 99% of all data sets today for custom cut guides, whether it's robotic or just manual surgery. That is what we're starting with where we will take our fully automated BMD product versus a manual predicate result and we will do a substantial equivalence of the single MDCT scan between our result for BMD to the predicate result for BMD. And that remains as the Class II pathway. However, the agency did request that on 20% to 25% of patients that we also show the results on a dual-energy x-ray BMD result as well. So that will add about 6 months to our filing because we will have to collect in 1 in 5 to 1 in 4 patients a BMD DxA result. So at this point, I would say it will delay our filing on the MDCT BMD to around middle of this year. So around a 6-month delay in filing that with the FDA. And we believe that then we can target if there's no round of questions, it could be at the end of the year or early in the next calendar year for clearance. So in closing, there was a lot to report for this quarter. We received 10 purchase orders for Q2, which represented around $5 million in future sales. It also shows around about $6 million in receipts that are due over the next 6 months, even without orders being considered for Q3 and Q4. It was a record quarter for purchase orders for the HiRise. We advanced a formal agreement in our home market for Australia and New Zealand for expanding our commercial ability to educate on weight-bearing CT to surgeons directly to drive that demand on scanning. And Australia and New Zealand have very favorable reimbursement positions. So the more we can drive demand, the more we can justify more placements of our devices. And Stryker offers us a great partner in that ability to educate the market on the benefits of weight-bearing CT, and it covers multiple products. Cash at the end of the quarter was $8.8 million, represents about a 3.2 quarters of cash remaining based on the cash used from operations in Q2. We expect based on exchange rates as well that there will be about $6 million in receipts that are due in the second half of fiscal year '25 based on the existing purchase orders that we have in place. The validation on the enhanced HiRise is making progress, and we're still targeting our Q3 time line to have that completed. And we remain confident in our pipeline of prospects over the remainder of this fiscal year. So right now, we're focusing on a lot of the non-reliant robotic data sets for Q3 closes, and we remain optimistic for the rest of the fiscal year. And on the BMD SaaS module, again, with the new regulatory strategy of the MDCT as the first clearance, the FDA file submission is estimated to be delayed by about 6 months as we collect additional data that was requested from the agency for that filing. So on that note, that covers the key points on the quarter. Matt, would you like to open it up to questions?

Yes. Thank you, Greg. As you mentioned, we'll move on to the Q&A. These questions are based on some sent through via e-mail, and we'll take some live questions as well. The first question, Greg, is, congratulations on the purchase orders for Q2. Is this a one-off for the quarter? Or can we expect similar traction for the rest of the financial year?

Well, Matt, we can't give forecast, but we have a lot of confidence in the pipeline of prospects that we have, and we remain optimistic in placing HiRises and our products in the market over the next 6 months.

Thank you. With regards to yesterday's announcement, can you explain more about the Stryker Australia relationship and what your expectations are for this?

Yes. Look, today, we have some imaging partners or key imaging partner and we enjoy a very good reimbursement position in Australia and New Zealand. But without the demand for the weight-bearing CT scan, it's very hard to make the economics work for committing to a weight-bearing CT. That Stryker agreement, which is a 3- plus 2-year agreement, it has performance minimums in that. But the first part of this agreement is really focusing on the market education. So we've got an enormous amount of clinical data, especially in foot and ankle on the benefits of weight-bearing CT, but we need to be able to drive that education around weight-bearing CT into our core market to generate the request for the CTs, the weight-bearing CTs because with that demand, the supply can then be met by placing more HiRises across Australia. So this is where the partnership is quite symbiotic. Stryker has really led the way in weight-bearing CT, especially in foot and ankle. And with their resources, they're able to help us get to the surgeons in Australia across the country and New Zealand in helping to drive that education for driving demand and then also opening up our channels into the imaging centers and of course, the private hospital sectors. So right now, we see this as a formal agreement that really is an extension from the U.S. agreement, but here, really relying on their resources to open up our ability to educate and drive that demand on the weight-bearing CT. So we're excited, and we would hope to see some benefits of that education driving the weight-bearing CT demand within 6 months of this agreement.

Thanks, Greg. Next question is why the time difference from a purchase order to cash? What goes into installing a HiRise to recognize a sale and be paid? It is clearly important to managing your cash.

Yes. And that one -- so when a HiRise purchase order is received, we'll have a medical physicist that will go in and do a site assessment. In that site assessment, they will work out whether there needs to be changes to the room. There may be a requirement for shielding on one wall. There might be some requirements needed to accept the new enhanced HiRise. So once that is established and the room changes are made, then the device can be installed. Upon installation, it's about a 1- to 2-day training, and then we're in a position to recognize that sale and be paid on that device. So that's where the delay occurs. So Arun, do you want to explain a bit more detail there?

Yes. Primarily the space where the machine goes, takes a little time to prepare and for the customer to have everything in place, it varies, but it takes several months in some cases, some cases a little bit faster. So there's a standard built-in delay there from the time they decide to purchase to actually having space ready and available to install it.

The next question is, were there not 10 matched data sets to be processed for the MAKO validation? Why are only 5 being processed currently?

Arun, do you want to handle that one?

Yes, sure. So there was a labeling change midstream to the scanning protocols for standing scans versus their previous supine scans. And then there were some adjustments made to the patient positioning and the motion rod positioning within the view on the HiRise. So those 5 scans were captured after the changes were made. So that's why MAKO is focusing on those 5 because they were done with the best possible conditions. And the first 5 were in the very first phase when there were some areas that were not fully optimized. So that's why they are focusing on the last 5.

So yes, on that point, that we would expect to see results on those first 5 processed matched scans within the next 2 weeks. Is that correct, Arun?

Yes. They're in process now, so it shouldn't take much longer.

Yes. And we've taken the vendors' guidance on this because those 5 scans that they're doing first were prospectively collected with the reading rod, and that's why they're focused on processing those first 5, and we have another 5 ready to go if required.

Thank you. The next question is, the BMD delay for filing by 6 months. What caused this delay? And could it have been avoided?

Look, I think the original BMD was always going to be -- we would do one scan on a HiRise and you'd run the predicate and you'd run our BMD. To justify the radiation that is required to do that scan, a BMD is not justification. So we were relying on that robotic system validation, at which point you can roll very quickly a single scan and we could do the predicate to our device. So those delays meant that we had to change the strategy, and we changed to the MDCT to MDCT or MDCT BMD clearance first and then going to a special 510(k) for the extension to another CT of HiRise. That change in strategy occurred really in Q1, and that's why we filed the Q-Sub with the agency to make sure that current guidelines that we are in line with those guidelines for that filing. So unfortunately, looking back, the delays that we had on the robotic system validation meant that we had to move to this strategy of MDCT to start our clearance immediately. But to do that successfully, we needed the Q-Sub. And by running the Q-Sub this way, we don't get in the first round of questions the need for 20% of your patients to have a BMD. This came out of the meeting in December '17. So we weren't expecting that. We were expecting a straight 510(k) Class II, but this was requested. And I think it's in our interest that we know about that now and not in our first round of questions. So that's the benefit of Q-Sub and doing those meetings before collecting the data. So I think that the Q-Sub was definitely proactive in ensuring that we are a 510(k) Class II and what additional data would be needed to get that clearance through as quickly as possible. So I think the delays around the robotic system validation was impacting on our BMD. So that was unavoidable, but we did move quickly to the MDCT strategy to keep that as close to time line as possible. Now one of the benefits that we need to recognize, too, that was a driver for that decision was that today 99% of those data sets for knee and hip. And remember, in the U.S., that's where the favorable reimbursement exists for BMD. And right now, by having an MDCT as our first clearance, then you have access to the market for the SaaS model far quicker than having to wait for a HiRise to be placed in knee and hip to then be able to go after that SaaS revenue. So it does have a benefit that really opens up our access to driving our SaaS model, especially in the hospital market much earlier and then building on that with the second phase of this clearance then on the HiRise in the group practice settings. Now hospitals today of the 5,000 targets, a majority of those will have an MDCT, where in the group practices, there's only a small percentage, 5% to 10% that might have an MDCT in their group practice. So for us, it opens up an already installed base to build a SaaS revenue from. So that's a benefit with moving the strategy to the MDCT first and then moving to HiRise.

Thanks, Greg. Some more questions that have come in now. There has been a bump in product manufacturing costs. Is this representative of an increase in inventory or an increase in manufacturing costs? In other words, is gross margin improving or decreasing?

Ura, do you want to handle that?

Yes. Look, margins are where they have been. We are working on some projects to actually lift margins with changes to some of the components that go into the HiRise and with changing standard inclusions that are going to make a positive difference to margin. But margins were fairly similar to normal in the quarter. But from a cash flow perspective, there was some incoming inventory. It was down against Q1, which was $2.6 million. So it was $1.9 million -- almost $2 million in manufacturing cash outflows with some inventory that came in, but we've been working closely with the supplier to turn the tap off because our inventory is now well north of where it needs to be. And we built inventory to be ready for volume. And we're now positioned to supply when the Mako validation is done. So after receiving some inventory from the December quarter and paying for that in January, there will be no more inventory incoming until July of next year after some negotiations between Greg and Arun and our supplier, EFP in the U.S.

And I'd like to add, a lot of those changes are improving cost of goods. They have and are well in progress. So we'll start to see an improving margin over time. And as we start to reduce our panel supply too, I think we'll be able to recognize even greater savings once we've moved through all the stored panels.

Thanks Greg. The next question is, are you in a position to comment on January purchase orders so far?

Look, there was a lot of interest and that interest is showing a positive trend. We can't give forecast, but we remain optimistic for our Q3 and Q4 purchase orders. And post the robotic system validation for Q4, we would hope to see or we would expect to see a step change in purchase orders.

Thank you. The next question is, what is the status of the Stryker collaboration in the U.S. and EU? When do you anticipate Stryker to start marketing CurveBeam products? And can you give an update on the integration of CurveBeam into Stryker Finance?

So Stryker relationship that we have is only with foot and ankle division, and that's in the U.S. We've just now expanded that agreement to Australia and New Zealand. And we will also look at potentially some markets for Europe. But right now, there's only agreement for Australia and New Zealand and the U.S. with foot and ankle. As far as the last part of that question, was that to do with integration with Stryker Finance because that's independent of us, Matt. So could you just clarify?

Yes, I believe so.

Okay. So we're independent of Stryker's Finance. Right now, we are paid on the delivery -- no, on the shipping of those devices, is that correct, Ura?

Invoicing at that point and 45-day payment with Stryker.

We'll move on to the next question. What is the total addressable market for non-robotic HiRise orders? Or what is the percentage of the market?

That's a good question. So I'm going to have to shoot from the hip here based on data that we've got, which is if we look at there's 5,200 hospitals. There's around 5,800 group practices and ambulatory care setting. And then you've got over 5,000 imaging centers. It's quite a large target. Now if you consider today that of the robotic systems, robotic system has about, let's say, 80% market share, and they would have 2,000 placements in the U.S. market. So based on, say, if you just took the group surgeon setting and the hospitals, not even looking at imaging centers, just on those targets, there's 11,000 targets. I would say there's about a 20% of the market at this point require those data sets for robotic systems today. So it means that there is a very large market still available for doing CT scanning in a point-of-care setting for a group surgeon setting or a hospital where there is not the requirement for robotic systems. Now robotic systems are growing very quickly. [ Siemens ], J&J, Stryker, Enovis, Smith & Nephew, there's a lot of these systems coming. So it is a big part of this growing market. But I would say confidently that the majority of the market still remains for non-robotic system requirements. Would you want to add anything, Arun?

So yes, there are many indications that are outside of robotic surgical planning or robotic surgery. There are other solutions that address a number of different conditions in orthopedics. And that's quite a large number, and it's growing because new research and new studies are being published of how 3D imaging is beneficial in general and weight bearing on top of that. So there are some very simple PSI, patient-specific instrumentation that 3D weightbearing imaging facilitates better accuracy and better outcomes. And there are other diagnostic tests that can be done in routine orthopedic practice every day, well outside of just a surgical planning with the robotic system.

And I guess it's fair to say, too, that the lines are very blurry because it's largely the same customer with group practices that have both knee and hip and foot and ankle. So whilst our agreement is with Stryker's foot and ankle division, which was a business that was acquired by Stryker and has its own separate sales force, which is kind of self-contained, they go to the same customer as the Stryker Mako division sales reps. So there's kind of blurry lines.

The point is that the HiRise usage has multiple indications in the same practice. So even though the robotic system planning gives a definite measurable volumes that they can predict and they are reimbursed and they know the revenue from that. So that helps them to make a decision to invest. But once they have the device, there is no limit on how many different clinicians can be utilized for. So the usage then builds and the experience it builds over time, and that provides more justification for the device investment.

Thanks, gents. And a final question. What is the expected cost of finalizing the BMD validation? And has the DxA comparison materially increased this cost?

And we're still trying to cost that out. Right now, we are just clarifying what is required. In some cases, if a patient has had an MDCT scan for their surgical plan for an orthopedics application, if they've had a DxA within 12 months, if that's acceptable data, then that would have a big saving. But on a percentage of these patients, we are likely to have to cover the cost of a BMD. But at this point, it only represents around, I'd say, 80 patients that we would have to run. And if we can get the majority of those as preexisting, that's great. Otherwise, we could be looking at 30 to 40 patients with a prospective BMD. And I would envisage it's about USD 200 per BMD if needed. So it's manageable, but it does add time to the process.

Thanks, Greg. I'll just hand it back to you to provide a concluding comment.

Yes. Look, thanks, everybody, for your time today. It was a record quarter for us with the HiRise purchase orders. We are committed to really focusing on continuing this momentum. We will be very focused in this quarter in closing HiRise accounts that are not reliant on robotic surgical systems for Q3. We remain optimistic for Q3 for purchase orders. And we are really looking to realize a step change in Q4 post the validation of robotic systems. But at this point, we remain optimistic for the rest of the fiscal year. We're very confident in the pipeline or the pipeline of prospects that we have. Yes. Look, fiscal year '25, our first quarter was slow, but I was really happy with the progress in the second quarter and very, very happy with especially the U.S. team's focus on closing those orders and working closely with our partner. We're seeing a very positive contribution from the U.S., especially also through the Stryker relationship. So it bodes well, and we look forward to reporting to everyone at the Q3. So thanks again, everyone, for your time.

Thanks, Greg. Thanks, Ura and Arun and to everyone for joining, and we look forward to bringing you more soon.

Thank you.