ImpediMed Limited (IPD) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the ImpediMed FY '24 Results Presentation. With us this morning we have Parmjot Bains, the Chief Executive Officer; and McGregor Grant, the Chief Financial Officer, who will take us through the presentation that was lodged with ASX this morning. Just a bit of housekeeping. Today's webinar is being recorded, including the Q&A, and we intend to launch this on the ImpediMed website after the webinar has been completed. And if you would like to ask questions, please raise your hand, and we will deal with these at the end of the meeting. We will need to turn you on so that you can speak. But if you raise your hand, we will get to research analysts and investors shortly. Handing over to Parmjot for the results presentation.

Good morning, and welcome to our ImpediMed investor call for the fiscal year 2024 ending June 2024. At ImpediMed, our mission really is to improve patient outcomes by setting the new standards of care employed in body composition management. We achieved this through our bioimpedance spectroscopy technology to assess and monitor the fluid composition and tissue composition in patients. Our primary focus is breast cancer-related lymphedema to reduce its devastating impact on quality of life and avoidable health care system costs. 80% of breast cancer patients are at risk of lymphedema with 20% progressing to chronic lymphedema, a lifelong, costly and debilitating condition. Our SOZO digital health platform uses L-Dex, which -- and it is the only best technology that is FDA cleared. It is supported by a large randomized clinical trial in the U.S., has 140 million covered lives and is recommended by guidelines. It sets the standards in the detection and prevention of chronic breast cancer-related lymphedema. Today, I'll outline the FY '24 highlights. McGregor will touch base and go through the financials, and I will cover the strategy and outlook for the next financial year. First, covering our FY '24 full year results. Global revenues were down 9%, which is disappointing, but it is driven by AstraZeneca clinical trial revenues no longer in progress. On a positive note, as a SaaS business, the business had strength and the growth of our annual recurring revenue in our SOZO core business revenues. Patient tests were also up at 18%. This is an important driver of our renewals and reflection of the health of our lymphedema prevention program with our customers. The number of units in TCV is down compared with FY '23, but we are seeing positive momentum in our latter quarters. Gross margin remains high at 87% and cash balance at the end of financial year '24 was $24.6 million. We'll go down and break down some of these data points for you further. Our core business revenue is really the underlying driver of our business, and it was up 14% on FY '23. 90% of this is generated in the U.S. market. One of that is -- hence being our core area of focus for us as a business. But also one of our focus areas as we look through 2024 is really reviewing the go-to-market model in the rest of world. In terms of our annual recurring revenue in our SaaS business model ARR is showing positive growth. And we look across our business, it is up 18% on FY '23 and over the years since 2021. On Slide 10, when we look at our patient testing, patient testing is an important factor in our device renewals as contracts renew after 3 years. Our patient testing grew 18%. This is a key area of focus for us as we move into 2025 to really ensure the health of our customers in lymphedema prevention programs. And we do this through our CPS support team and strengthening our analytics platforms. In terms of our unit sales, unit sales were down on FY 2023 with -- however, we are seeing growth in sales on Q4 through a focused commercial execution. We are seeing an encouraging growth in our sales pipeline, increasing our conversion rates and our reduction in our sales lead time. Our new management team came on board, I came on in January of this year and later in Q3 and Q4 we had a new -- a number of new roles come on and are focused on a number of turnaround actions. These have included prioritization around the top states, use of the definitive health care database and other databases to more effectively target customers. We had a new team building to build our sales capabilities, and we've had extensive marketing initiatives that have included extensive outreach campaigns and events, email campaigns. Recently we've completed a search engine optimization, user interface website optimization to really help build the leads. As I noted, encouragingly, we are seeing really positive momentum in our business. When we look at our next slide, when we look at our installed base, overall, the global installed base grew 9% across the board. As I noted, while the split between the U.S. and the rest of the world installed base is around 50%, our U.S. revenue is 90% of our business. This helps to kind of add weight as to why we focus on the U.S., but also why we need to have a look at our rest-of-the-world go-to-market model given this installed base. Finally, as we look at our TCV slide, the new team is really focused on rebuilding this momentum as we step into FY 2025. As you can see from the TCV, there was some -- there was significant decline in the early quarters of the year. But now the focused execution activities around commercial sales and marketing is really helping build up our forward momentum. Now I'm going to hand this over to McGregor to go through the financials.

Thanks very much, Parmjot. This slide shows the full year P&L for FY '24 compared with FY '23. Total revenue for the year was down $1 million or 9% versus FY '23. As we mentioned before, this reduction was mainly due to the lower clinical revenue associated with the trials that were being conducted by AstraZeneca. Importantly, SOZO core business revenue was up $1.2 million or 14% compared with FY '23. Gross margin was 87.3%, up from 86.4% in FY '23. Operating expenses in FY '24 were at a similar level to FY '23 and included $2.1 million in severance payments. I'd also like to add here, as previously reported, we can expect cash expenditure in FY '25 to be 10% lower than it was in FY '24. Other income was up $1.2 million, driven by a nonrecurring U.S. government grant that was received at $1.9 million and which was offset by a lower Australian R&D tax incentive credit of $0.7 million due to the lower R&D expenditure incurred during the year. Finance income for the year was up $0.6 million, driven by higher interest income on the cash balances that the company was holding. Now to cash flow. Operating cash flow of cash outflow of $17.8 million compared with cash outflow of $18 million last year, which included the nonrecurring U.S. government grant of $1.9 million and the R&D tax credit of $1 million. Cash used in investing activities was lower by $2.9 million due to the lower R&D expenditure capitalized and cash used in financing activities was $23.5 million higher due to the $30 million capital raise that occurred in FY '23. Cash at the end of the year was -- of June '24 was $24.6 million. And again, I note that the cash expenditure is forecast to be 10% lower versus FY '24. And this is mainly as a result of adjustments to head count and salaries, which is net of investment in customer-facing rights. I hand back to Parmjot.

Thank you. So as we look at Slide 18, I will focus for the next financial year going forward is building a sustainable business. We had a new executive team that's come on in the second half of financial year '24 and a new board that is now well established and working well. We have an expanded commercial focus on lead generation for targeted U.S. customers. We've prioritized to key states, those that are high reimbursement. We have 16 critical mass states with over 80% coverage and high population states. We have reduced cost and are focusing on accelerating our growth. We're also building a pathway to future growth opportunities. Sustainability is key for us. Since our update at the end of July at the quarterly, we have done considerable work on testing our budget and our business plan. If we deliver on our sales and rigorously manage our costs, we have a pathway to free cash flow breakeven without needing to raise capital. We are focused on accelerating our sales and very tightly managing our cost base. If we go to Slide 19. Our immediate priority is BCRL. We are focused on the U.S. market, sales, marketing, clinical execution and the BCRL opportunity. This slide is our, strategy over line has been our core focus since we've come in quarter 3, quarter 4 and will continue to remain so as we build our business out over the next year. As I've kind of reiterated on a number of occasions, it really involves building out our leads and converting these more quickly to sales. We are focusing on our large accounts, our IDNs and academic medical centers, and with our new VP of sales and renewals have a focus on this activity. This year, going forward, we are working hard to ensure that our customers have very strong lymphedema prevention programs with analytics to support. We are continuing progress towards our 85% payer coverage target and efficient cost management. As we look at the years ahead, we're building out our strategy to expand the reach of our technology to more broadly in oncology and new indications to capture new market opportunities, as well as our global go-to-market strategy. As I wrap up on Slide 20. At ImpediMed, our priority is to support clinicians to provide top-tier clinical practice guideline-driven care to prevent breast cancer-related lymphedema, prevent the complications and ensure positive outcomes. SOZO is not just an investment in patient care, but it is also a financially sustainable decision for customers where the tests are reimbursed by payers. In 2025, our focus is on creating that sustainable business with growth driven by the U.S. BCRL sales and the efficient management of cash. We have undertaken a lot of work as a team to improve our sales, our lead pipeline, our faster lead conversion, improving the strength of our programs and improving our cost efficiency. And this positive momentum is continuing into this quarter. Sales and lead generation continues to build. In this coming quarter and in second half of the year, we have 14 conferences scheduled. I am seeing a very encouraging growth in leads, conversion rates and reduction in sales lead time. This is why I'm confident about our growth. On a very positive note, an additional NCCN center has purchased SOZO devices in this quarter, resulting in now 23 out of 33 NCCN centers with SOZOs. We will continue to focus on executing our strategy with our new executive team and our Board. We will capture this valuable U.S. breast cancer-related market opportunity in the U.S. We will continue to target 85% payer coverage, tightly manage our cost base and develop our new product growth strategy. Thank you for your time, and we'll open the line up now for questions.

Thanks, Parmjot. Just a reminder, if you would like to ask a question, please raise your hand. And if we could go to our first question, Shane Storey, if you could ask your -- if you could go ahead, please.

I want to go back to a conversation we started, I think, back at the last quarter around the covered lives number of 140 million, which was stable, I think, from Q3 through to Q4. Question on that is, look, if we think about that number, forgetting what it means, just what would be a good target, do you think that you'd like to see that number reach in the happy event that you sort of get to what we could call sort of full coverage, knowing that no one ever gets really full coverage. And then the second question on that is when we think about, I guess, the progress from 140 million to whatever that target is. Do you think it's fair to think of the situation like this where may have had a lot of payers kind of move early on the technology. But then necessarily, there are some who for say, just their annual kind of review cycles just sort of haven't got into a position to make that decision and therefore, you'd be looking for some of those sort of annual review processes to sort of play out over the next 6 to 12 months? Is that a fair way of looking at it?

Yes. So just answering the first question, we are still targeting at 85% national coverage. And so really working with a number of the national providers as well as some of the state-based providers in achieving that. And doing so really is by working to get support leaders from various doctors and societies and really just leveraging the data that has been increasingly published around the technology. In terms of looking at the timing of that one, a lot of that is out of our control, we can do what we can do in terms of supporting publications and supporting pay guidelines and supporting letters of recommendation. Yes. So we -- and we're working -- so -- we're waiting for review cycles, but also seeing if there are opportunities through these various areas of support to get coverage outside of those review opportunities. One of the other strategies that we work on is with key customers, they can get -- helping support them to get their own coverage within the institute. So there's kind of a number of ways of addressing that. And we really are with our market access team working on a number of these to try to get to that 85% target.

Okay. So then back -- sorry, the half on the number, but so 140 million ultimately becomes something in the high 200s, would you say that's true?

Yes. Yes, yes, absolutely. Yes.

Okay. Great. Second question was just on the cost one, really for McGregor. Just seeing there that you want to take that sort of OpEx envelope down 10% this year. But within that, could we also expect to see still increasing in customer-facing roles over the other course of FY '25. And if so, I mean, presumably, that says there's savings in other areas. I'm interested in what those might be, please.

Yes, Shane, of the -- we -- as we said, we -- overall, we have taken -- we are taking the cost base down by the 10% on a cash flow basis. And -- but at the same time, we have increased our investment in customer-facing roles. So overall, our head count has actually gone up slightly, but the overall cost base has gone down quite a bit, and there's been a shift towards resources in the customer-facing component of the business to support the growth plans.

And I think at this time, we will always continue to review the need for those roles with that very, very tight focus on reducing costs. Right at this point, don't envisage a need to further increase these roles, just really working on supporting our sales leads to get that lead generation and faster execution.

Thank you, Shane. Next question comes from Tom Godfrey at Ords. Tom, go ahead, please.

Can I just start with the additional NCCN center that you've signed in the first quarter '25. Are you able to sort of help us with how many SOZO devices that contract was? And does that sort of reiterate the view that some of these larger systems that are rolling out LPPs you will sort of see those 10-plus SOZO unit sale contracts?

Yes. This was actually a multisystem sale. But only, I think, 2 to 3 devices, not a big one, but it's also in a relatively low reimbursement stage. So a really critical academic medical center that is initiating. There are other devices around in their network. So we are just -- we are working to see if we can kind of release their name and share some more data with you guys. There's another NCCN center that is also very close to signing. So we're seeing a lot of positive momentum in these centers moving forward.

Great. And then just my second question was picking up on that commentary around the positive momentum. Parmjot you made the comment before that if you execute that will drive you to free cash flow breakeven. Are you sort of seeing enough momentum in the first quarter and across your pipeline in the year ahead to feel confident in that outlook around free cash flow breakeven?

Yes. Look, we've got -- from our perspective, we've done -- we've got a budget and business plan for the financial year, which has got an assessment of those future earnings and their capital requirements. And what we need is really going to depend on the achievement of that budget and business plan, including delivering on our sales target and managing our costs. I am very, very encouraged by the growth of our sales lead time and that increase in conversion. Over the last 2 months, we saw a 20% reduction in that sales -- the closing of that sales lead time. We've also modeled the business under various downside cases. So just if we don't generate as much revenue, we've got a plan to better align those costs to really get ourselves through to that cash flow breakeven. But really, I am very positive about the momentum that we're building with that new team and the leads that are coming through.

Thanks very much, Tom. Scott Power at Morgans, if you could go ahead with your question, please.

Just following on that reduction in those lead times, Parmjot, you mentioned 20%. What's driving that? What sort of changed in the last 6 months to sort of suggest that the lead generation, the lead time is coming down? That's my first question. And the second question is just perhaps if you're able to expand on some of the work that Andrew has been doing in terms of the other indications that you're looking at?

Absolutely. Look, I think a lot of things are driving it. A lot of the team we've been on since January, in VP of sales in April. So a lot of us are still fairly new in the business, but just a very, very big focus on the leads generation in the pipeline, we've hired a new contract role. It is a fairly paper-intensive process in terms of contracts as customers need to sign a number of different contracts given the use of patient information and data. So we've hired a new role that's really aimed at accelerating that time to getting all that contract closure so that things are being managed. It can be managed from our side. We've pivoted some of our IT team, more of our IT team to kind of really help that IT assessments from the customers. And really just making sure we've got more leads in the pipeline so that we can convert them a lot faster as they come in as well. So a number of activities. And really, hopefully, we will continue to see that momentum as we move forward. So very, very early days still, but we do very, very closely track our metrics now. And so we're kind of watching a number of these and seeing how we can pivot our tactics as we look at these numbers. In terms of Andrew's work on other indications, so he is doing a lot of work looking at kind of what are the obvious, the adjacencies for us in the business and highlighted for those is moving into that oncology area where right now, we're focused on upper lymphedema but lower lymphedema is there and getting reimbursement across some payers. The body composition within oncology and how we can really better leverage that and that survivorship journey. And then he's also looking at the -- we've got a number of studies that have already been done and data in those other indications and really building that out. And so he is working with the team on that one, and we will bring up more information as he tightens that strategy up over the next couple of months.

All right. Thank you, Scott. We might go to a question that's come in via the Q&A function on Zoom. And it is one that relates to the difference in the business structure between the U.S. and other markets in the world. "Given that half of the machines are in rest of world, is there an opportunity to develop a recurring revenue model outside of the U.S. in a similar way to what occurs in the U.S.?"

Yes, absolutely. And so it's -- when you look at the numbers, it's pretty compelling. 2% of the base that's outside the U.S., but really it generates 10% of our revenues. So absolutely, it's a core area of focus, particularly Australia. It's going to take a number of kind of levers. We've got payer coverage in the U.S. and Medicare reimbursement, but that hasn't been an area of focus here. So it's something that with term -- VP of Sales and I, we're going to be looking at in detail to see how do we support our customers here with a similar SaaS business model with making sure it does for them, help patient outcomes, but is also a financially viable decision. So we are working on this. It's a priority for me. Obviously we can do better here.

And a follow-up question. You mentioned Australia. The question was, "Do you see an opportunity in Europe and/or China and India?"

Yes, absolutely. So right now the technology is in English and so our priority is kind of English language countries. And we do have a distributor in the U.K. that has a device in the U.K. and Ireland. That's just -- it's a key area of focus through the distributor. So also looking -- working with -- Tim and I looking at this rest-of-world strategy and how we can expand it. China is not on the radar for us, language is going to be a barrier, and we've got to look at the areas and where we can kind of implement effective lymphedema program. We will build out the strategy and it's an areas of focus because these guidelines, NCCN guideline is a global guideline. And we have increasing literature and even European guidelines with the MAC guidelines that were published.

Thank you. Just a reminder, if you would like to ask a question, please raise your hand on the Zoom call. In the meantime, we might go to another question that's coming via the Q&A function. "Have you had any progress in securing further clinical trial work?"

We are -- yes, it's a very small part of our business. We do look -- keep an eye out for that and see where there are opportunities to leverage our device. And so with Steven Chen and Brian -- Dennis Schlaht within the R&D team, we do get requests in for the device in those indications. And so we do look at that. It's not a big growth area for us. So right now the focus has really been executing on U.S., but we do look at that more on an opportunistic basis.

Okay. Thank you. A question for you, McGregor. "Could you clarify for us what churn you experienced across your customer base? And then what the key driver of your recurring revenue growth is looking forward?"

So we've reported that our churn on our global installed base averages at just under 3%. And the key driver of our annual recurring revenue is the growing of our installed base, and that's something that you can see through the increase in the total contract value that we report each quarter or the total contract value that we report each quarter. So it's building the installed base that will grow our annuity revenue stream.

Okay. We have no further questions on the line. Parmjot, I might hand over to you to make some closing remarks. I suspect investors will be particularly interested in what you've said previously around the outlook.

Yes, absolutely. So I -- many thanks to you for, A, listening in and, B, continuing to support this business. We are -- we've done a lot of work. We've got a fantastic management team, broad team in ImpediMed and the Board have done a lot of work in the last half year. We have a lot of work ahead of us, but really, really encouraged by the momentum that this business is achieving. When I am out there with the customers, they really see the need for this technology. When you are out there with the patients, you really see the impact this has on patients' lives. A number of people I talked to, they've got an aunt with lymphedema in the limbs. We really do know by rapid implementation of this technology, we do change patients' lives. And with the SaaS business model, we can create a very sustainable, very kind of viable growth business and really encouraged by what we're seeing.

Okay. Thank you, everybody, for attending. A reminder that a recording of today's result presentation will be on the ImpediMed website shortly. Thanks all for your attendance.