ImpediMed Limited (R1J.F) Q4 FY2025 Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the ImpediMed Investor Call Q4 FY '25 Results Call. [Operator Instructions] I would now like to hand the conference over to Ms. Parmjot Bains, CEO and MD. Please go ahead.

Thank you. Good morning, and thank you for joining us to discuss the quarter 4 FY '25 results. I'm pleased to be here with McGregor Grant, our CFO. We will be referencing the 4C quarterly activity report and presentation that we launched this morning with the ASX. The presentation is a summary of the more detailed 4C. After our remarks, we'll be taking questions. It's been another busy and encouraging quarter with clear signs that the strategy we've been working hard on is starting to pay off. We recorded our highest ever total contract value this quarter, which is a fantastic achievement. On top of that, a major commercial payer began coverage, something we believe will have a significant impact going forward. We also achieved the key goals that we set for ourselves, exceeding -- including exceeding our sales targets to trigger access to the next tranche of our debt facility and exceeding the cost reduction targets we've put in place. The American Society of Breast Surgeons Conference was another highlight last quarter. It was led by our new VP of Sales, Scott Long, and gave us a great opportunity to connect with both current and potential customers. What really stood out was the importance of survivorship in cancer care and more and more clinicians turning to SOZO to lower the lymphedema risk for their patients. This quarter, we also initiated a measured expansion into 2 new clinical areas, both of which represent major opportunities for the business. I'm really looking forward to giving an update in what was achieved this quarter and where we're headed as we move into the new financial year. Let's move into the presentation, and we'll begin on Page 3 with an overview of the agenda. Looking at Page 3, we'll start with the key highlights for quarter 4. We will take you through an overview of the business and give an update on the strategy, including the expansion of body comp and heart failure. McGregor will present the financials, and to finish off we'll cover the outlook for the balance of the year before commencing the Q&A session. Now turning to Page 5. We have delivered on our plan. We've been consistently messaging about building a strong opportunity pipeline and focusing on conversion. This quarter, we started to see the results and we delivered a significant increase in U.S. sales and a record TCV. Today, we're going to walk you through why we had this confidence going into the quarter. And importantly, why we believe that this is just the beginning. To succeed in the U.S. health care market, there are a few key pieces that need to be in place, and 1 of the biggest is reimbursement. We're pleased to announce the news that another major commercial payer is now providing coverage. It is a significant milestone and a real credit to our VP of Market Access and the hard work that she has put in. I'm also presenting this morning from our new corporate office in Sydney, and it's great to have a core part of the management team based in Australia. This setup aligns with how other successful Australian medtech companies are run, the governance, product development, finance, operations and business development lead out of Australia. And with U.S. sales and marketing and medical affairs staying focused in the U.S., close to our customers, has also been positive from a cost point of view as we rationalize our facilities. That's a fantastic team across 2 geographies that really complement each other, and I'm really looking forward to what we can achieve together. Now turning to Page 6, we will touch on the key highlights for Q4. As I mentioned at the start, this was a very pleasing result, and I want to leave you with 3 key takeaways. First, record TCV, clearly a standout highlight. It wasn't just about new sales. It also reflects the strength and quality of our renewals. When I met with customers from some of the world's leading institutions and hear firsthand about how much the value SOZO and how it's become a game changer in the clinical practice that really reinforces that we are on the right track. Secondly, sales momentum, 44 units this quarter. That's a 100% increase in quarter 3 and expect a new base of the balance of the year. It also means we qualify the tranche 2 of the debt facility. This gives us added flexibility to fund the business as we continue executing on our path to profitability. Thirdly, reimbursement, a major step forward. The additional coverage we secured will make a good difference. It's great to see that the numbers stayed with coverage above 80% increased from 25 to 36 states. But it's not just about the number of states that the depth of the coverage within those states. The number of states now with over 90% coverage jumped from 7 to 21. As a result, some states that were difficult to access with low investment move to very high levels of reinvestment. One example of that moves from around the mid-30s to the mid-90s for this range and coverage increase. That's a top 15 population and highest across the year before at times to 4 major IDMs with potential for 80 to 120 devices, that's meaningful. These improvements in coverage will help us move faster and lift us to the next level. Now on to Page 8. As we mentioned last quarter, we have very strong foundations that have taken a lot of work. These include: one, the strength of the ARR business model that builds on itself through every contract and the quality of our customers. Reflecting on our customers, the list of new and renewing institutions as a whole of world-renowned hospitals. This quarter, our U.S. sales included a standout 9-unit lead contract with Legacy Health, a leading 6 system hospital health care system serving Oregon and Washington. Legacy is committed to delivering comprehensive cancer survivorship programs that meet the MAP standards. And that commitment played a key role in the decision to adopt SOZO as the foundation for the lymphoedema prevention strategy. The new customers continue to validate the value of our offering, not only are they renewing but renewing with price increases. Overall, we saw a 13% rise in TCV for lease renewals and churn remained at less than 3%. Now to Page 9. We now have a strong foundation in place to drive the level of sales required, expanded reimbursement, a strong and growing pipeline, and a well-connected high-performing sales team. That foundation gave us the confidence with the real results, which will be just incremental. There would be a series of stepwise changes. It's clear that we thought we needed to invest in systems and processes to support a more robust pipeline. Quite simply the volume of leads being generated when we came on board wasn't enough to support your sales needed. We addressed that by rolling out tools like AcuityMD and Seamless AI and implementing field-force productivity measures and ramping up targeted lead generation activity. That investment has paid off, creating a major uplift in the quantity and quality of leads. As a result, the pipeline is now in excellent shape and includes multiple -- multiunit sales opportunities, 27 master service agreements with health care providers that represent hundreds of potential service sites and with more than enough qualified leads to support our initial goal of being profitable. Now turning to Page 10. We are confident that sales will continue to grow. We have a product that addresses a real clinical need, strong clinical validation, and a solid pipeline, and a very positive reimbursement environment. The final piece of the puzzle is conversion, turning those leads into sales. Another area we knew we needed a boost with sales team experience, specifically in breast cancer devices. And that's why we were really very pleased to bring on Scott Long as our new VP of Sales. Scott brings over 30 years of experience with breast cancer medical devices and with that a deep understanding of that space. He has spent his career building strong relationships with breast surgeons and is used to working with sales teams in smaller companies. That means he not only knows how to get the results, and he has a great network of top-tier sales talent. Scott has already hit the ground running. We reset the current team, lead our presence at the ASBS conference, and has been out in the field with the reps, coaching them and making key introductions from his own network. As part of that, we've recently hired 2 key account execs, both with very solid breast cancer experience and both who are now on board. It is great to have them on board and we're very excited about the opportunity. It will take a quarter for them to fully hit the stride, but based on their track record, we are very confident that they'll start to deliver [ and practicing ]. One factor people often underestimate is the network effect and hospital systems. Getting the device approach at a hospital isn't quick. There are legal contracts, budgets and IT approvals. It can take months. But once these items are completed, adding a subsequent device within a hospital system is a much faster process because those hurdles are already cleared. That is a big advantage that we will continue to build on. Currently in 1 state, we're finalizing 3 new contracts that unlock the potential for up to 35 more units, which lines up with improved reimbursement in that state. While these changes are just now taking effect, that the tailwind is strong and as we move through the financial year, we are confident in delivering sustained sales growth. Now turning to Page 11. The start of the New Year is always a great time to revisit our strategy and check in on where we're headed. We're not making any major changes. We're continuing to appear on the strategy we've outlined, but there is a natural position as we move forward. BCRL remains the core focus for us as along with maintained strong financial discipline, and McGregor will talk about our progress on that front. Over the past couple of quarters, you've also heard us talk about moving into stages 4 and 5 of our strategic plan. That is starting to take shape. We recently shared our updated product road map with the Board, which highlighted 2 key focus areas. First, body composition. We've activated -- initiated active sales in this market with our current product offering. Initially we talked about oncology as a natural adjacency and that continues to be a focus. But we're also looking at how we can leverage SOZO's unique position within hospitals to support clinically managed weight loss, a space where there is growing and real potential. Secondly, heart failure. We started to reengage in that space with some early steps, beginning with a key investigator initiated observational clinical trial, which produced promising data that supports the clinical utility of SOZO 5, but also managing fluid levels as well as body composition and heart failure patients. Building on that, we're now expanding our efforts with additional clinical research partnership to better define how SOZO can be best utilized within their health care pathway. Firstly, over to body composition on Page 12. As I mentioned, we are continuing our work in body composition within the oncology space. We believe that there is a clear clinical demand to support body composition management in cancer patients as part of their survivorship journey. At the same time, we're seeing a generation opportunity emerging around the rise of the GLP-1 weight loss drugs like Ozempic and Mounjaro, that is supported by new guidelines. What makes this especially compelling is that our unique position in the market. SOZO is currently the only FDA-cleared bioimpedance device. At a time when leading medical societies are specifically important for muscle mass monitoring during pharmacological weight loss. They are recommending validated tools like bioimpedance as part of best practice care. We already have a body composition application. We have now begun immediate expansion into that space, assigning sales resource to build out the market and get the early feedback from customers to optimize our offering. It is still early days that the initial signals are very encouraging and we're genuinely excited about where this opportunity will lead. Now to Page 13. Heart failure is something that the company identified as a major opportunity quite some time ago. ImpediMed has invested in clinical trials, developed the heart failure software, explored reimbursement and secured FDA clearance, not just for heart fluid status monitoring in heart failure patients, but also built by the composition assessment to cardiac rehab and prehab. ImpediMed has invested in developing SOZO with scale to improve workflow and move the contraindications for implantable cardiac devices. Heart failure is 1 of the most serious and growing health challenges we face today. It affects over 64 million adults globally and is 1 of the top causes of hospitalization, especially in older adults, and it's not just a clinical issue, it places a significant burden on health care systems because of the complexity of care, high readmission rate and sheer volume of patients involved. That's why we have now started to rebuild our focus on heart failure, and we're doing it in a very smart measured way, leveraging our investment to date and utilizing investigator-led trial to build clinical utility needed for adoption, which includes leveraging guidance from 2 previous ImpediMed heart failure advisory boards. Professor [ Edward Barin ], a leading cardiologist based in Sydney has just completed a 115-patient observation study on heart failure using SOZO. From that, abstracts have been presented at the Cardiology Society in Australia -- of the Australia and New Zealand conference in Brisbane next month. We also have 2 more investigator-initiated studies underway in the U.S., both exploring key cardiac failure markers alongside other measurements. It's still early days, but importantly, we have a plan and we do not expect to acquire a major investment going forward. Most of the groundwork has already been done and it's about lifting the earlier investment to shape a clear and practical path forward. Now I'll turn the presentation over to our CFO, McGregor Grant, to go through the financials.

Thanks, Parmjot. Starting on Page 15. As Parmjot mentioned, it was a positive quarter from a financial perspective. A significant achievement for the year was meeting our commitment of reducing the cash cost base in FY '25 by 10% versus FY '24. We recorded a 16% reduction, which mostly came from a 22% reduction in staff remuneration with the most significant part from senior management costs. Financial discipline continues to be a core goal of a business as we head into the new financial year. Operating cash outflow came in on budget at $3.5 million, in line with last quarter's results. Last quarter, we flagged that we expected a one-off $1.2 million payment for key electronic components in quarter 4. This will now occur in quarter 1 FY '26. Cash receipts were $3.8 million, slightly down on the $4.1 million last quarter due to the timing of customer receipts. The cash balance of $22.2 million at 30 June equates to 6.3 quarters of operating cash flow. If we adjust the additional USD 5 million drawdown of the debt facility that occurred in July, there are 8.4 quarters of operating cash flow remaining. The strengthening of Australian dollar relative to the U.S. dollar resulted in an unrealized FX loss of around $1 million. Moving on to Page 16. Clearly the standout financial results was a record TCV of $6.3 million, up 86% year-on-year and 29% versus the prior quarter. As well as a strong contribution from new sales, there was also a large number of contracts renewed in the quarter with solid price increases adding to the record results. We continue to be very pleased with the quality of accounts either initiated or renewed in the quarter together with continued solid price increases on renewed contracts, averaging 13% for the quarter. Churn remains low, below 3%. The upward trajectory in TCV translates to an increase in annual recurring revenue or ARR. TCV contracts in place as at 30 June 2025 are expected to generate core business of $14 million for the 12 months to 30 June 2026. That equates to a 27% rise year-on-year and a 3% increase on the prior quarter. The strong Australian dollar reduced the increase in ARR as the FX effect is applied to the whole balance. Turning to Page 17. Revenue for the quarter remained close to record levels at $3.4 million, up 15% year-on-year, but down 1% on quarter 3. U.S. revenue was flat as a result of the relatively large -- stronger Australian dollar. Rest of World revenue was down 19%. No units were sold to the Rest of World compared with 14 units sold in quarter 3 FY '24. The reduction is a result of timing of distributor inventory restocking. But I noted in July, the company received an $18 million order from its Australian distributor. Cash receipts of $3.8 million were up 27% year-on-year, but down 8% against the prior quarter. The reduction from Q3 was largely due to timing of customer receipts. On to Page 18, we've already mentioned the significant lift in U.S. unit sales, and I've commented on the lack of Rest of World sales. We've been investigating several rest of world options. In BCRL, the work we've done to date suggests that many of the European markets are more focused on treatment and prevention. We continue to work to identify the best way to approach these markets. The Australian distributor continues to make lymphedema sales and with over 400 units deployed across Australia and New Zealand. We are working closely with the distributors to explore other applications, and we plan to extend of SOZO since the body comp and cardiology markets in FY '26. Testing continues to trend upward, up 3% on the prior quarter. We continue to monitor testing numbers closely because the help of the lymphedema prevention programs by our customers is essential to patient outcomes and essential for renewals. Accordingly, monitoring utilization remains a priority for our company. I'll now pass it back to Parmjot to wrap up before going on to Q&A.

Thanks, McGregor. Over to the outlook for H1 on to Page 20. Our goals remain consistent for breast cancer-related lymphoedema. So we're adding body comp and heart failure into the mix. We have a very clear focus on growing U.S. sales and BCRL by leveraging the changes in our sales team and the expansion of payer coverage. We continue to invest to grow that pipeline and drive improvement in our sales metrics, that is our core focus. We are expanding the body comp and heart failure, and we will do all of this while maintaining our financial discipline. Thank you. We'll open the call now for questions.

[Operator Instructions] Your first question comes from Tom Godfrey from Ord Minnett.

Maybe if I can just start with the major commercial payer that come on from 1 July and noting it gives you an 11 additional states over 80%. Is there any color you can sort of give around whether there are any material states in that mix or which states they are? And then just whether it unlocks any of your near-term pipeline in terms of bigger sort of IDN deals?

Yes. No, there is -- I think the shift of those state numbers is material and we've kind of outlined that already. So it is a major U.S. payer with a material number of states that have jumped across. We aren't sharing the name of the payer in a specific state, but we do work with our customers within those states to help convert the sales across. So as you noted, it takes us from 25 states with 80% coverage to 36 states. So there are a large number of IDNs and multiple systems within those additional states. And another states with coverage -- over 90% coverage growth in 7 to 21. So it has made a major impact within our payer mix in the market.

I understood. It's a little bit hard to hear you, but I think I followed all of that. Maybe just a follow-up to that was where you expecting to have this major payout come through in terms of when you said first quarter '26 should be a similar sort of 40-plus number and then incremental growth through FY '26? Or does that sort of help give you more conviction in that view?

So I'm not sure the question, Tom. The market access team has been working very hard with all of the kind of major payers. And so the timing is really dependent on them. We'll just kind of continue to grow the momentum. But having this payer coverage come on board gives us more confidence that our sales will continue to grow. So I'm not sure -- maybe repeat the question what you're asking...

Yes. No, it was just -- when you gave the trading update a couple of weeks ago, sort of that guidance around the following quarters in U.S. sales, but you've answered it, Parmjot. Maybe just changing the track slightly. I mean, around the body comp sort of go-to-market strategy. Can you -- in terms of the oncology side of that, can you leverage your BCRL installed base? Like does that work from a workflow perspective at those customers? Or do you sort of need to be looking at a new installed base for that strategy?

No, no. So the body comp for the oncology is very much about the BCRL installed base. And it was part of that -- extending, helping leveraging body comp to extend down into that cancer survivorship pathway, so into the radiation oncologists, medical oncologists. But probably medical oncologists are the key ones that would be monitoring body composition, because it can impact chemotherapy compliance, medication compliance and long-term survivorship outcomes. And there's also been some very interesting recent data and literature where it just shows the value of exercise in improving cancer outcomes and it had the major news articles at ASCO back in June that just show the value of exercise on improving colorectal cancer outcomes is significantly better than most drugs. So there is an increasing awareness around needing to put an intervention program that can be supported by body composition management in medical oncology.

Got it. And I mean, the medical weight loss and GLP-1 opportunity, does that sort of come off the back of oncology? How do we sort of think about that incrementally?

No, that's a whole new market. So that -- and we've already got customers within bariatrics and endocrine that have been using the device for body composition management. What is interesting is back in February and I think this year there have been 2 major societies and guidance has been put out in the market, which I put in the deck. One is on the [ lungs ] and the other one is on the obesity society that now recommends that these patients be monitored for muscle mass using a bioimpedance device or the extent [ around U.K.]. So it really is an opportunity for us to build out into this new market space. And given I think we all know the growth of those GLP-1 market is significant. I think it's a generational new opportunity that we think it's great for us to capitalize on. We have an FDA-cleared device for unhealthy patients that got -- have security compliance in the hospital and we've got contract hospital systems that enable us to catch a little bit faster.

Great. That's really helpful. And just last 1 for me. Just 1 for McGregor. I mean it was great to see you sort of do better than the initial cash cost reduction target in '25. I just was wondering in the context of body comp and some changes to the sales team. How are you thinking about cost growth in FY '26 and whether there's any updated thinking around cash flow breakeven?

The cash flow breakeven is a function of numbers of units sold and the pricing, and we've given an indication in the past on that around the 500 units at an average of $2,000. So we're certainly progressing towards that. In terms of cash outflows next year, we have invested some more into our sales team. So that will have an impact there. But overall, apart from, for example, the purchase of the inventory we've talked about, we'll see other areas of cash flow being largely maintained consistent year-on-year.

[Operator Instructions] Your next question comes from Peter Gregory, Private Investor. [Operator Instructions] We have a question from [ Grant Pearce ].

The 44 units that were sold in the quarter, are they included in that quarter's revenue or part included? Or will that mostly be reflected in Q1 '26?

Some will be included in the quarter depends on the timing of the sale. The sales revenue was recorded over the life of the contract. So to the extent that purchases were made or sales were made at the latter part of the quarter, there won't be much revenue in the quarter. So there will be revenue from all sales in quarter 1 FY '26.

Okay. All right. And also with Legacy Health, was that the first purchase that made? Or have they previously trialed something before. And are they part of the NCCN network or the NAPBC network? And I suppose, are you able to tell us sort of how they've spread those 9 units across the hospital system?

Got you. Sorry, I'm going to that Legacy, right? So this is our first purchase that Legacy has made. So then they came out and purchased 9 systems to really initiate the program across the hospital network. They are -- the NAPBC accreditation was a key reason for them -- one of the key drivers for buying the device and to help them meet those accreditation standards, but led by a very prominent breast surgeon, Dr. Nathalie Johnson, who is a strong advocate [indiscernible] here.

And are you able to sort of give us a bit more color around how they're using those 9 units across cystic hospitals? Is it like 2 of them taking the 9 units? Or is it spread across 1H or...

No. She's building out the program and the kind of locations now, just based on the providers that came. There probably not more additional information. We're going to continue to support to build them out and then additional -- or any position you like there.

Okay. So sort of like 1H at the moment and then they'll build on that.

I think it varies, it depends on -- it will vary across the network. The surgical large kind of task, specific task. So that's 1 [indiscernible].

[Operator Instructions] Your next question comes from Peter Gregory, Private Investor.

Probably 4 new U.S. placements actually in the quarter, but [Technical Difficulty] opportunities for you. Can you tell me how many [Technical Difficulty] were and what percent of the contract up for renewal that was?

I think was your question is spot of TCV between renewals and new sales?

Yes.

We're having trouble hearing you. Breaking out.

I'm sorry. I've got a phone problem.

Peter, we can make... I think that sounds like it's all the questions. Thank you. Many thanks for your questions and your continued support, and we're encouraged by our progress and our momentum and we're really looking forward to catching up again next quarter. Thank you.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.