SomnoMed Limited (SOM) Earnings Call Transcript & Summary

Well, welcome, ladies and gentlemen, to the Annual General Meeting of SomnoMed Limited. My name is Guy Russo, and I am the Chair of the meeting. Terry tells me that the quorum is present. And a quorum is present, so I declare the Annual General Meeting of SomnoMed Limited open. Today's meeting is being held online by the Lumi platform. This allows shareholders, proxyholders and guests to attend the meeting virtually. All attendees can watch, listen to a live webcast of this meeting. In addition, shareholders and proxyholders have the ability to ask question and submit votes. Questions can be submitted anytime. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. Please also note that your questions may be amalgamated together if we receive multiple questions on the same time. Finally, due to time constraints, we may run out of time to answer all your questions. If this happens, we will answer them in due course via e-mail, posting the responses also on the website. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, polling on the resolution is now open. If you're eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. We do have, however, the ability to change your vote up until the time I declare voting closed at the end of the meeting. The agenda or items for today's meeting include presenting of the financials, remuneration report, reelection of non-executive directors and appointment of auditors. I call for apologies to be noted by the company's secretary and thank them. Before we get underway, I would like to welcome my fellow directors and colleagues who are joining me in the Boardroom here today. Firstly, Neil Verdal-Austin, our Global CEO; Amrita Blickstead; Hamish Corlett; Hilton Brett; Michael Gordon; and Karen Borg, who has just recently joined our Board and will not stand for reelection at the next -- and will stay for reelection at the next meeting of shareholders. Hervé Fiévet, our CFO; and Terry Flitcroft, our Company Secretary; Mr. Tim Aman from BDO Audit. Proxies received in relation to the items to be voted on today's meeting are now being displayed. I would like to especially welcome those of you who are new shareholders of SomnoMed Limited. Neil and I would now like to deliver our formal Chairman and CEO's address prior to moving to the resolutions to get at today's meeting. It's an honor to address you today as your new Chairman. I said this to many shareholders that I have met so far: when I was approached to join the SomnoMed Board as the Chair, I was tremendously excited about the scope of expansion opportunities that lay had. The meetings I had with Hamish Corlett and our new CEO, Neil, gave me a clear sense of not only the parallel global market size, but also the passion and commitment that exists at SomnoMed to change people's lives through its technology. Such a mission aligns with my own business passions, a clear focus on commercial opportunities and the direct satisfaction of customer needs. The more I learned, the more I was convinced to sign on and commit my efforts to the SomnoMed's success. SomnoMed has had, like others, a challenging year due to the COVID-19 pandemic. SomnoMed evaluated these potential risks early and with your support, sought to secure the balance sheet. To weather the storm, SomnoMed raised $15.5 million in late March of 2020. Since then, the executive team has done an excellent job in managing through an extremely difficult period with outstanding results. The business is intact, no staff were lost due to cost pressures, net cash has increased to a record high, and sales are now improving in all regions. The opportunity to help treat millions of patients suffering from OSA remains large and growing. Treatment -- treating OSA with COAT, Continuous Open Airway Therapy, which has been pioneered by SomnoMed has enormous potential because it is a patient's choice. SomnoMed offers a wide range of clinically validated and researched oral appliances that are comfortable to wear, durable and highly effective. SomnoMed operates under all the necessary medical manufacturing regulations around the world to ensure the delivery of a high-quality medical device to the patients of our clinical partners. Neil and his team work tirelessly with various authorities to promote stronger clinical guidelines as well as investing in and supporting clinical research, which validates the treatment option. We also work with insurance companies to treat their members with a SomnoDent. So that they, too, can be assured that the appropriate medical outcome is achieved with a high level of compliance. The number of patients throughout the world treated with SomnoDent device surpassed 585,000 recently. The company owns 100% of all SomnoMed entities in all direct markets in which we operate and continue to develop our culture of integrity, commitment and performance excellence as we build and develop our staff to maximize their individual professional and personal achievements. I've already previously thanked the older Board in our annual report. But this as my first Chair of the AGM, I'd really like to acknowledge the contributions of your past Board members, Lee Ausburn, Robert Scherini -- sorry, Rob, and especially Peter Neustadt. I thank you all 3 gentlemen for your contribution that you have made to this awesome organization, and I hope that the new Board can serve all 3 of you, gentlemen, to do you proud for the achievements that you have done in your past. Before I hand over to Neil to give you more color on the current trading traditions -- conditions and future directions, allow me to thank you for your support during 2020 and express the Board's full confidence in Neil and his team. The business has never been stronger. It is now my pleasure to introduce to you our CEO, Neil Verdal-Austin.

Thank you, Guy. And it's indeed an honor, again, to address our shareholders' today and provide you with an update of our business. It's now 2 years ago that I was appointed as your CEO and we began on a new journey for SomnoMed Limited. Throughout my 12 years at SomnoMed and especially during the past very difficult last 6 months, it's become clearer to me that our company is a real treasure. A treasure is because of its people. The team at SomnoMed have shown their true colors throughout this COVID-19 pandemic. They are loyal and dedicated, passionate and driven. They know what it means and how it feels when we help treat patients that suffer from obstructive sleep apnea. It's a global feeling that permeates throughout the organization, and it's this attitude and culture that we will ensure that this business will achieve its potential in the future. And it's that future that I want to talk to you about today. Before I get there, I just want to give you a quick update on the trading of this company. As you know, your company was well on its way to achieving our guidance as at the 31st of March 2020, both in terms of revenue and EBITDA. Since then, the negative effects of COVID-19 on Q4 was significant. We finished the year FY '20, however, on revenues of $57 million, 3% less than prior year and posted an underlying EBITDA profit of just under $5 million, almost the same as the prior year. We have also recently posted our Q1 results. The Q1 numbers confirmed the improving sales trends since Q4 FY '20. Revenues were $13.7 million and down 6%, down 5% in constant currency to the prior year. Q2 so far shows a similar trading result to Q1 and mirrors the negative 6% to revenues as a group globally. The past 12 months have been a mixed bag of, on the one side, an incredible overall performance to March but on the other side, a dramatic and almost reverse of those fortunes in Q4 due to COVID-19. Despite that, we have achieved many of the goals I had set for the organization for the year: Strong growth in the U.S., where we have restructured and invested in operational service excellence and a new digital product offering within a new sales and marketing team. New sales leader appointed and a medical focused sales approach in Canada, achieving impressive growth in that region. In Europe, we continue to invest in the developing markets that are poised for strong growth and where we see reimbursement trends changing in our favor due to the work SomnoMed has done to bring about those changes for the good of patients suffering from OSA, where they would previously have not had access to this cost-effective treatment option. In APAC, we focused on growing our network of medical referrers who are accepting COAT more and more as most comfortable and the most effective alternative to CPAP. We have continued to strengthen the global executive corporate team through new appointments in Sydney. Our technology journey continues with App-Nea, the software platform that will enable dentists and sleep physicians to work together in a more closely collaborative patient treatment option with a SomnoDent with a trusted and effective portal, the Effectiveness Equation, modeling both efficacy and compliance of the SomnoDent against CPAP using clinical evidence and the digital manufacturing platform. More importantly, I wanted to use this time together today to talk more about the future of your company. SomnoMed has an exciting and long-term opportunity where transformational technology and other investments will be made to enhance and build on its competitive advantage. While we always focus on further improvements on the digital supply chain, further clinical studies and greater reimbursement efforts in currently nonreimbursed countries as well as an investment in sales and marketing resources on a regional basis, the future horizons as previously communicated are important to explain in a little bit more detail. I will do that now through the slides that you will see on your screen. The agenda for the presentation contains 3 key areas. Firstly, a recap of the FY '20 performance. Secondly, where we're going, the review of our strategy and why we're now positioned to execute for growth and the nearer-term outlook for the financial year ahead. Starting with where we've been. As mentioned before, FY '20, and its performance was materially impacted by COVID-19, strong first half performance followed by a challenging second half and certainly Q4 as a result of COVID, which forced us into related lockdowns, dental and medical society restrictions, limited access to our customers and delayed diagnostic and treatment pathways. Despite these challenges, however, we remained focused on the goals that we've set for the business for the year. More importantly the growth in the U.S., reimbursement pathways within Europe and progress within our technology-driven projects. Our FY '20 performance is indicative of our ongoing commitment to the patient. Throughout SomnoMed's history, we have continued to focus on driving patient value through access and comfort. The key milestones that have changed the oral appliance sector that have related to the following that I'd like to highlight. Firstly, product innovation, where the SMH Bflex was launched way back in 2007, and that still is our key differentiator when it comes to comfort and product retention. Manufacturing, and the highlight of our manufacturing points in the manufacturing plants built and commissioned in 2010, ISO 13485 and state-of-the-art digital manufacturing. And lastly, reimbursement and the reimbursement changes and patient pathway that we have built through Belgium, France and with more to come within Europe and later within the U.S. Along this innovation journey, we have continued to invest in the building blocks for growth and believe we are now well positioned to leverage our achievements to date, continue to build on those and to accelerate growth with an even greater focus on technology for the future. Our new Board members bring a diversity of skill sets perspective, experience and background to drive our journey towards being a more technology-enabled sleep apnea solution. We welcomed Guy, Amrita, Hilton and Michael back in August and have already seen incredible value and support from all of them. We're also very excited today to now welcome Karen Borg, who brings a wealth of medical device, relevant global sleep experience to the SomnoMed team. At the same time, that there is a new Board, combined with our experienced management team gives us the confidence in executing on our strategy for the future. I am extremely proud of our team and privileged to work alongside these talented people. Our strategy for growth is really focused around 3 future horizons as we have mentioned before: advancing the treatment and building the core, positioning the patients alternative and technology driven. We all know we have a huge opportunity ahead of us with circa 1.4 billion patients globally suffering from OSA. By investing in these 3 horizons, we will be well positioned to achieve category leadership in a very, very large market segment. Starting with advancing the treatment and building the core. SomnoMed adopts a patient-centric, and you've heard me say this many times, and multi-disciplinary approach to the treatment of OSA. Although this is certainly a busy slide, the key takeaway is the importance we place on all aspects that center around the patient in building on the COAT Treatment segment, gaining a deep acceptance and adoption, inclusive of all contributors, partners and customers. The next horizon is positioning the patient's alternative. COAT today represents only 8% to 10% of therapy for positively diagnosed OSA patients. And we have an opportunity to grow this significantly through key education initiatives. The first is an education around the long-term effectiveness of COAT versus CPAP when taking into consideration compliance and efficacy. It's really important and critical in my view that effective treatment is assessed with both efficacy and compliance. It's no good ignoring compliance when treating a long-term chronic disease that can lead to even more significant comorbidities down the line. Secondly, education through clinical research that addresses barriers to COAT adoption and also health economic models that demonstrate the cost effectiveness of COAT to address reimbursement disparities. And thirdly, in education, via the engagement of medical and dental key opinion leaders to advise on new product development and programs to reduce barriers to COAT adoption. By intensifying these efforts, we would drive an increase in the COAT share of the overall OSA therapy over time. We have actually done this successfully already in a number of markets. In the Netherlands, we have achieved an estimated 40% OSA market share driven by a progressive reimbursement and managed care contracts directly with those insurers. While in Sweden, we now estimate a market share of around 52%, driven by the early medical acceptance and adoption of COAT, very early on in the treatment process with strong key opinion leader support. Leveraging these learnings around the key unlocks of those markets have allowed us to achieve a dominant market share position in both the Netherlands and Sweden, which we plan to grow our share significantly in other markets. The third horizon, and lastly, is the technology-driven one. We are particularly excited about building one integrated and automated technology platform. Leveraging what I'd called transformational technology to enhance and build on our competitive advantage. All of these technology pieces contribute to the data and related analytics we will derive that will help SomnoMed to provide the key -- the 5 key outputs listed on the right-hand side. This will position SomnoMed for an extremely exciting future ahead. Executing on these future horizons requires investment, of course, and we feel now is the right time to start making these investments to really accelerate the growth for the future. This very focused and targeted investment is transformational technology, not incremental technology, that is specific to the OSA industry needs. And as we see it, is necessary to lift the oral appliance sector and compete head-to-head with CPAP. Our priority over the next few years will be on growing the top line with the goal of achieving an excess of 20% revenue growth as we advance the treatment and build the core, effectively position the patient's alternative and become more technology-driven. However, in doing this, we do expect to remain EBITDA positive throughout this targeted and focused investment period. Going forward, we will continue to assess our performance and move along this financial framework display from accelerated to balanced growth and ultimately, mature growth as appropriate, noting that obviously mature growth is well into the future given the size of the opportunity that remains ahead of us. We'll make sure to update you on our progress as we make these steps and shift through these growth phases. This is now the right time to embark on the next chapter. Finally, in terms of outlook, certainly, in the nearer term, we continue to withhold guidance due to the ongoing uncertainties created by COVID-19, particularly with the growing case numbers we now see in the U.S. and in Europe, but we will provide ongoing trading visibility and update as we progress throughout the year. Our focus for FY '21 will be on stabilizing the business and responding to the changing market conditions while continuing to drive our strategic objectives. Finally, I would like to thank you, our shareholders, for the support over the past 12 months. My thanks also go to the many shareholders who joined us during the year and invested in SomnoMed as we embark on a new era. Thank you for all of your trust and support in our company, in me as your Managing Director and CEO, and to our executive team, who have helped me to achieve the results that we have during the past 12 months. We look forward to continued growth in the current financial year and beyond. Thank you for the opportunity to lead this company and change people's lives.

Thank you, Neil. After listening and watching Neil's presentation, you can see why how exciting SomnoMed's future is going to be with the execution of that plan. So I do thank each every one of you that are listening or will listen to us into the future to give the company in our hands with the Board and members of the executive team. It's going to be very, very exciting to be able to change people's lives with a device that is so comfortable. So if I could turn to the first item of business is a discussion on the annual accounts. The annual report was available for all shareholders in September. The accounts were the June 30, 2020. That's shareholder -- as shareholders you probably know there's going to be formal adoption of the annual report by shareholders in a general meeting. Nevertheless, in accordance with our corporate governance principles, your Board deems it appropriate that shareholders are given an opportunity to comment upon and ask questions regarding the annual report. So I might ask Terry, if there are any questions relating to the annual report or accounts for the year to 30th of June 2020.

We've received no questions, Guy.

All right. Well, thank you, Terry. So let me move on to the next item of business, the remuneration report. The next item on the agenda relates to the approval of the remuneration report contained in the annual report. The vote on this resolution is not binding on the company. However, the corporate law now -- the corporations law now enable shareholders to ask questions relevant to the remuneration report. So Terry, are there any questions specific to the remuneration report?

We've received no questions, Guy.

Thank you, Terry. I'll now move on to the next item on the agenda. All non-executive directors of the company at the time the Notice of the Meeting was dispatched are standing for reelection today, and details of the background of each director are contained in the Notice of the Meeting. I feel fortunate to chair a Board with such wealth of credential and experienced directors. I'll now move through the individual's resolution -- the individual resolutions. So firstly, Hamish Corlett being a director who retires by rotation in accordance with the company's constitution and be eligible will be reelected as a director of the company. The resolution relating to the reelection of Hamish Corlett is set out in the Notice of the Meeting. Terry, are there any questions in relation to Hamish's reelection?

No questions, Guy.

Thank you, Terry. I'll now move on to the next item of the business. The next resolution refers to my reelection and the chair to -- Mr. Neil Verdal-Austin to do my reelection.

The next resolution is that Guy Russo, having been appointed the Director of the company on the 24th of August 2020 and being required to retire in accordance with the constitution of the company be reelected or elected as a director of the company. The resolution relating to the reelection of Guy Russo is set out in the Notice of the Meeting. Are there any questions specific to the election of Guy, Terry?

No questions received, Neil.

All questions are now answered as appropriate. I'll now hand the chair back to Guy, and we'll move to the next item of business.

Thanks, Neil. So the next item of business is Amrita Blickstead. Having been appointed as Director of the company on the 24th of August 2020, have been required to retire in accordance with the constitution of the company, be elected as a director of the company. Resolution relating to reelection to Amrita Blickstead is set out in the Notice of the Meeting. Terry, are there any questions in regards to Amrita?

No. No questions, Guy.