SomnoMed Limited (SOM) Earnings Call Transcript & Summary

Well, good morning. Terry tells me that a quorum is present, so I declare this Annual General Meeting of SomnoMed Limited open. Welcome, ladies and gentlemen, to the 2021 Annual General Meeting of SomnoMed Limited. My name is Guy Russo, and I'm the Chair of today's meeting. Today's meeting is being held online via the Zoom platform. This allows shareholders, proxyholders and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxyholders have the ability to ask questions and to submit votes. Questions can be submitted at any time. [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 under one topic. The agenda items for today's meeting include presentation of financials, remuneration report and the reelection of nonexecutive directors. I call for apologies to be noted by the company secretary. And there's none, thank you. Before we get underway, I would like to welcome my fellow directors and colleagues who are joining us remotely today and some with me here in the room. Welcome to Neil Verdal-Austin, our Global CEO; Amrita Blickstead; Hamish Corlett; Hilton Brett; Michael Gordon; and Karen Borg; Hervé Fiévet, our CFO; and Terry Flitcroft, Company Secretary; and Mr. Tim Aman from BDO, our auditors. 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 addresses prior to moving to the resolutions to be considered at today's meeting. So to each of you, dear shareholders, it is a honor to address you today as your Chairman. It has now been just over a year since I joined as Chairman, and I remain incredibly excited about the opportunities that lie ahead. The global market size and the amazing passion and commitment of our teams gives me that confidence. SomnoMed changes people's lives literally. SomnoMed gives people the opportunity to function again through its effective technology. This completely aligns with my own business passions, a clear focus on real commercial opportunities and the direct satisfaction of our customers. SomnoMed has had a challenging year due to the ongoing COVID-19 pandemic. SomnoMed focused on maintaining cautious financial discipline while instilling confidence within the business and within all of its staff. Our executive team has led by example and reinforced the strong contract that exists globally. The business grew its revenue in F '21 by 9% or 15% in constant currencies. And although this was affected by COVID-19, the company is now looking towards a more managed COVID situation in the future. The opportunity to help treat millions of patients suffering from OSA, obstructive sleep apnea, remains large and growing. Treating OSA with COAT, Continuous Open Airway Therapy, which has been pioneered by SomnoMed, has enormous potential because it's the patients' 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 continue to work tirelessly to provide stronger clinical guidelines as well as investing in and supporting clinical research, which validates our treatment options. The number of patients throughout the world treated with a SomnoDent device surpassed 650,000 recently, while the company drives greater acceptance and adoption of its technology within all medical and general communities. I would like to thank the Board for their efforts and input throughout the past year. Our Board, your Board, is engaged, insightful and extremely hardworking. I'd like to personally thank Ms. Amrita Blickstead, Ms. Karen Borg, Mr. Michael Gordon, Mr. Hilton Brett and Mr. Hamish Corlett for their tireless contribution to this company. Before I hand over to Neil to give you more color on the current trading conditions and future directions, allow me to thank you for your support during 2021 and express the Board's full confidence in Neil and his team. Your business has never been stronger. It is now my pleasure to introduce to you our Managing Director and CEO, Mr. Neil Verdal-Austin.

Well, thank you, Guy, and good morning to everybody. It's indeed always an honor to address you today and provide you with an update on your business. Thank you very much for attending this AGM, and I hope that everybody is well. It's now 3 years ago that I was appointed as your CEO as we began a new journey for SomnoMed Limited. Throughout my 13 years at SomnoMed and especially during this past very difficult COVID-affected period, it has become clearer to me that our company is an incredible organization. Incredible simply because of what we do for patients who suffer from obstructive sleep apnea and how positively we affect their lives. Incredible also because of the people who are SomnoMed. I have many stories that depict and evidence the true attitude, passion and energy, which exists in this company. Our employees and partners all now what it means and how it feels when we help to treat OSA patients. It is this mindset and culture that we will ensure that this business will achieve its potential in the future, and it's this future that I want to address with you today. Firstly, I'd like to provide a quick trading update. And as you know, our company finished FY '21 on revenues of $63 million and up 9% to prior year and posted an underlying EBITDA profit of just under $4 million. We have also recently just posted the results for quarter 1. The quarter 1 numbers confirmed the improving sales momentum with revenues of $15.6 million and up 14%, that was up 16% on a constant currency basis, to prior year. It is anticipated that quarter 2 will continue with this momentum seen in quarter 1. SomnoMed has achieved many of the goals that I had set the organization for the year: a return to strong sales growth in the U.S., where the restructured teams are seeing great results in all aspects of the business, with leading digital product offerings with the proprietary Bflex comfort liner material, underpinning our differentiation for all others. In Europe, we continue to invest in the developing markets where we see positive reimbursement trends changing in our favor and with incredible results. In APAC, we are focused on growing our network of medical referrers who are accepting Continuous Open Airway Therapy or COAT more regularly as the most comfortable and effective alternative to CPAP where appropriate. We also continue on our digital manufacturing journey and are now exploring ways to bring this closer to our sales regions and our customers. We continue to build on our human resources, finance and operations capabilities on a global basis to deliver an unparalleled customer experience in the 28 countries in which we trade. Secondly, I would like to now turn to the future of our company. SomnoMed has an exciting and long-term opportunity to invest in a transformational technology to build on its current competitive advantage. We have now embarked on this exciting journey. And while we always focus on our treatment offering and the investment in sales and marketing resources on a global and regional basis, SomnoMed is also developing a new smart ecosystem for the future. We will announce further details of this technology in early 2022. The slide presentation will now continue up on your screens, which will provide further detail on a number of matters contained in my address. SomnoMed's vision is clear. SomnoMed's vision is to lead in the treatment of patients. We talk about patients, patients right up front, in our vision. We are very, very patient-centric. And equally so, our mission is multidisciplinary. It is all inclusive. We need all partners and systems in achieving our goals as a company. We also have a highly experienced and supportive Board of Directors, an incredible Board, diverse and with relevant skills, highly engaged and very, very involved. Our Board is simply a joy to work with in this organization. Equally so, we have a passionate and driven management team. I'm very proud of this executive team that we have put together. And with the exception of Christopher Bedford, who's been with us an incredible long time, this team has been completely assembled by myself. We have a dedicated, loyal and passionate team, treating more patients more effectively every single day. I'm very proud of this team as we execute on the plans of your company. As you know and as most of you are aware, this market opportunity is simply enormous. The addressable market is incredible. Access to this market, however, and appropriately treating different severities of patients within this market in a long-term therapy approach is the challenge, which is exactly what SomnoMed is up to address. The way that SomnoMed does this is with an oral appliance, a customized oral appliance. This removes the obstruction, the obstructive sleep apnea obstruction, at the back of the throat by moving your mandible slightly forward at night, as you see. Our products, and this particular product, our flagship, the SomnoDent Avant, does this comfortably and safely. One of the key fundamental pillars of this organization is to talk about treatment effectiveness and treatment effectiveness compared to what's out there currently as CPAP. As we know, it's long term because of the long-term nature of the chronic disease that is obstructive sleep apnea. It has more serious comorbidities down the road if left untreated. And as we can see by this very simple graph, CPAP is highly efficacious, but it suffers from low compliance over a short period of time. SomnoMed, however, has a product, as we've just seen, that has slightly less efficaciousness, we can't treat all severe patients all of the time, but with incredibly high levels of compliance. And it's this compliance that is really important for long-term ongoing treatment. In our view, compliance simply cannot be ignored any longer. SomnoMed is, of course, positioned for future growth. We started with treatment focus in our mantra, strong clinical research, design and innovation, growing and extensive sales and distribution footprints, best-in-class service and technical support. But equally so now, we're adding to this technology driven, an investment into a technology pathway to unlock the true potential we believe that oral appliances have in treating patients. We do this so that your company, our company, grows the sector. The sector that remains today as oral appliances is simply too small, somewhere around 8%, 9%, 10% globally of positively diagnosed patients, which needs to grow. My goal and this company's goal is to grow that sector and remain the leaders within that sector as we grow. It's really important that we grow the greater future share of positively diagnosed patients that could be treated long term with a compliant oral appliance. To do this, as we flagged before and as you've seen before, we will invest in our future. We will drive acceptance and accelerate the growth in this organization, and our priority right now is to drive that revenue growth aggressively. Simply put, our future horizons have always been 3 key things: building the awareness, the acceptance and driving the adoption of oral appliances in a global capacity to generate category leadership. We've now added a fourth, investing in innovation and a transformational technology and connectivity that I will now speak to you about. This technology, our technology platform, as we like to call it, which is really a smart ecosystem, is well underway. Progress has been made against all of our plans so far. Clinical trials will begin shortly and will end just before Christmas Eve. We'll be following all legal, IP, regulatory pathways and all the necessary testing over the next month or so. This transformational technology, this smart ecosystem, we believe, will transform the business for greater growth in the future. We will again be able to disclose more details about this transformational technology early in 2022, as mentioned before. And we cannot wait to share those details with you more broadly. Just to conclude on our outlook. No change to our outlook. We are reconfirming the current outlook and the guidance, as we have said previously. And finally, I would like to thank you, our shareholders, for the support over these last -- past 12 months. My thanks also go to the many new shareholders who have joined us during the year and have invested in SomnoMed as we embark together on a new era. Thank you all for your trust and support in our company, in me as your Managing Director and CEO and to the incredible executive team who have helped me to achieve the results that we have seen 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 to change people's lives. Thank you.

And thank you, Neil. We will now move to the various resolutions to be considered and voted on at this meeting. Voting today will be conducted by way of a poll on all items of business. Once I have read the resolution, I will give shareholders an opportunity to ask questions via the chat icon. Once all shareholders have had the opportunity generally to ask questions about the resolutions being considered, I'll put the resolution to a vote. I, as Chairman of this meeting, intend to vote all open proxies that I hold in favor of all resolutions. For each resolution, you're presented with voting options. To cast your vote, simply select one of the options. You do, however, have the ability to change your vote up until the time I declare voting closed. The results of these votes will be released to the ASX later today as votes will be tallied at the conclusion of the meeting. Proxies received in relation to the items to be voted on at today's meeting are now being displayed. The first item of business is a discussion on the annual accounts. The annual report was available for shareholders in September. The accounts were for the year -- to the end of the year to 30th of June 2021. As shareholders probably know, there's no need for a formal adoption of the annual report by shareholders in a general meeting. Nevertheless, in accordance with corporate governance principle -- 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 Terry, are there any questions relating to the annual report or accounts for the year to 30th of June 2021?

No. There are none, Guy.

There is none. Okay. Then thanks, Terry. I will now 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 inside the annual report. To vote on this resolution, it is not -- the vote on this resolution is not binding on the company. However, the corporation law now enables shareholders to ask questions relevant to the remuneration report. So Terry, are there any questions specific to the remuneration report?

There are none. There's none.

Thanks, Terry. So I'll now move to the next item of the business. There are 3 of the nonexecutive directors of the company that are standing for reelection today, and details on the background of each director are contained in the Notice of the Meeting. I feel fortunate to chair a Board with such well-credentialed and experienced directors. I'll now move through the individual resolutions. So the first one is Karen. Karen Borg has been appointed as a director of the company on the 26th of November 2020 and being required to retire in accordance with the constitution of the company, to be elected as a director of the company. The resolution relating to the reelection of Karen Borg is set out in the Notice of the Meeting. And Terry, are there any specific questions in the reelection of Karen?

No questions, Guy.

Thanks, Terry. I'll now move on to the next item of the business, and that is the reelection of Hamish Corlett, that Hamish Corlett being a director who retires by rotation in accordance with the company's constitution and being eligible, 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 specific to the reelection of Hamish?

No questions, Guy.

Thank you, Terry. So now the next resolution refers to my reelection. So I'll hand the chair to Mr. Verdal-Austin.

Thank you, Guy. The next resolution is the reelection of Guy Russo, that Guy Russo being a Director who retires by rotation in accordance with the company's constitution and being eligible, be reelected as a director of the company. The resolution relating to the reelection of Guy Russo is set out in the Notice of Meeting. Are there any questions specific to this reelection, Terry?

No questions, Neil.

As all questions are now answered, I now hand the chair back to Guy.

Thanks very much, Neil. And ladies and gentlemen, that concludes our discussion on the items of business, and voting is now closed. The results of these votes will be released to the ASX later today as votes will now be tallied. So that concludes the formal business set out in the Notice of Meeting. So I'll ask Terry, are there any other questions shareholders have asked?

We're not receiving any, Guy. Thank you. We have now one who just put their hand up. It's in relation to Philips and the supply issues they've encountered, Neil. Perhaps you could just give a bit of background on that.

Thank you for the question relating to the Philips supply issue. We are starting to see evidence of that unwinding in the U.S. That is fraught with issues, unfortunately, still tight and tied with Medicare and reimbursement. But as we see from our Q1 results in the U.S., it's starting to show that we are able to treat some of those patients, mild to moderate patients, with an oral appliance due to the shortage that we see currently, obviously, without issues.

Thank you, Neil. And Terry, if there any more questions from our shareholders or guests?

There is just one more being in relation to European lockdowns and the effects on our business.

Yes. So most recently, again, we've seen some lockdowns in some of the countries we operate in Europe. And as everybody would know, our time to treatment and the lag between diagnostics and treatment is fairly long in Europe. So any of these lockdowns are unlikely to affect currently quarter 2, but that could affect our results in quarter 3.

Thank you, Neil. And Terry, are there any other questions from shareholders or guests?

No. There are no more questions, Guy.

Thank you, Terry, and thank you, Neil. Once again, on behalf of the Board and Neil, I'd like to thank each and every one of you for participating in our AGM this morning or this afternoon, depending on where you are. We wish you all the very, very best and look forward to reporting on your company in the new year. So thank you, and I now formally close the meeting. Thank you.