Thank you for standing by. Welcome to the ImpediMed Limited Quarterly Results Conference Call, Q2FY 23. All participants are in a listen-only mode. There will be a presentation followed by a question and answer section. If you wish to ask a question, you will need to press the star key followed by one o n your telephone keypad. I would now like to hand the conference over to Mr. Mike Bassett, Chief Commercial Officer. Please go ahead.
Thank you for joining us today. We're hosting this conference call to discuss our 4C for the financial quarter ending 31 December 2022. I'm Mike Bassett, Chief Commercial Officer. Joining us on the call today is Richard Valencia, the new Managing Director and CEO of ImpediMed, Tim Cruickshank, our Chief Financial Officer, and Don Williams, Chair of the Board of ImpediMed. We'll be referring to the 4C and speaking from the quarterly activity report we launched this morning, Australian time. This presentation is a summary of a more detailed 4C. After our remarks, we'll be taking questions. Before I turn over to Don, I'd 1st like to bring to your attention the re-requisite disclaimer page that I commend to you. I'd like to turn the call over to ImpediMed Chairman, Don Williams, for some opening remarks. Over to you, Don.
Thank you, Mike, and good morning. This is Don Williams, Board Chair, and I would like to thank all of you for joining the call today. I wanted to take just a few seconds at the beginning of the call to 1st thank David Anderson for having stepped into the role of Interim CEO. He was instrumental in keeping ImpediMed focused on the ultimate target of being included for reimbursement by the private pay insurers. Dave is still very active in the business, exactly where he can help us the most, and that is with reimbursement. 2nd, and most importantly, I'm excited to introduce to everyone Richard Valencia, ImpediMed's new Managing Director and CEO. Rick has already hit the ground running, and the handoff from Dave to Rick has gone seamlessly. Rick, I will turn things over to you for your 1st 4C call.
Thank you, Don, and I appreciate the kind introduction, and hello to everyone. I'll begin on page three with yes some observations of my 1st 60 days as well as confirmation of our focus areas. First, I'd like to say it's an absolute pleasure to be here. I'm excited as we kick off this journey together. I thought I'd start with a little bit of background on myself before touching on my initial impressions after 1st 60 days. I'm a lifelong tech and health technology entrepreneur and executive and have spent the last 15 years of my career in healthcare. I'm a commercially oriented leader, having brought multiple regulated and unregulated devices and services to market around the globe. In my position at Qualcomm, where I created and ran their digital health business, we had 2,500 hospital customers around the world.
As a board member at Tandem Diabetes, I was involved in the company's transformation from near bankruptcy to a $5 billion market cap and revenue under $100 million to nearly $400 million, both in less than three year . On a personal note, in November of 2021, my wife Stacy was diagnosed with stage 4 fallopian tube cancer and then experienced severe surgical complications. I chose to take the year off to help her back to health. She's now in remission, nearly healed from the complications, and she began regaining her independence in the fall of last year when I heard from a search firm about the ImpediMed opportunity.
ImpediMed hit on every personal objective I had for a new leadership role, including being a mission-driven company, improving the lives of oncology patients, a seasoned team with deep domain expertise, and being on the cusp of commercialization, where I could leverage my network built over decades to help the company scale and grow. I'm only 60 days in, so I'm still learning, but I've been working very hard to get to know the entire team, understand the technology, meet with customers, connect with our key opinion leaders, and reach out to our business development partners. As of the 60-day mark, I'm even more encouraged by the prospects of the company than when I agreed to take the helm. Along with learning, my initial focus has been to get the company focused.
To that end, we have created a new executive team and leadership team that will be focused on results because we'll be tracking them in detail. We recently held a reimbursement summit and sales meeting in New York to refine the reimbursement strategy and commercial goals. In addition, as a team, we've developed the three top company-wide priorities and eight top functional priorities we will manage and measure for the remainder of the fiscal year. Of course, the overarching company objectives are to maintain the path to break even and achieve commercial reimbursement. Dave Anderson's interim tenure instilled a new sense of urgency in the company. Although I came in well after the initial leadership change, my observations are that the change was clearly needed and generally welcomed by the team.
On this front, I'd like to take a moment to publicly thank Dave for helping to set me up for success by making some difficult organizational decisions to help refocus the business and right-size our cost base. I'm very pleased to report that Dave is still active in the business exactly where he can help us most, as Don had mentioned, taking an active role with Mike and his team on our top priority of achieving commercial reimbursement. The board has also emphasized the need to continue the improvement in shareholder engagement. I'm looking forward to my 1st trip to Australia to meet you, the shareholders, in about 1 month's time. The board is also committed to regular visits, and I know that Chairman Don, Dave Anderson, and board...
The other board members are planning to visit shareholders later in the year ahead of setting out the resolutions for the AGM. Now, turning to slide four, let me walk you through the key focus areas for today's presentation. As I mentioned, the management reset is now complete. We have a leaner, more focused team with better functional alignment. The priorities, both company and functional, have been agreed upon. The management reset has also lowered our ongoing cost base, better aligning it to the cash flow break-even targets. Tim will run through the financials, but we are in a sound financial position with $26 million of cash on hand, equating to over two years of operating cash flow. Following Tim, Mike will take you through the details of our reimbursement efforts and sales.
At a high level, the core business continues to grow with a who's who of NCCN Cancer Institutes and large health systems. While we talk a lot about the importance of commercial reimbursement, I'm amazed by the number and the quality of the customers we already have without it. This is extremely rare for a company selling a regulated solution into the U.S. healthcare system, and bodes very well for our future when we do have reimbursement. On top of that, the clients I've met with love the SOZO solution. It's now about getting the right financial model to support the scale, and that means reimbursement. As I mentioned, I participated in the reimbursement strategy day. It was an eye-opening and great experience to see the team refine and focus the strategy.
They've made great progress, and I walked away confident that we have the right strategy to succeed. With that, I will now pass it over to Tim to run you through the financials. Tim?
Great. Thanks for that, Rick. Good morning, everyone. I'll be taking you through some of our key financial highlights from the past quarter, Q2 FY 2023. All figures presented in the presentation are in Australian dollars, unless otherwise indicated. On today's call, all percentage changes that I'll be going through and calling out will be on a constant currency basis. Constant currency is denoted as CC in the presentation. With approximately 90% of our revenue coming from a U.S. dollar-based transaction or transactions, a change to U.S. dollar reporting is a natural shift that will help shareholders and analysts gain further insights into our business. As we prepare the company to move to U.S. dollar reporting in the coming quarters, we will continue to report key metrics on a constant currency basis to help prepare you for the shift.
Let's begin on page/ slide five with our revenue results. Total revenue was $2.8 million. There are two key items to point out on this slide. 1 the anticipated falloff in revenue from the clinical business, specifically the AstraZeneca contract, was offset by the increase in the core business. While total revenue was flat quarter-over-quarter on a constant currency basis, the growth from our long-term recurring core business directly offset the impact of the clinical trial revenue. We've updated the graph on the right-hand side of this page to clearly reflect in blue the core business. And the one open AstraZeneca contract is expected to remain in place for the next two quarters, so there's no further anticipated falloff to revenue from that clinical business in the short term.
We'll see revenue growth in the coming quarters that as we've highlighted in the past, annual recurring revenue is the more critical metric to track, specifically in terms of our march to breakeven. two, as we work towards broad reimbursement for our technology, the fundamental growth rates of the core business remain very strong. The core business grew by 30% on a constant currency basis. This growth stemmed from a significant increase in value on a per SOZO system basis. That's both with new contracts signed and renewal contracts signed during the period, as opposed to a significant growth in the number of SOZO systems hitting the market. Here's why that's important. The increased value per SOZO system is a strong indicator that reimbursement and the Case Assistance Programs are having a tangible impact on our customer base and their revenue cycle teams.
In a post reimbursement environment, these growth rates will be intensified by an increase in also the number of SOZO system sales that go out in the U.S. As we move to slide six for my ca sh flow, we finished the quarter with $26.2 million in cash on hand, with net operating cash outflows of $6.5 million for the quarter. In last quarter's call, we highlighted two key cash flow items. We outlined that cash flows would temporarily increase due to continued cost controls, measured cost controls, and starting in the 2nd half of FY 2023, net operating cash outflow is expected to be below $3 million moving forward. With the realignment of the management team and the organization complete, resulting in the leaner, more focused team, we can reconfirm our cost basis is now below $3 million per quarter moving forward.
While the cost-cutting efforts were of course difficult, this new cost basis further aligns the organization with our focus areas and yields the organization 9+ quarters of operating cash flow prior to considering additional sales and growth from the business. This leaves the organization in very sound financial position with adequate resources available to us within our timeframe to cash flow breakeven. Moving to slide seven, le t's look at our SOZO business performance. ARR finished at $8.8 million, including $8.2 million from the core business, growth of 15% on a constant currency basis. Most encouraging to note, total contract value signed during the period was $3.5 million, which is year-over-year growth of 124% on the constant currency basis again.
This $3.5 million includes both new and renewal agreements and was a record result for the core business. The underlying fundamentals and metrics that drive the long-term value of our business model continue to be very strong. As stated earlier, the increased value per SOZO system we're seeing is a strong indicator that reimbursement in the Case Assistance Program are having a tangible impact on our customer base. We will continue to drive strong growth in these key metrics over the coming quarters, and as broader reimbursement comes into play for us, this will intensify our growth through an increase in new SOZO system sales on top of the increased value per SOZO we're already seeing. Thank you. Now I'll hand it over to Mike Bassett to take us through sales and reimbursement.
Thanks, Tim. Starting on page eight, SOZO business performance, renewals, and the strength of the model. We continue to see a consistent pattern of higher monthly license fees on renewal. This quarter, we saw a 32% increase on the average monthly license fees across U.S. renewal contracts. That makes three consecutive quarters with above a 30% increase. Looking forward, it's reasonable to expect that a similar result over the coming quarters. We're achieving these results because of, one, software enhancements that have been delivered to our customers. Two, our ability to add licenses to contracts. Three, our stair-step pricing model that ensures a partnership between us and our customers as we help them improve patient outcomes and their health economics. Increasing the renewals is a very important component to the break-even proposition.
This is demonstrated in the graphic at the bottom of the page and shows the power of the business model. Tim mentioned previously that our ARR for our core business was $8.2 million. That represents the next 12 months of revenue on all SOZO contracts signed to date for our core business. Looking out one a dditional year, those same contracts equate to $10 million+ in revenue over that 12-month period of time. It's jumping around at the moment a bit with currency fluctuations, but that's greater than a 20% increase in revenue prior to selling an additional unit. Our stair-step pricing model and increased renewals are locking in substantial growth before any additional unit sales occur. Turning to page nine, c ommercial focus. As we've previously mentioned, we've created a base of corporate accounts and Integrated Delivery Networks that can be leveraged in a post-reimbursement environment.
They can potentially provide the avenue to significant growth, post reimbursement, as the top 25 IDNs represent over 1,700 hospitals and 24,000 facilities. This quarter saw the signing of Roswell Park Comprehensive Cancer Center, an influential NCCN member hospital based in New York State, and it's important for reimbursement in that state. From a reimbursement standpoint, NCCN centers utilizing a SOZO equates to standard of care. We now have 20 of the 32 NCCN centers and are focused on lifting this number. In addition to signing Roswell, we added or extended contracts with three NCCN hospitals, Cleveland Clinic, Ohio State University, and University of Texas MD Anderson, with two of those taking additional devices. We also extended contracts with two large IDNs and expanded licenses and devices with an additional two.
With Australia now opened up, we've also extended or expanded with Icon, New South Wales Health, and Queensland Health. Turning our attention to reimbursement on page 10. Saving the best to last, I can imagine this slide will create the most interest post the release of the NCCN breast cancer guidelines Saturday and our ASX announcement this morning. Before we talk specifically about NCCN, let's talk about the role it plays in reimbursement. As we have stated consistently for the last couple of years, we're approaching reimbursement from dual paths: private pay reimbursement and NCCN guidelines. Nothing has changed. We have again had a busy quarter with private pay reimbursement. After a reimbursement strategy day with Chelsea, our head of reimbursement, Dave Anderson and Tom Schenk, we have refined and broadened our reimbursement strategy. This involved focusing the efforts where the maximum leverage to enact policy change.
We've identified key targets and Dave and Tom are actively involved in assisting the team with this endeavor. One area we have broadened our strategy is inclusion of a patient advocacy to state insurance commissioners. This will utilize the information that has been provided by the Case Assistance Program. It's early days, but we think it complements the provider-driven process with original payers. The CAP program continues to provide the evidence required to assist in achieving the goal of policy determination. We submitted 8,200 cases, with 5,800 of those now concluded at a 90% win rate. Of those, over 400 have been won on 3rd-party appeal. That's an incredible effort and has provided all the evidence we require to demonstrate medical necessity and efficacy of product. That has resulted in progress with payers.
Although we are still seeking our 1st policy determination, we now have coverage with the top insurers across 12 states on a predetermination basis. We've conducted a number of good meetings with payers over the quarter and await the outcomes from policy determinations across six states with three top health plans. If successful, implementation is expected this financial year. The 2nd pathway to reimbursement is through guideline inclusion. As I noted in the previous quarters, both paths lead to the same outcome, reimbursement. Guideline inclusion is simply an enabler. It speeds up the process. Both companies only have the traditional path available to them. Fortunately, we have both paths available to us. Over the weekend, the NCCN breast cancer guidelines were published. All we know at this point is there was no change to the guidelines.
Until the meeting evidence is published, we're not sure whether they've considered the submissions, but we should know more this week. Unchanged still provides an avenue. The guidelines still say that lymphedema is a potential side effect of treatment to axillary nodes. Early detection diagnosis is key to optimal management and consider pretreatment baseline measurements. See NCCN guidelines for survivorship lymphedema. That link is important. As we announced last quarter, an additional submission has been made to the NCCN, this time for the inclusion of this technology in the survivorship guidelines. We saw this as a very positive development on several fronts and said at the time, number one, the additional submission effectively gives us two shots on goal instead of one, t wo, the breast cancer guidelines reference the survivorship guidelines, so any change in survivorship is applicable in breast cancer.
Three, the survivorship panel are subject matter experts, so we can expect a clear understanding of the issues and the unique solution BIS offers cancer survivors. From our perspective, the survivorship guidelines were the highest probability of enacting change, and they are still pending. Our expectations around this timing is before the next quarterly call. Reimbursement continues to be our goal. We continue to have multiple avenues to the same goal. Some have closed, some have opened, and others remain unchanged. In the end, we're still confident it's a matter of when, not if, we get full reimbursement. Now I'll hand back to Rick.
Thanks, Mike. Throughout the presentation, we have covered the key achievements for the quarter outlined on page 11. I'll concentrate now on page 12, a summary of the key focus areas. The remainder of the financial year is all about tightening our focus, focusing on private payer reimbursement, focusing on sales, and expanding the platform in advance of reimbursement. We will complete SOZO 2 hardware development and submit it for FDA clearance. That's going very well at the moment. Although I see heart failure and renal failure as a big part of the long-term future of the business, for the remainder of the financial year, they won't be the focus. That doesn't mean all activity will cease.
In fact, in heart failure, we expect to complete and lodge the FDA submission for the removal of contraindications for implantable pacing and cardio defibrillator devices following FDA clearance for SOZO 2. Post-validation and verification testing has been completed for SOZO 2. Our R&D team will complete the renal data review from the observational trial. We can sit down with the principal investigators to discuss next steps. As I mentioned at the beginning, the 1st 60 days have been very busy. The company is moving quickly, and it's important that we stay focused if we're going to achieve our goals. The key areas of focus are advancing reimbursement through private payer policy determination and potentially NCCN guideline inclusion, revenue growth, focusing on both accelerating SOZO system sales and further increasing average monthly license fees. Continued cost control, of course.
I wanna thank you for your support, and I'm looking forward to meeting a number of you when I get down to Australia. Winnie, we're now ready to take questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your 1st question comes from Elise Schafer with Canaccord. Please go ahead.
Great. Thanks for taking the questions, guys. First, you know, you touched on having a higher confidence in the survivorship panel. Can you give any detail on differences between the submissions themselves to survivorship versus treatment? Were there any doctors in the treatment panel that were users of SOZO? Thanks.
Uh, I'll take-
Thanks, Elise. This is Tim. Yeah. Mike, please take that for us.
Elise, yes. The panels both have about 30, 132 people on the panels. The breast cancer panel is made up mostly of oncologists. Probably half of them are oncologists. 25% would be radiologists, and about 25% would be surgeons. Where we touch that group is probably in the surgeon group. Again, we don't have all the NCCN hospitals, and we don't have them all of our SOZO systems within surgery. Their primary focus in that group is drugs, that's why the predominance of oncologists on that group. The difference is the survivorship panel are effectively expert that are... Well, they're experts in lymphedema and survivorship. If you look at that panel, there's a number of lymphedema specialists on that panel.
They have four subpanels, and one of those is lymphedema. It really is a focus of that group. There is, I think in the survivorship, there's about four, three lines on lymphedema, and there's a couple of pages in of, within the survivorship guidelines. It, it's significantly more understood within that group, and there are a number of users within that panel.
Great. Thanks. Another question just around, you know, I guess in the unfortunate instance that you also don't get survivorship, 1st, is there an appeals process that you can go through? 2nd, what impact are you still having on the private pay opportunity going forward?
Well, there's no appeal process, but there's nothing stopping you putting in, further submissions. For us, it would be trying to get the number of people on those panels using the machine and understanding the technology over time. That would probably give you a better chance of getting through the submissions, although we still, you know, believe that we've got a very good chance this time. There's no specific appeal process, and the next meeting, as you understand, is in the survivorship area is October. The 2nd part of your question on private pay, there's a, there's a number of other ways that we can... Well, number one, most people don't have NCCN. NCCN is only available to cancer.
When you think about devices, for people to get reimbursed on devices, they don't actually have that avenue. The, the traditional way is the one that we're doing at the moment is effectively knocking on doors, and appeal wins, where you prove to the medical necessity and efficacy. As you can see with some of the payers, they're already moving towards coverage. We don't need coverage across the country. In the case of, say, Michigan, about 40% of Michigan people are covered by Blue Cross Blue Shield of Michigan, and additional 15 are covered by Priority. That's very specific to that state, and that, you know, and that's quite a large state and could provide us with, you know, quite a long way towards break even.
We're focused on a number of those states where they have high independent, versus the national covers. The national coverage, for example, say United might be the, is the largest there. In Michigan, it's, you know, number three, but when the University of Michigan stands up and say, "We want this change," United doesn't really care that much because it's less than 1% of their business. We're between 5% and probably 10% of Blue Cross Blue Shield of Michigan's business. Where we're looking to do is leveraging where we have, you know, strong appeal wins, like in Michigan, where we've got, independent people with independent medical policies, and where you have significant advocates that mean something to those payers. It doesn't...
That is the traditional way of doing it, and that's the way we're doing it. There's also other guidelines out there. For example, the ASBS guidelines, the American Physical Therapy Association guidelines. There's other guidelines that are also that the payers take into account.
Great. Thanks. Yeah, just one last one. On the cost-cutting measures that you've taken, can you just give a little bit more color around where you cut from the cost base and how sustainable those are? Thanks.
Sure, Elise. Yeah. We took our head count down primarily at the executive level as part of the reorganization. There were significant cost savings from that standpoint. In addition, a lot of our independent consultant contracts were either paused or canceled as well. It's just general overall cost containment. The, you know, the majority of our expenditure as an organization comes from headcount and at that executive level. That realignment now and shrinking of the executive team is where you're gonna see sustainable impacts. We're confident in the cash guidance that we've given.
Great. Thanks, guys.
Thank you, Elise. Appreciate it.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Next question comes from Shane Storey from Wilsons Advisory. Please go ahead.
Yeah, good morning, everyone. Just like to go back and try and understand why you believe that the survivorship panel, guideline change might be more impactful, say, than the treatment one. I'm just interested in any view you can share on just how the clinical interpretation, you know, would differ, whether that has an impact on the different sorts of audience for those two sets of guidelines or whether it also kind of influences, you know, when, you know, the technology is, I guess, introduced in a, in a, in a patient's sort of journey? Thanks.
Hi, Shane. I don't think it changes particularly the clinical outcome part with the exception of it'll be in more hospitals. And more the hospitals can afford more units. For example, quite often we have them in surgery and rehab, where we don't have them in oncology. To get a full system, you need them on oncology. What we find is as you go through the process, you eventually hit the finance department who says, "Unless this pays for itself, we can't put it in." And so a number of hospitals like, you know, like the key ones, like whether it's Moffitt or Cleveland Clinic, MD Anderson, that they all put the technology in because they understand the necessity for it.
Where if you're in a smaller hospital, you're looking at it going, "Well, can we actually afford to put that technology in?" I think from an NCCN point, it's less a selling point to the surgeons because we get a lot of buy-in at that point anyway. It's them being able to get it through their financial system that causes the issues. That's where NCCN guidelines establishes standard of care. One thing the insurance companies in America seem to worry more about when patient is being sued because then, you know, because they, a patient has got something where they've denied a claim that is standard of care. It's really around the financial aspects as opposed to the clinical aspects. In terms of the difference between survivorship and breast, because of the link, there really isn't a difference.
It's still gotta be introduced at a baseline with the surgeon. You should be able to travel through the patient's journey as they go through radiology, as they go through chemotherapy, and as they go through rehab. It all starts with taking a baseline after surgery.
I appreciate it only sort of, you know, transpired over the weekend. Any early sort of feedback from some of the, you know, the NCCN kind of member organizations that are also customers? I'd expect a level of disappointment from some of those.
I don't, I know it sounds strange. I don't think that that's really their key focus. If you look at, say, Cleveland Clinic and the discussions we have from them, you know, Chirag, you know, who was Cleveland Clinic, were instrumental in putting in the submission. I mean, they're disappointed, but it doesn't change the way they do things. They actually see the NCCN as the lower level, not the upper level. They've got a number of machines, and they're using it in a number of different ways. For them, it doesn't change what they do. Most of the NCCN centers are very similar in that way. I'd imagine the... Yeah, we'll wait and see what comes out with the meeting evidence.
Would you
I think from that perspective, they're okay.
Thank you. Last question from me. Would you contemplate sort of scaling up some of the, some of the... I mean, appreciate you've gone through a round of cost-cutting, but would you contemplate, maybe bolstering, you know, the CAP program, over the next 18 months, depending, say, if you don't get the answer that you want, say in March?
The CAP program's probably already done what it needs to do, Shane Storey. The main thing is to provide evidence for medical efficacy, and medical necessity. That, and, you know, at 8,000 odd cases now and 5,000 odd wins, that's already been established. Really for that group is big. We're actually focused more on within particular states, just ramping up our efforts in those states where. We're offering the CAP program to particular institutions and try and help them get on board to generate more, more paying for the insurers in that state.
Sure.
it's not really a widespread, you know, do we need Colorado? Do we need, you know, you know, Louisiana. It's more about, you know, focusing in New Jersey, New York, Michigan, in the States, that we're targeting.
Thanks, thanks, everyone, and welcome, Rick. Thanks.
Thank you, Shane. Appreciate your question.
I'll now hand back to you, Mr. Richard Valencia, for some closing remarks.
Thank you very much, Winnie. Thank you everyone for attending today and for the good questions. Again, I look forward to meeting a number of you when I'm out in Australia, down in Australia, I should say, in another month or so. Thank you again very much and have a good rest of your day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.