Thank you for standing by, and welcome to the ImpediMed Limited 4C Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question- and- answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Dr. Parmjot Bains, Interim CEO and Managing Director. Please go ahead.
Thank you. Good morning, and welcome to the ImpediMed Investor Call for the Second Quarter of Fiscal 2024. My name is Parmjot Bains. It's good to meet you all virtually. I've been recently appointed Interim CEO and Managing Director of ImpediMed, and with me today is McGregor Grant, who is the Interim CFO and Executive Chairman of the company. I'm sure, as most of you are aware, McGregor and I were appointed to our respective executive roles at ImpediMed at the end of November 2023, and I only commenced on the eighth of January this year. So this is still very early days for us. What I would like to do on this call is, firstly, introduce myself and provide a bit of background on my experience in life sciences and in the healthcare industry, in which I've been working for the past 30 years.
Secondly, while I have only been with the company for just over three weeks, I have spent much of that time talking to staff, visiting members of the ImpediMed sales team, and talking with customers across the United States. In light of this, I would like to share some of my initial observations and impressions on the commercial opportunity for SOZO in the U.S., and also on what we need to do to execute on this opportunity. Finally, I will hand over to McGregor to go through the Appendix 4C and activity statement for the quarter ending thirty-first of December 2024, which were lodged with the ASX yesterday morning. After this, we will open the line for questions. First, a little background on myself.
While I initially trained and practiced for several years as a medical doctor, the majority of my career has been focused on the business side of the healthcare industry. Over the past 8 years, I have held a range of executive roles with a global pharmaceutical company, Pfizer. These roles have included, most recently, overseeing multiple product launches, managing a large sales and marketing effort across six countries and six therapeutic areas, including oncology, working with healthcare distributors and channels, and navigating the reimbursement landscape. During my time at Pfizer, I also held senior global roles across Pfizer units, overseeing business development and marketing in our Asia- Pacific region and global alliance initiatives across Pfizer's portfolio. Prior to Pfizer, I worked at the George Institute, where I was responsible for the commercialization of global public health products in the cardiovascular space.
I have held CEO roles with two biotechnology companies, including Neuren Pharmaceuticals, which has recently enjoyed considerable success with the development and commercialization of its drugs for rare neurological conditions, for which I was involved in the very early clinical development stages. I have spent four years as Engagement Manager with McKinsey & Company. I believe this background has provided me with a depth and breadth of experience that is well aligned with what ImpediMed needs at this time in order to take advantage of the considerable commercial opportunity available for the SOZO System. I am very familiar with the challenges involved in launching products into the healthcare system, the complex process involved in selling products to hospitals and other healthcare customers, which in turn highlights the need to have a very clear and well-thought-out go-to-market strategy and execution in order to be successful. Now, onto my first impressions.
While I've only been with the company for just over three weeks, I have spent much of that time having in-depth discussions with staff at ImpediMed and talking with over 16 current and potential customers across facilities throughout the United States. In addition to spending time with the team in Carlsbad, I met up with our field-based colleagues, sales and clinical product support colleagues, and customers in Dallas, Boston, Rhode Island, New York, Connecticut, and Denver. I would like to start by saying that when I was first approached about joining ImpediMed, I could immediately see an attractive and unique opportunity for bioimpedance spectroscopy as a way to improve the management of a range of medical conditions, including cancer-related lymphedema. Furthermore, it was clear that ImpediMed's SOZO System was unique in providing actionable insights from this technology in a differentiated and clinically validated manner.
I've spent the last two weeks talking with both members of ImpediMed sales team and, as I said, 16 customers who are existing users of SOZO System in breast cancer. I would talk with interested customers and also world-class researchers who are very interested in working with us to collaborate on new indications. I heard from surgeons who are breast cancer and lymphedema survivors, and patient stories of how this technology has impacted their care. I have come away with an appreciation of just how much the medical community values the insights this technology provides, the impact this technology can have to optimize patient care, and as a consequence of just how significant the commercial opportunity for this technology is.
I am genuinely very excited by the opportunity we have in front of us, and with the prospect of bringing my experience and expertise to ensure rapid and effective execution to positively impact more patients' lives... As you are aware from the previous presentations, and you will hear from McGregor in the quarterly update, we are finally starting to get momentum with reimbursement coverage for the use of SOZO across the U.S. Following the inclusion of bioimpedance spectroscopy in the NCCN's Oncology Survivorship Guidelines last year, we remain confident that we will have over 85% reimbursement coverage across the U.S. by the end of this financial year. This is a terrific milestone, as without reimbursement coverage, it is very difficult for clinicians to adopt any technology or product for their patients in the U.S.
For most sites, revenue neutrality or generation is critical, so reimbursement does play an important role in the adoption process. However, while reimbursement is a requirement for adoption, it does not in itself drive adoption. There is work to be done on increasing our revenues and patient reach. This is where the company really needs to take charge and develop a deep understanding of the market, educate customers, and understand their internal needs and processes. The company then needs to use these insights to refine the go-to-market model and empower its sales and clinical implementation efforts to execute on the strategy.
In view of this, and reflecting on the conversations I have had with the ImpediMed team and the customers, there are three key areas the company needs to focus its energy and efforts in the coming months, and we have already accelerated this work in the past three weeks. Firstly, it is critical that the company get a much deeper and granular understanding around the customers for the SOZO System and the total addressable market opportunity that they represent. I know the company has done some work in this area in the past, but based on my previous experience, this is an absolutely critical step for developing an effective sales and marketing—
Pardon me. This is the operator. I've just picked up your line privately. Can I please confirm your full name? Pardon me, is anybody there? You are now rejoining the main conference.
Going to have the greatest impact on the successful rollout and commercial adoption of the SOZO System. We've already identified 11 top states that we want to focus on, and these are all expected to achieve critical mass reimbursement in the very near term. Even within these states, we need to segment our customers and target and support the IDNs and healthcare facilities and clinicians that are considered clinical practice leaders that offer the greatest commercial potential and have the infrastructure to support rapid adoption through sales and marketing strategies. It is critical that we build out a robust pipeline fast. This covers the expansion of adoption at existing sites and building a robust pipeline of leads for future sales. The focus here has to be about putting the right effort into the right customers at the right time and monitoring this closely.
We are working very hard on generating this data and ensuring this happens. Finally, we need to make sure that the execution of our go-to-market model is best in class. I will bring my experience from managing multiple new product launches and optimizing the go-to-market model in my last role at Pfizer to ensure that our efforts have the best chance to deliver commercial success. This includes optimizing lead generation, nurturing the pipeline of opportunities, and renewals through to faster execution. We have a long sales lead time. We need to simplify the sales and device implementation process, streamline the go-to-market operating model and tools, and most importantly, track progress. In my last role, I grew a flat business to double-digit growth in 18 months through effective execution of the go-to-market model and back to the basics.
With such a compelling product and engaged team, I am confident we can do this at ImpediMed. Urgency and execution is critical, being very cognizant of managing the cash burn rate. Before I pass to McGregor to provide an overview of the last quarter, I would just like to reiterate, in the short time that I have been at ImpediMed, I am convinced that we have a very attractive opportunity available to us, and already I can see ways that the company can become much more effective in realizing this opportunity. This is a very exciting time for ImpediMed, and I'm looking forward to leading the company in the next stages of its journey. Now over to you, McGregor, and thank you.
Thank you, Parmjot. I would now like to go through the highlights of the activity statement and the Appendix 4C for the second quarter of FY 2024 that was lodged with the ASX yesterday. As part of this, I will also describe a couple of changes in the way that we are reporting our financials in this quarter and going forward. During the quarter, ImpediMed recorded unaudited revenue of AUD 2.3 million, compared with AUD 2.5 million in the quarter ended 30 September 2023. The company sold a total of 37 SOZO systems during the quarter, of which 13 were sold in the U.S. This compares with a total of 20 systems sold in the preceding quarter, of which 19 were sold in the U.S.
As foreshadowed, there was no revenue recorded from the clinical trial program conducted by AstraZeneca during the quarter, which compares with the $0.1 million that was recognized in quarter one, FY 2024. The value of new contracts signed during the quarter, which we refer to as total contracted value or TCV, was $1.6 million, compared with TCV of $2.4 million signed during Q1 FY 2024. Before I go on, I would like to outline a couple of changes that we've made to the way we recognize revenue, which we believe provide a better representation of the business. First, previously, the company separately reported revenue associated with the initial sale of SOZO System as device revenue, and the remaining revenue associated with each contract was reported as recurring subscription revenue.
For this, in future periods, we are not going to recognize any revenue specifically associated with the initial installation of the SOZO System in the U.S. Rather, we will report all revenue associated with each contract as revenue from contracts with customers. Revenue from the sale of devices outside of the U.S., which typically is not associated with an ongoing subscription revenue stream, will be recorded at the time the sale is completed. Second, many of the contracts are based on annual increases in the monthly subscription fee to reflect the anticipated greater utilization of the system and the increased reimbursement amounts that customers could potentially claim over time. Previously, the amount of recurring subscription revenue was reported in each period, each period reflecting this increased pricing over the life of each contract.
In this quarter and in future periods, the revenue from contracts with customers will simply be recognized as equal monthly amounts over the term of each contract. So I'd just like to walk you through an example of this. If we had a contract for $72,000 over 3 years, previously, we would record revenue in the first year of the initial installation of the SOZO System, along with 12 months subscription of revenue at a lower 1-year rate-- year 1 rate, followed by 12 months at a higher 2-year rate, and then followed by 12 months at an even higher year 3 rate. Under the new approach, we'll simply recognize revenue of $2,000 per month for each of the 36 months of the contract.
We think this is a much simpler approach, and it will make it easier for shareholders to understand how our revenue pipeline is evolving. With this change, we will only provide an annual recurring revenue number for the forthcoming 12 months. Previously, the company separated, provided an ARR for the second 12 months of the contracts that were in place. However, under the new approach, these numbers should be more or less the same, other than for contracts that conclude or are not renewed in the second 12-month period. I note that the change in the way we report revenue was made in Q2 FY 2024, and the net effect of that change did not have a material impact on this quarter's results. I'll now provide an update on the expansion of reimbursement coverage in the US.
As announced in November 2023, UnitedHealthcare, the largest private payer in the US, updated its commercial and individual exchange medical policy, Omnibus Codes policy, to state that bioimpedance spectroscopy, or BIS, for lymphedema assessment, CPT code 93702, no longer requires clinical review. The removal of the requirements for clinical review is referred to as silent coverage, and this policy came into effect in January 2024. Medicare in the US, along with 38 other private payers, currently provide silent coverage for CPT code 93702. In addition, there are 13 private payers that have published positive medical policies. This compares with the end of Q1 FY 2024, when 27 private payers were providing silent coverage and 12 private payers had published positive medical policies.
Following the changes to the way policy decisions are implemented for members of the Blue Cross Blue Shield Association, which were described in our last activities report, the company expects approximately 85% of private payers in the US will be providing coverage for the use of the SOZO System for lymphedema by the end of FY 2024. With the updated policy from UnitedHealthcare, along with other private payer policy changes that have come into effect since the inclusion of BIS for lymphedema assessment in the NCCN guidelines, there are now 13 states in the US that have achieved critical mass. The company defines critical mass as having a greater than 80% of the population covered for reimbursement by either Medicare or private payers.
The company has identified 11 states as being high priority from a commercialization perspective, based on potential patient population, medical leadership in lymphedema prevention, and payer coverage. Of these, seven states have already achieved critical mass. The company believes that all 11 high priority states are likely to achieve critical mass by April 2024. To conclude, I think we're in a very good position with respect to reimbursement coverage in the US, which is a really important requirement for adoption. As Parmjot said earlier, our job is now to make the most of that reimbursement coverage by developing a well, well-thought-out go-to-market model and to execute. With that, I would now like to open up the call for any 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 first question comes from Shane Storey with Wilsons. Please go ahead.
Good morning, everyone. Can I just check that you can hear me, please?
Yes. Thank you, Shane.
Hey, Steffen. Hey, thanks for that work example, McGregor, there on the new revenue recognition. I had a couple of questions, though, from the customer's perspective. Will they see any change themselves, or will they still see a, let's say, an annual step up in pricing or rates? And then what we'll see then is perhaps a small difference between, say, recognized revenue and cash receipts. Is it as simple as that?
That's exactly right, Shane. At this stage, we don't expect that the pricing to customers is going to change, although that is something that we are continuing to review, and I think, as reimbursement arrangements change in states that impact the discussions we have with particular customers, that may change. But initially, this step-up pricing model will continue from a customer perspective. But as we said, the revenue recognition will be spread evenly over the time. So it's really just a time difference between perhaps when we re-invoice and receive the cash and when we actually book the revenue.
Thanks. Second and last question. I'm gonna let you off the hook a little bit on TAM re-estimation, but what I will get some thoughts on maybe is— I mean, when you look at, I guess, the company's previous sort of statements around TAM, and you sort of, you know, embark upon your own process to sort of go through and get your own numbers, I mean, what areas are you focusing on? Where do you sense there's— I mean, if there's gap analysis anywhere, I mean, where do you sense the early parts of your inquiry will sort of focus on, please?
You're a little difficult to hear there, Shane, but, I think your question is around TAM and what, what, how are we, how are we thinking about that differently? Yes, the company has previously indicated what a TAM number is, and that perhaps is based on more of a sort of a top-down view of what the potential TAM could be. We have data now that gives us a lot of granular information around diagnoses and procedures, you know, at a, at quite a granular level. And we're now looking at it from a sort of a bottom-up approach, and we're gonna triangulate all of this and think about what realistically makes sense. The TAM that the company has previously talked about covers not only...
It covers all forms of lymphedema, or lymphedema coming from all forms of cancer types. So within that TAM is the breast cancer piece of it. You know, I guess, you know, that's kind of the high level of how we're thinking about it. But, you know, we need some time to really, you know, pull this apart, and then we'll come back with a more considered view of where we, how we see the TAM and what our initial areas of focus will be.
Yeah, and just to reiterate, you know, we do have indication and reimbursement for all of those lymphedema. So therefore, while U.S. breast is the focus, there is considerable opportunity in those other indications. So we are going to take that look at the whole cancer-related lymphedema space, make sure we understand that clearly.
Thanks, then. That's all I had. Thanks.
Thanks, Shane.
Thank you. Your next question comes from Elyse Shapiro with Canaccord. Please go ahead.
Hi, thanks for taking the questions. Can you just run through what the sales force looks like at the moment, in terms of numbers, and what they're doing in those kind of key seven jurisdictions at the moment as well? Thanks.
Sure. So right now we've got 10 key account managers who are supported by six clinical implementation leads. Right now they are spread across the United States and territories. But with this focus on the 11 priority states, we're working on just making sure we drive focus on specific customers. So we're right now going through an exercise in customer segmentation and then focus so that we can really drive both our pipeline and our current commercial implementation.
Great. And then just, you know, looking at those 10 reps, how many, how many hospitals or sites, do you think each of them can kind of target, on an annual basis?
Well, that's what we're working on giving them targets on. That level of detail is the granularity that we need to develop as part of our go-to-market strategy and implementation. Because what we've got is KAMs will target at one point, but we also need to ensure we've got lead generation appearing through our marketing efforts, as well. So they will filter down and funnel from that.
Okay, great. Thank you.
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. Your next question comes from Ian Hyde, who is a private investor. Please go ahead.
Thank you. Good morning. On behalf of shareholders, welcome, and I do actually have a raft of questions, so if you can bear with me, 'cause I know a lot of people are interested in these things as well. Staff losses. Since you've taken over in the last couple of months, has there been any senior staff or executives that have left the business at all?
Other than the ones that we've announced, no.
Okay, great. So is it then safe to assume that, as far as the day-to-day business operations and what's been happening, it's just been going along as standard without any disruptions, obviously now subject to what changes that you'll be putting in place. Is that a fair statement?
I think that's reasonable, Ian, yes.
Yeah.
You know, clearly, clearly there's been, you know, a bit of noise as a result of all the changes, but what we've observed is that the team has continued sort of business as usual throughout this time. Of course, as Parmjot said, that we will be reviewing, you know, the opportunities to, you know, to optimize the way we're organized and to, you know, align around the sort of the new go-to-market strategy.
Sure, I can. Thank you. You've mentioned about leveraging into group master corporate IDNs. I don't know if you can answer this or not, but up until now, has the company been doing anything in that regard?
Absolutely. So IDNs from the company perspective, they have been looking at, and I think there are 20 MSAs signed with the IDNs, which create an opportunity. I think it's an area where we can focus more, because clearly the large networks are now with reimbursement. You know, if we could get some of these across the line, it will generate significant revenue. So it is an area that we are actually going to look at focusing and prioritizing resource around to execute on this.
Okay, thanks. So not being an expert on the differences between the different ones, but an IDN, I assume would be quite different to a group or a corporate contract. And in that I'm talking about a group or corporate contract, they could be, I don't know, it's just a brand of hospital, for want of a better term, and they may have someone in senior admin or what have you, that actually determines group or corporate policy around treatment and/or what's going on.
Yeah.
Is that a standard difference or a possible difference? And if that's the case, could, like if you get a corporate contract to say, "Yes, this is what needs to happen," that can then obviously assist in sales and populating through the system?
Yeah, I think they all, they all vary. You know, so we've got large IDNs like Bench, and who've got around 70-74 facilities across the United States, and so all the way down to maybe you've got the Yale New Haven group, which has got five facilities. And so you've, you've kind of got these large networks that operate across the U.S. I mean, US Oncology is significant. It's got 4,430 facilities. Each one operates slightly differently. So US Oncology may want Texas Breast to kind of go take the lead first, or Texas Oncology, which wants Texas Breast to lead. So they're all, they've all got various different decision making processes. And so for us, it's really critical to understand and then prioritize those accounts, and then have a very targeted approach.
Because you're right, we may look at different offers, for these, depending on reach, reimbursement, and interest.
Sure. Okay. Obviously, that's a major part of your project going forward.
Yeah. Yes, absolutely. IDNs are absolutely critical for us.
Sure, thanks.
There are smaller IDNs or networks within states, which will just be part of the state prioritization activity, but definitely a focus at the national level.
Cool. Okay. So for the layman, can you explain if there's any real difference in the world regarding the difference between silent coverage and positive medical policies issued by insurers? Or it's just a term and fundamentally day-to-day operations, and how the U.S. health system views it, there's no real difference.
That's our, that's our understanding, that there is no practical difference between policies that are positive versus policies that are silent. Silent. The important point is that the insurer will accept and reimburse when procedures are billed under the code, the relevant code.
Okay. Okay, so we have jumped, well and truly up the ladder of, the level of coverage that we can sell into?
Yeah, yeah. That's- it's a meaningful—i t's a very meaningful improvement in the, you know, over the last quarter or so.
Yeah.
Okay.
Customers, they definitely look at this. It's really critical because often clinics have to run their own P&L, so reimbursement is really key.
Okay, well, that's a perfect segue to the next question. So, is the difference between silent coverage and positive medical policies for reimbursement, is there any difference or it's the same? And what, rates have you been able to achieve? Has it been the post $200-ish per test that has been, achieved to date, or?
The reimbursement rates are determined by the payers themselves.
Okay.
That information is not made public. It does vary considerably from payer to payer and state to state. I think that the Medicare rate is around about $150, and the private insurers are paying a bit more than—quite a bit more than that. So, but yeah, the rates are certainly, you know, make sense and consistent with expectations.
Okay. You mentioned you've had strong renewals, so can you give us any numbers around what percentage is happening there? With the new renewals, what's happening with the contract price that they're renewing on?
There have been some renewals that have occurred during the quarter. I can't say whether or not I would consider them to be strong, but we continue to renew, and it goes back to the churn rate that is very low. So we continue to renew, and generally when we renew, we renew at the rates that were in place for the third year of the contract that we're renewing or we are able to achieve some slight improvements in those.
Okay. And patient tests for the quarter?
Yep. So we're not really focusing on the number of patient tests that we're seeing the machine used on. Obviously, that's an interesting measure of utilization, but it's not actually the driver of our revenue. Our revenue is based on the monthly license fees that are charged. And those are charged regardless of utilization, but the rates at which those license fees are determined have some regard to the volume of procedures that will be there. So we're kind of steering away from focusing on that particular metric at the moment.
Yeah. And the only, just, just to add in though, well, there are three opportunities for this business. One is renewals, one is expansion of existing sites, and the second one is new site generations and new sales and new sites. So we are making sure we have a focus on looking at those sites that have SOZO devices to ensure that the utilization is enough, that we can actually drive expansion. So it's, it's one of the metrics, and we're actually putting a whole range of metrics into the business to just make sure that we can track, ensure that we get expansion, within sites.
Sure. Okay. And number of NCCN sites, are we getting close to getting 100%?
I don't have that information.
Sorry, we have to revert on that, Ian. So we do. Yeah, it was significant. And we are looking at the sites we don't have at, and to understand why. So, it's a focus.
Cool. Okay. And lastly, because there no doubt will be frustrated people with all my questions, taking their time: Do you anticipate, as the momentum builds, that the lead time, fingers crossed, should actually start to reduce from six months? I know it's probably gonna be that initially, but as the momentum with payers and everything else accelerates, do you see that coming down at all, or that's a total wait and see?
No, no, it's a target. 'Cause six months is a long lead time. So what we're working on, in fact, over this last week is looking at that sales process and then saying, where are the pain points? And then what do we need to do better to make sure we tighten that implementation process up? I mean, clearly it takes... You know, they've got to get this into hospital's IT systems. You've got to get contracting done, you've got to go through legal, you've got to align on budgetary timelines and processes. So we're actually just going through the whole process flows now, both sales lead time, but also time of implementation, once the sale's been made, and then just deep diving into how we accelerate execution, because it is key in these sites.
Okay. Well, thank you very much. Well, I do have more, but I will go, so it's up to the next one. Thank you very much.
Thanks, Ian.
Thank you. Your next question comes from Greg Harrison, who is a private investor. Please go ahead.
Hi. Thank you. And look, thanks so much for the information on the call. I just wanted to—w ording, obviously, that you're using today, I think is quite positive. I've been in sales and tech sales for about 25 years, so I think the execution focus on the revenue sales. What are the—i n the discussions you've had with customers, what are the key objections you're coming across on, that they're not expanding SOZO or actually implementing SOZO devices? I'm just interested, because the sales, obviously, for the last quarter are pretty poor.
Yeah.
There's obviously some objections that customers are facing, and I'm just interested to understand that.
I think it's. I haven't actually heard a lot of objections. A lot of the people that have got the sites were positive, and I also had potential customers. For the potential customers, it was that getting into budget cycles and having reimbursements was key because they, they have to show that they, you know, that they're revenue neutral or, or revenue generating. That was key. I think the underlying belief in the technology is strong across the sites and the systems. You know, you're also putting in a whole lymphedema prevention model of care, and so really, it's, it's being able to help the customer or the doctors and the lymphedema therapists understand how it's gonna get put into their, into their clinics. So for example, what does the patient flow look like?
You know, does the patient come into the breast cancer surgeon and get the pre-screening test done, and then how do they get those follow-up tests? So really, it's just a lot of handholding at the moment to really help customers get this model of care and then patients being tested. Which is why I think, you know, that immediate low-hanging fruit is really the expansion, where you've got that model of care into systems, and you've got more patients coming through. Getting the renewals are the ones, the new sites, sorry, are the ones that are slightly more difficult just because you have to help them implement. So we're just trying to standardize and streamline that process.
Okay. And do you think you're able to automate or, not gonna say automate, are you able to, yeah, streamline that process over time?
Yeah.
Or is it a handholding? Because obviously with the NCCN guidelines, we thought, hey, the revenue will start flowing, but in actual fact, there's a lot more hurdles in place that you need to get across.
No, I think it is, it is streamlining because... And we are, as we put more systems in, we have to streamline because we have to be able to scale this process up. So, yeah, we are, we are working on that and, just, just making sure that all the materials are out there for the key account managers so that the hospitals know how to implement. And as you said, it's, it's in the NCCN guidelines, so it's really part of quality of care and standard of care, and so sites really are now starting to come to us and say: Look, we know we need to implement this.
Okay. So you, you're actually getting sites, you're hearing that from the sites that this is impactful?
Yep. Yeah, yeah, yeah. Absolutely. And, and we're getting surgeons outside of breast cancer, right? So because and node node removals and melanomas and pelvic cancers, it's, you know, lymphedema is affecting multiple patients, and so we are, you know, getting getting other sites approach us, and, and sales and others other indications.
Okay. Great. Thank you. Thanks for the answers.
Thank you. Your next question comes from Miriam Lee, who is a private investor. Please go ahead.
Oh, good morning. Well, actually, some of my questions have probably been answered. I had begun to worry that some of the hospitals, et cetera, had decided they would be quite happy just to keep on with what they were doing, tape measure , or just handing out a pamphlet to watch out for swelling and pain or whatever, and wouldn't be bothered about the SOZO. But you feel that's not going to be the case, that it really hinges on the reimbursement, and because you've only just got reimbursement in quite a number of states, that there's going to be that delay, that they're going to want to take it up when they can be guaranteed of getting paid for the test. Is that how you see it?
I think so. No, but we also do need to market, and we do to drive medical awareness and medical education, so it's, it's just making sure that the messaging is getting out there. And so in the last three months, the organization's hired a Chief Medical Officer who is former breast cancer surgeon. And so there's, you know, there's multiple strategies because we have to really, we do have to drive awareness. Just because it's on the guidelines doesn't mean... And, and this reimbursement means it'll automatically get adopted. So we are really focusing that sales, marketing, medical, activities, medical education, peer-to-peer, education around those priority states. Because we are a small company, so we have to focus and really see where we can drive priority states and IDNs.
Right. So you're going to have the salespeople focus on the particular states where you feel it's going to make a difference?
Sales and marketing and medical as well, because it's you know, to get a clinician or a healthcare provider to convert, you do need to have 5-6 interactions with them. So, you know, they'll need to get marketing material. They may need to go to conferences. So it's just creating that integrated omni-channel approach that makes sure the messaging is getting out to the customers, and then the leads are generated, and then the KAMs can follow up through with execution.
Right. Just on the past, which is rather glum, the 13, does that include the 3 multi-system contracts, which apparently, according to the last quarterly, had stalled at the end of the first quarter and were expected to close in the second quarter? Did they close?
One of the three has closed, but it closed in quarter three, not in quarter two. The other two are expected to close this quarter as well.
Oh, great. So, how many systems will that encompass?
There's a total of around nine.
Oh, well, that's something positive. Oh, I don't know that I can ask anything more particularly useful. Yep. Okay, thanks.
All right. Thank you.
Thanks, Miriam.
Thank you. Your next question comes from Lutz Steffen, who is a private investor. Please go ahead.
Yes, two questions. Good morning, first. Yesterday, according to Appendix 4C, there was an exceptional high cost regarding staff and admin, so about AUD 7.5 million for the quarter, or 2.5 per month on average. Where does this number come from? That looks way too high for me, for, as you mentioned, a small company and the sales just, about AUD 2.3 million. How do you justify those costs?
Yeah, thanks, Steffen. So the run rate of staffing costs for the second half of FY 2023 was about AUD 4.5 million a quarter, and that's now stepped up to about AUD 5.5 million a quarter. And part of that is driven by, in that time, some new sales reps have been hired. We've hired a chief marketing medical officer. There are some one-off items in there around the payment of short-term incentives and so on, but it is partly to do with growing the number of roles that are in the business.
You make a point about the relationship between the costs that are being incurred and the revenue of the business, and I agree with you that there is an imbalance there. However, we do have for a company like Impedimed, which is a regulated medical device business, there is a certain level of cost that you need to have in place in order to support the development and the marketing of a product like this.
However, the real challenge for this business is not so much to cut the costs, although that is something that we have a very keen eye on to make sure that we control, but really is to drive the top line of the business with the resources that we've got, and to make sure that the resources we have are working in the most effective way possible. The focus for us is really gonna be much more around developing and executing on our go-to-market strategy, rather than driving costs out of the business.
But as I said, you know, we certainly are going to be keeping an eye on ensuring we don't let that one get away from us, certainly until we are more confident about the top line growth that's going to flow. And as I said, you know, there are a couple of one-off items that are in there, but that's kind of the run rate that we're gonna be at.
Okay, next question. Let's say I just make it up. Your sales team is very successful, and suddenly there's a huge demand, and you have to produce 1000 units. Would you be able to scale up?
Yeah. So the manufacturing is managed by a third-party manufacturer. So that's one aspect of it, and so they would have the capacity to scale up. A good problem to have, something that we sort of monitor fairly closely. We believe that the relationship that we have with that manufacturer will, and their capacity and capability will allow us to scale up appropriately in the time frames that we have. We're gonna start having a much better visibility to our pipeline and knowing what demand is coming down the pipe, so that we can respond to that appropriately. But I don't think at this stage, supply of the product is going to be a challenge for us.
Thank you. Your next question comes from John Vincent, who is a private investor. Please go ahead.
Good morning. I had similar questions to Stefan, particularly in relation to ongoing other costs. And, it seems to me that the company is recruiting at the moment, particularly in the West Coast, but in the last period, we actually had a small number of sales in the U.S. and a much larger number of sales elsewhere. Are you able to tell me where the other sales occurred?
Yes. As we said, the number, there's 13 units sold in the US and twenty-four, I think sold in other markets. The majority of those were in Australia to the Australian distributor.
Right. Okay. And, obviously with, expanding the sales base means that the, cost of that is going to be borne for at least, probably half a, half a financial period, because your lead time is six months. So people coming on board and making sales, are not going to recover the cost of them for, for some time. It's not going to be recovered within the six-month period, and probably not within, maybe even in, in the next financial year. Is there a, a model on the, intersecting of, particularly labor costs, as compared to sales revenues or projected sales revenues? You obviously have a forecast—
Yes.
Of sales, but we as investors need to know what the intersection time is going to be and what pain the company goes through in getting to that intersecting time.
Yeah. You mentioned that, you know, you've seen some recruiting on the West Coast. There have been a couple of open positions that have happened as a result of a couple of departures of sales reps. So we're not increasing the total number of reps we have, which is the 10 key account managers and the 6 clinical support staff that we've got. So any recruiting that you see is just replacing, is backfilling existing roles.
Our plan is, this stage, is not to expand that team beyond where it is right now, until we really get our go-to-market model working effectively, and we've got a better idea of, you know, what's working, what's not working, and make sure that the current resources that we have are, you know, directed to the most effective areas in terms of states and customers and the like. So, it's really just about optimizing what we have, and through that process, we will get a better insight as to what the key metrics that we need to be measuring. So you're asking about sort of metrics and sort of breakeven points and all that kind of stuff. You know, we're on a journey of figuring all that out.
Yeah.
Okay.
It's a key focus.
Okay. And bearing in mind the revenue that's being generated per quarter, compared to the cost of generating it, the company's losing a substantial amount of money per quarter. And obviously there's a finite amount of money in the bank, but—
Yeah. Yes
What objective does the board have in terms of endeavoring to ensure that the company's not going to go back and ask shareholders for more money?
Well, we are very keenly aware of that issue, John, and very sensitive to it. And, and so we're focused on leading the team to drive the top line, to get the revenue going and get the cash in the door.
Yeah. Very prudent use of shareholder funds.
How long do you expect that the driving of sales is going to actually have some impact on the company's revenues?
Well, uh—
Because if you're going to recognize revenue monthly, it's not going to be a large amount of money coming in because of a sale. You're gonna be recording that per month. So—
Yeah.
The sales.
Going back to one of the earlier questions.
Sorry.
Yeah. I was just—
Sorry?
I was just gonna jump back to one of the earlier questions that was asked about the, as a result of the revenue recognition change, that doesn't impact cash flow and doesn't impact the way we're billing our customers. The cash flow arrangements we have with customers, many of which are also billed monthly anyway, rather than paying, say, a year or even three years in advance, that won't be impacted. So it's really just an accumulation. We just need to get the installed base up, and we need to get more SOZO Systems out there generating revenue.
Is there a target for sales of SOZO in the next two quarters, for example?
Yeah, we're not disclosing any forecasts at this stage.
Right. Okay.
Thank you. Your next question comes from Michael Pinn with Pinn Deavin Securities. Please go ahead.
Thanks for the opportunity. Got a few questions. Hopefully, they're quick answers. Is there any pushback from clinicians in the States about the value of the ImpediMed system?
Not that we're hearing. I mean, we did have, like, Mass General, you know, came out with a recent publication just around ImpediMed. But in discussion with our CMO with them, you know, they understand it's, and they acknowledge it's one of the technology options really to help manage lymphedema. So no pushback. I think there is now general acceptance of the technology. There is, and on the NCCN guidelines for survivorship, that's being reimbursed by major providers. So it's generally very good acceptance.
Okay, my next question, and you're probably gonna tell me the same answer you just gave previously. You talk about the states that are participating, but we don't sort of have access to what states they are, like, the existing states that are involved, the targets, and so forth. Is that information available, or is that commercial in confidence, you're not disclosing it?
Yeah, commercial in confidence, because we've got... Well, not really much of a competitor, but as a competitor, and so we're just carefully managing that information that goes out.
It's fair to say, though, that of the 11 key states that we've identified as being key states are those states that you would expect to be the key states in terms of population and so on.
Yeah. So it's more population driven, would have obviously, degree of affluence and population would be, the central indicator sort of thing.
Exactly.
Correct. Correct.
I'm gonna be crude with this and throw this one at you. It seems to me with the reporting of monthly revenue and so forth, and the nature of the service with a very small, you know, variable cost component to it all with the software, that this is ripe for, like, bundled sales and like getting the milk bar to take a Coke refrigerator to fill up with the product and so forth. Are you looking to bundle the machines and just lock these people into subscriptions all inclusive at any point, or you still wanna separate out the sale of the machine versus the subscription costs?
That would be—w e're reviewing all of the models, and that would be, you know, one possibility.
I'm thinking the larger sites would like to keep it simple, and, that sort of model—
Yeah. Yeah, exactly. You know, what we want to do is think about how to introduce lymphedema treatment as a, as sort of a holistic model of care approach. So, you know, an IDN would, you know, think about, or a hospital would think about all the different places where measurements are required and some will be high volume, some will be low volume. So we're thinking about, you know, more of a system-wide approach and pricing that goes with that.
Yeah, and just back to the question around streamlining the sales process, sometimes the hold up is going through both a separate CapEx and a separate OpEx budget. So we're just having a look at all of it right now and just saying: Well, how do we—y ou know, what's the levers we can do to accelerate this? And can you just go through a different approval process that doesn't impact our revenues adversely?
Yeah. Okay, my last question: How many staff are there actually now, and how many do you think you'll have in a year's time?
Total headcount is—
84?
84. Yeah, thereabout.
84 now.
Globally.
You know, no plan to currently grow. We wanna drive the revenues in this business. Clearly, we wanna have a plan and a path for growth outside of breast cancer, lymphedema and to other indications, particularly as we, you know, we know we've got, you know, some reinvestment around heart failure. But we need to create the business cases for these and really understand the opportunity before we do any further recruitment.
All right, but going back to the earlier figure of AUD 5.5 million a quarter, burn, the burn on staffing, AUD 20 million a year, much of that's a big number, and it scares us all to some extent. If you've got 84 bodies of varying capacity, that's not really a big number, is it?
Well, you know, it's not insubstantial either, but you know, I think you've got to have a range of skills and competencies in a business like this. And you know, the challenge for us is to make sure that we've got the right mix and that everyone is appropriately focused on the right activities.
So of the 84 staff, how many would be shareholders in some form or another, or incentive to be shareholders or the like?
A fair, a fair number. A fair number have some equity interest in the business. So,
The remuneration includes extra access to equity or?
It's all part of the package. Yep.
Right. All right. Thank you. I'm finished.
Great.
Thank you. There are no further questions at this time. I'll now hand back to Dr. Bains for closing remarks.
Yeah. And just, I want to just thank you all for joining the call, you know, for being, for being shareholders, for supporting the business. Look, we're really looking forward to driving patient access and revenues for this technology, and so just thank you for your questions, and, you know, looking forward to continuing to engage.
That does conclude our conference for today. Thank you for participating. You may now disconnect.