ImpediMed Ltd

ASX:IPD

Earnings Call Transcript 2024-Q1

[Operator]

Thank you for standing by and welcome to ImpediMed Limited 4C Conference Call. [Operator Instructions]I would like to hand the conference over to Mr. Rick Valencia, Managing Director and Chief Operating (sic) [ Executive ] Officer. Please go ahead.

[Richard Valencia, executive]

Thank you and good morning, all. I'm sorry we haven't been in touch for several weeks. But as you know, we've got a lot going on. I'm sure there are several questions about the recent events. So let me try to get ahead of at least some of them with a bit of an opening statement.First off, while we've been quiet for the last few weeks, I'm sure you can understand that it doesn't make a lot of sense to be making nonmaterial announcements while going through such a significant change to the Board until the new directors are up to speed in the business. With respect to our communications plan more generally, specifically around medical policy changes, we will continue to announce material payer policies as they're published, which is likely to include top 5 national payers, achieving critical mass recovered lives in markets that are significant to our short-term commercialization progress and any other material payer policy changes. All others, we will bundle up and make in our quarterly announcement around our 4C like we're doing today.Also, I've been asked many times if the requisitioning process and the Board changes would be a distraction. Yes, of course, it was. We're a small company of around 85 employees, many of which wearing multiple hats. As a Board member, I'm required to be involved in all discussions. And with the multiple hats our CFO Tim wears, he's also pulled into most discussions. That along with an extensive onboarding process requires the attention to the full executive team and multiple layers of the organization. So of course, it was a distraction, but as leaders of the company, we're always dealing with some level of distraction or disruption. Any distraction has a potential to knock us off course. But it's our responsibility as business leaders to maintain focus and discipline around executing on our plan, and that's what we will continue to do moving forward.Regarding the results of the general meeting vote and change of the Board, remember that I told you that whatever the outcome of the vote, management would be professional and continue to work with any Board our shareholders chose for us. The shareholders and I have now spoken. We offer thanks for our former Board members and wish them the best of luck. We've now enthusiastically embraced our 4 new Board members. Shortly after the vote, our full Board, new and old directors alike met at our headquarters office in California for the better part of the week for induction presentations for the senior ImpediMed team.I've only been with the company for around 11 months. And now I'm the longest tenured Director with Dr. Michael Seiden coming in second at 4 months and our 4 new directors of just over a month. I'm still learning something new every day. So I'm sure you can imagine it's going to take us more time to get the rest of the directors fully up to speed, but we made great progress.As I was thinking in the early stages about the challenge of quickly and efficiently getting through the induction process and how we prepare the team, I decided to refer to our recently developed company value statement. So this is what I shared with the full team in our monthly company-wide newsletter about how we would embrace our new directors. Shortly after the vote, I published this in our newsletter.Our vision, mission and values apply to the entire ImpediMed team, including our Board of Directors. As we continue -- and as we welcome and interact with our new Board members, our values are an important guide for communication. Here are a few specific examples of what I mean. We challenge each other to be great. Remember, teamwork is our biggest competitive advantage. So let's help them get up to speed, so they feel like part of the team and can support us. We do the right thing, be 100% open and honest with them about the business. We're not perfect, so it's okay to share the good and the not so good. We're focused on execution. Most important, let's not take our eye off the ball. Let's all stay focused on the things we can control and let's deliver on our plan. Shortly thereafter, the new Board joined us in San Diegan, I felt the team did an exceptional job of providing the directors with a candid and complete overview of the business, including the state of the technology, the indications our technology can impact, the progress we've made with private payer reimbursement and the reimbursement work ahead, the efforts underway to prepare for growth, including new hires and new systems and the details of our financial management efforts aligned with the pace of our reimbursement and sales success. We also [ worked hard ] with the full Board several times and began the process of building the personal bonds necessary to get comfortable with having the candid, but sometimes difficult conversations about what's right for the business.I'm really happy to share with you that we came away aligned on the strategy of focusing the company's efforts on oncology with a direct focus on breast cancer related lymphedema and then building out our oncology platform and other cancers and other oncology measurements. While this will be our current focus, we will continue the efforts already underway in other indications as we work through the technical, clinical and commercial strategies to build a broader platform in the highly accurate measurement of body fluid. We also came away aligned with the focus now is on moving the business forward, which includes unifying all stakeholders from Board to management, to employees, to our shareholders.The Board is continuing to work through the process of onboarding and is planning to give an update at our upcoming AGM meeting in November. For the Q&A portion of the call, we'll first open up the line to analysts to ask questions. Then we'll read aloud and answer a number of questions that shareholders submitted over the past week -- week or so leading up to the call, and then we'll open it up for any other additional questions that remain. My hope is by the time we get through the list of questions, we will have covered most of everything. But if you have additional questions, we'll continue to be on the line until we get through them all.With that, let me get to the update from the 4C deck. We're continuing to make progress with private payers, but we got wind of a change of Blue Cross Blue Shield that we weren't expecting. While it will have an impact in the short term, it doesn't really change our underlying commercial piece as much. I'll explain that in more detail on the next slide on Slide 4. While our core SaaS business continues to grow and provide a great foundation for the long term, recurring revenue we remain -- for the long-term recurring revenue, we remain in a mode of managing spend and gating hiring to align with progress in private payer reimbursement and system sales. We still have a lot of work ahead of us to get more markets to critical mass, to educate our prospects on the existence of the NCCN guidelines and the ROI opportunity that exists with reimbursement now on the way and eventually, of course, getting more SOZO systems sold in the market. But the fundamentals of the opportunity ahead of us remain unchanged.We've been included in the NCCN guidelines. Private payer reimbursement is underway and won't stop until we have full national coverage. We have top-tier customers that rarely leave us in a first-mover advantage in a AUD 2 billion market where we currently have no true competition.All right. Moving on to a little bit more about the Blue Cross Blue Shield change. So we've talked in the past about the association. The association generally provides guidance to a number of the individual Blue Cross Blue Shield organizations in different markets. Some of them act independently, some of them operate sort of in lockstep with the association. But we learned through a posting on the Blue Cross Blue Shield website that they would be shutting down what's called their Evidence Street entity. Evidence Street is formally known as their tech community or committee and it's been around for decades. It was where Blue Cross Blue Shield Association assess the clinical effectiveness and value of medical products and technologies like ours to form coverage policies and make other critical health care decisions. So historically, you would submit evidence to the association through Evidence Street. They would use that evidence to decide on medical policy changes. And if the changes were made, most of the members of the association would just adopt the same policy. So you go to one, the association and you get the adoption of somewhere between 22 and 27 or so members of that association.With this change, with Evidence Street going away, we now plan to approach the individual entities, 22 of them that we feel we have to approach directly to achieve medical -- positive medical policy change. It's not the best situation. It's definitely going to slow things down a little bit in the short term. But keep in mind, we've been successful with 7 Blue Cross Blue Shield entities to date. So we've shown that we are good at doing this, and we will get it done. But it's now 22 entities instead of one that we need to approach, which is why it's going to take more time. And we've reduced our estimate in the short term by the end of this year. Instead of 50% coverage of individual payers, we expect that to come in more closely to around 30%.However, by the end of the year, June 30, 2024, at the end of our fiscal year, we're only estimating a reduction from 95% to somewhere around 85%. And when I say somewhere around 85%, it could be 80%, it could be 90%. But the most important thing is it really won't have a dramatic impact on our ability to commercialize and sell in critical mass markets. It will mean maybe a few fewer, but we've got a relatively new sales team. They're all coming up to speed right now. We're doing a lot of educating around the guidelines and around private payer reimbursement. So we don't expect that alone to have any significant impact in the long term. Short term, it's going to mean it's a lot more work for us and a little bit more of a ramping process. But we guided you before that the first few quarters of this year would be building quarters where we're focused more internally on getting ready for scale.Okay. So regarding where we stand right now in private payer reimbursement. In terms of the specifics, we are at 12 positive medical policies to date from 7 at the end of the first quarter, and we've also been made aware through our own communication channels with 3 more regional payers who have confirmed to us that they've made positive medical policy updates, but they're yet to publish them so we can't report specifics on which entities those are. We will be able to, as soon as they publish. Remember that we have Medicare coverage, and we've had that for some time. We also have 27 payers who provide silent coverage, meaning there's no explicit policy for coverage of our SOZO measurements, but we're not on that dreaded experimental technology list. So claims for our measurements will not get denied.So the good news is that all of this helps us to get to critical mass but it's really the top 1 to 3 payers in every market that eventually get us there. And those top 1 to 3 payers are a mix of regional and national payers. And of course, a number of them are Blue Cross Blue Shield payers depending on the state. Each state is different. Regarding the top 5 national payers, remember that Cigna actually came in earlier than expected. The other 4 remain within the originally expected timelines for publication that we maintain here internally.We did, however, in the last month, have a really good development in Michigan, our first critical mass market. One of the biggest IDNs in that state came to us. We've been, of course, working with them, but they reached out directly to us to negotiate a master service agreement for their entire provider enterprise. With critical mass in that market, we were able to negotiate pricing at our target subscription price of $2,500 a month, and that price begins in the first month of the contract, not building up to it over the 3-year period of time like we target currently for most customers who are not in a full reimbursed market. System sales are yet to pick up in Michigan due to a sales rep turnover, but a new Michigan sales rep was recently hired and is currently in training.So all in all, we continue to make good progress in private payer reimbursement at a bit of a surprise in the Blue Cross Blue Shield change, and that will mean a bit more work on our part. But in the longer term, over the next full year, we believe that it's not going to have a major impact on our commercialization efforts.All right. With regard to the regulatory landscape, we had a couple of open items that we wanted to cover off on. One that we've been talking about for quite some time was around the contraindications. And we did get our SOZO Pro clearance, our 510(k) clearance during the quarter to remove the contraindications for pacemaker and ICDs. This won't have much of an impact in oncology, where a few patients have these type of implanted devices. But in another -- it is another improvement of our technologies. We eventually look to build a broader platform and other indications. We also reported on a technology -- I'm sorry, let me finish there and mention that -- we will continue to work in these other indications, and this allows -- this clearance does allow us to treat more patients on SOZO without our provider customers having to think about whether or not they've got these pacemakers or ICDs implanted.On a second item, we talked about the bilateral ARM software update. So we -- thankfully, through our own technology through our digital health technology platform, we were able to identify an issue that we had with measuring for bilateral lymphedema. That means lymphedema on both sides of the arms. In this case, it was specifically for arms. And we determined that it wasn't working at the level that it needed to work for our customers to be using it the way that they were using it. So we made the decision to update the software by taking out that functionality. It's a very, very small percentage of patients with lymphedema that are at risk for -- patients at risk for lymphedema that are at risk for bilateral lymphedema. So it went over very well with our customers. We're done with communicating it to every single one of them. We've worked through the regulating agencies around the world. When you make a change like this, you have to notify the regulating bodies. We've done all of that work, and we now pretty much consider the item resolved and behind us. It's not going to have any commercial impact on the business or any impact on our ability to continue selling SOZO. So it will be our last update on the topic.Okay. With that, I'm going to turn it over to Tim for a financial update, and then we'll be back in a few minutes with the Q&A.

[Timothy Cruickshank, executive]

Thanks, Rick. Good morning, good afternoon, everyone. A few normal housekeeping items before I get into the figures. All figures presented are stated in Australian dollars, unless otherwise indicated, and the percentage changes are often presented in both based on Australian dollar changes as well as on a constant currency basis. No update at present on our shift to U.S. dollar reporting, but the constant currency percentage changes should continue to help in the meantime.For this quarter's financial results, we again focused on a few key items: SOZO system sales, revenue, SaaS metrics and cash flow. We also included some additional granularity on our license fees in the U.S. to help you understand the composition of our installed base and the opportunities available to continue to increase those licenses over time.So on Slide 7 with revenue. Total revenue for the quarter, AUD 2.5 million. That was a decrease of 12% year-over-year. Two important things to note on revenue. The biggest portion of the change in revenue was anticipated as we recognized the final fees related to the AstraZeneca trials during the quarter. So the chart on the right-hand side of Slide 7 shows the final revenue related to those trials hitting in the quarter. And then revenue from our new system sales was lighter than prior quarters, not in terms of the quantum of system sales, but in terms of the value per contract that goes into revenue. We're not surprised by this prior to broad reimbursement. At present, our technology is still a cost center to hospital systems. So our customers understand the positive ROI equation we bring to the table. They just need to see it more with additional coverage policies, achieving critical -- to achieve that critical mass. So this was demonstrated, on the positive side, with that master agreement that we signed in Michigan $2,500 per month pricing starting in month 1. It shows you the positive impact that critical mass brings to our ability to sign contracts and customers. We're extremely confident in our business model and the ROI we can create for our customers, and we'll begin to see this translate in our financials as more states get to critical mass for coverage.Revenue from our core business, AUD 2.3 million for the quarter. AUD 2 million of that came from our core SaaS revenue, the growing dark blue section of that graph on the right-hand side of the page. This equated to 20% growth in that key metric year-over-year, one of our key fundamentals for long-term value. As we've stated throughout the past, broad reimbursement is the key to accelerating our business. And in the past 2 quarters, we've cautioned the expected system sales to be a bit choppy and unpredictable in the first half of this financial year as we work our way through achieving positive medical coverage policies and get more states to critical mass.As you saw on the previous slide, we're expecting 3 to 6 additional states get to critical mass in Q2 FY '24, many of which are key large markets for us. This broader pool of states unlocked by critical mass will help commercialization efforts in the back half of this year and into FY '25. Our sales pipeline has a growing number of multisystem contracts that are near the finish line, and it's that positive ROI equation to streamline workflows that will help bring them across the line.We move on to Slide 8, the fundamentals and our SaaS metrics. ARR grew to AUD 9.6 million in the quarter, an 18% increase year-over-year, and ARR increases to AUD 11.5 million over that next year of life of those same contracts. Focusing on years 3, pricing allows us to partner with our customers in the short term to get them a positive ROI in the early years, reduce sales cycle times while also ensuring the lifetime customer value is in line with our TAMs and the license figures that we want in year 3. As we achieve broad reimbursement over the course of this financial year, pricing in years 1 and 2 of our contracts will increase. But for now, that flexibility is a great tool to keep getting sales across the line.Churn rate remained negligible at 3%. Maturing our end-to-end customer success team processes will be important to maintaining this low range moving forward, but achieving broad reimbursement and delivering positive ROI story for our customers will also help to keep churn at a very low rate. And in addition, we continue to maintain in excess of 90% gross margins on our SaaS revenue business.

[Richard Valencia, executive]

No. One quick point on churn is that there's really nowhere for anyone to go. So it's not as if they're going to leave us for a better solution or a cheaper price. The reason that someone would leave us in the past has been typically because of lack of use because they haven't been able to build enough energy around building the program in advance of private payer reimbursement. So we do expect to maintain a real low churn rate as we build up reimbursement for our SOZO measurements.

[Timothy Cruickshank, executive]

Yes, great add-on. Thank you. So we'll move to Slide 9, SOZO systems sales. We sold 19 SOZO systems in the U.S. in Q1 FY '24. This was above historic numbers, but below the strong Q4 FY '23 that we had. On the right-hand side of the page, we've added some additional information to help understand the composition of that -- of our U.S. installed base. Right now, about 15% of our contracts carry the $1,500 to $2,500 per month pricing, and that increases to 20% in the following year as more and more of our contracts mature to the higher pricing in our tier pricing model.Our current pricing model is based on a nationwide average for new sales of $2,500 per month for license fees. So as we sign more and more contracts at that value, that top bucket of contracts will obviously continue to increase. What that also means is we still have a large number of historic contracts that have room for additional pricing increases over time as broad reimbursement is achieved. So between new sales and continuing to get increases on our existing customer base, it gives us flexibility in our business model and numerous opportunities to achieve strong growth post broad reimbursement.

[Richard Valencia, executive]

And I'll add one other thing here also. We warned you in prior discussions that there is a lot of work to do still and that we would kind of be, from a system sales standpoint, back to sort of the norm, back to the mean. And sure enough, that's where we've landed this quarter. We still expect a lot of work to do in the upcoming quarter or 2, especially with the surprise from Blue Cross Blue Shield. But again, the fundamentals are unchanged, and we're building for success towards the end of this year and beginning of next.

[Timothy Cruickshank, executive]

Great. Thank you. And we'll move to Slide 10 now. Cash flow, very positive result for cash flow. We ended the period with AUD 42.4 million cash on hand. Cash receipts were AUD 3.1 million, which resulted in net operating cash outflows of negative AUD 3.1 million.During the quarter, we invested in a number of key hires, primarily in the commercial team, but all along, maintained measured cost control aligned with our private payer reimbursement timelines. The AUD 3.1 million net operating cash flows was matched -- or matched our same figure in Q4, and we're forecasting AUD 3 million in net operating cash outflows for Q2. So we continue to make measured investments in the business to prepare us for scale, but all the while, of course, maintaining and gating spend and any hiring as we watch the year develop and reduce the risk of top line revenue.Back to you, Rick.

[Richard Valencia, executive]

All right. Thank you, Tim. So on the final slide here, 11, in conclusion, I want to reiterate the events that led to the change of our Board are now fully behind us. We're aligned on strategy with the new Board and putting the finishing touches on getting them fully up to speed. We're now solely focused on moving the business forward and executing to the plan. We're doing the work we said we'd do to prepare for scale in the coming months and years by working our way through broad-based private payer reimbursement, managing spend in line with our commercial progress and filling in the resource gaps with key personnel, such as our new Chief Medical Officer, Dr. Steven Chen. I'll use this as an opportunity to tell you a little bit more about Dr. Chen.He's a Board-certified surgical oncologist with extensive experience and relationships directly in our target market. He's a practicing breast surgeon with an impressive background, including Chief Medical Officer experience at a clinical stage drug device company, leadership roles at 2 NCCN member institutions and a past President of the American Breast -- Society of Breast Surgeons.As I said earlier, we still have a lot of work ahead of us to get more markets to critical mass, educate our prospects on the existence of the guidelines and ROI opportunity with reimbursement and sell more SOZO systems. But the fundamentals of the opportunity ahead of us remain unchanged. We're in the NCCN guidelines. Private payer reimbursement is underway and won't stop until we have full national coverage. We have top-tier customers at where we leave us in a first-mover advantage in a AUD 2 billion market where we currently have no competition.Thank you all for joining us today and we'll now move on with the Q&A.

[Timothy Cruickshank, executive]

And it looks like we can go right into our questions here.

[Richard Valencia, executive]

Okay. Good.

[Timothy Cruickshank, executive]

We have one from Elyse Shapiro. [indiscernible].

[Richard Valencia, executive]

Okay. We're going to go on to the question-and-answer session. [indiscernible]

[Operator]

[Operator Instructions] First question comes from Elyse Shapiro of Canaccord.

[Elyse Shapiro, analyst]

Just some of those changes to your coverage plans. Is that just associated with Blue Cross Blue Shield or are there any other plans where you're anticipating delays too?

[Richard Valencia, executive]

Just Blue Cross Blue Shield. Everything else in our internal forecast, which is where we -- based on when they do their review, whether it was an in-cycle or out-of-cycle review, is unchanged. So just Blue Cross Blue Shield.

[Elyse Shapiro, analyst]

Got it. And then looking at some of the sales force planning and Michigan specifically, you mentioned some rep turnover there. Did you have any other reps that you could kind of send to the region, given that's where you have the critical mass? And from that, are there any changes to how you'll plan onboarding some of those reps in the 3 to 6 states where you're planning on achieving critical mass in the near term?

[Richard Valencia, executive]

Yes. Elyse, we did redirect and that's how we got that 1 big IDN contract over the top. And we have another -- we have several others in queue. It was just really bad timing. Clearly, he was looking for another position before critical mass because it was shortly after that, that we got the resignation notice. And so yes, we are reorganizing our sales team to be a bit more nimble, including our clinical support team to be able to support the sales team across geographies so that we can move people into different geographies much more rapidly than we've been in a position to do before.Keep in mind also, Elyse, as we've talked about before, we have a lot of new sales reps. We had 6 coming into the quarter, 2 of which were relatively new. We've added in the last quarter 4 more, all of whom started at the end of September, so they're all going through training right now. So we have some work to do to get folks up to speed, but the timing is reasonably good, given that we have a lot of work to do still on the private payers to get them to -- those markets to critical mass. But we do plan on having the flexibility of putting our stronger salespeople in the markets that get to critical mass first and continuing to follow that around the country.Okay. So I think what we'll do now, [ Nick ], is we'll go to the questions that we got in writing. We got a whole bunch of them. And I'm guessing that if we get our way through these questions that we'll have covered off most everything. If there's still questions afterwards, you know how, given Nick's instructions to post your questions. So I'm going to read the full question and then we'll go to the answer.So when will the market be hearing about the new strategy going forward? How are the new Board working with the management team?As I previously mentioned -- and by the way, some of these are repetitive to the presentation, but I'm going to read them out anyway just to make sure I cover off on everything -- Tim and I. So we had a really good session. It was really good to meet them and -- that's clear that their intentions are really good, therefore, the best of the business and our shareholders and all of our stakeholders. We spent a lot of really good quality time with one another. We've been in a lot of contact centers, you can well imagine. We don't have an overly complex business, but every company is complex, and the -- getting people up to speed takes quite a bit of time. So as you can imagine, we've got a lot of back and forth since they've left. But I can tell you that we like them. I think that we proved to be real candid, straight shooting folks that are working really hard ourselves here to execute on what is a really great opportunity ahead for the business. I think they came away realizing that it's a very talented, hard-working group. And you'll be hearing from them next month when they come to present for the AGM, so you can ask them that themselves. But my true sense on how the Board and the management team are working together is we're doing well. We're doing very well.Has the Board changed, interrupted operations?Well, again, I had already referenced the fact that, of course, it was disruptive. But in terms of interrupting operations, we're all mature adults. We've had other distractions in our professional careers that we've had to manage through. And we've managed through this one. And the -- I would say that certainly took some of mine and Tim's time away. This induction process took a little bit of the team's time away, but we're back to work. And we've been executing on our hardware plans, our software plans, our reimbursement plans, our commercial plans. So has it been a significant distraction to the company or disruption of operations? No, I don't believe so.What are Rick's thoughts on the new Board members?So I think I've pretty much shared that with you already. But again, it was -- we had a really good session when they were out here. We spent quite a bit of time together, breakfast, lunch and dinner, along with the meeting time. And I've been developing direct relationships with each one of them, and of course, a good relationship with them collectively. Michael Seiden remained on the Board and Michael has been a good influence as well with his expertise in oncology and the U.S. health care market, bringing to bear with the expertise that's bought by the other Board members.So my thoughts on the new Board members is that, as I told you before, we're -- we don't get to choose our patient -- our parents in life, and we don't get to choose our Board members. And I told you that I would work with whoever were our Board members. And the good news is is that they turn out to be good people with good intentions to all bring some unique value to the governance of the company.The next question is, what's the new shareholder communication plan? A number of announcements seemed to quiet it down recently.I've already made reference to this. I won't repeat what I said earlier, other than to state, we will continue to message the market at points where it's required. And also on the private payer reimbursement as we get significant news around the top 5 or markets that get to critical mass. If there was a quieting down, it was just because there was so much else to do and so much work to do to get the existing Board up to speed to get them comfortable with any announcement that we would make. But there's no deliberate intent to not keep folks posted and will continue to report as we've laid out here today.Okay. This one is a little bit complicated, but I'm going to read through it anyway. At the time of the last quarterly, it was stated that a few of the private payers were about to review their policies any way, did not take into account the revised NCCN guidelines in March 2022. So did that not change their policies to pay for this? They restated that ImpediMed employees would work with the payers to help them understand that they needed to incorporate the new guidelines into their policies so that this would be covered. Did anything change in that regard? It seems that it's taking a long time for these off-cycle reviews announced in April to be completed. Is more than 6 months normal for a policy review?Well, the answer is that we have been diligently working with every single one of those 64 payers that we told you we needed to get over the line with an updated medical policy change. These off-cycle reviews do take sometimes longer than 6 months, sometimes sooner. What maybe we didn't remind you of enough in the last 4C presentation is that we actually had a real accelerated update to medical policies in the first quarter after the announcement of the NCCN guidelines, including Cigna, which came quite a bit earlier than we had expected. And as we can see now, even though we didn't know about it, the Blue Cross Blue Shield entities knew what was going on with this Evidence Street change, and that caused some delay, as I've already mentioned, in the Blue Cross Blue Shield entities updating medical policy changes. It turns out that a number of those were expected over the last few months. But again, longer term, we don't think that's going to have a big impact. And we continue to work very directly with each one of the payers around getting their medical policies updated. We have had some come back to us and said they're not going to make an update. In every case that we've seen so far, they said they weren't going to make an update because they did not -- they didn't at least reference the updated NCCN guidelines. So in all cases where we see that happen, we go back to them with the guidelines.We usually bring a coalition of providers, KOLs and physician advocates who are working in those markets. We have -- we get them rallied to write a letter, a coalition of doctors to write a letter to the payers. And of course, we show them all of our case assistance programs, wins from the past to try and get them to make those changes. But even where we've had payers make -- take a pass on updating medical policy that was not a Blue Cross Blue Shield, it didn't delay what we had originally expected from their change. So we have our own internal forecast of when we anticipate they will likely update their medical policy, and that remains unchanged except for the Blue Cross Blue Shield.Okay. So ImpediMed performance since Board changes in September. I understand the market has been -- this is another long one, so bear with me here. I understand the market has been affected by global events, but I'm concerned that ImpediMed's performance has been rather dismal to what was expressed at the time of all the assurances and confidence expressed in the correspondence leading up to the 28th of September meeting. I am disappointed by the lack of information coming from management about how the company is progressing. Just when the company should be on the front foot making sales and increasing income, I have no idea why the company would be so silent. The share price has been falling significantly and anything that can help stabilize and help increase the share price should be made public. Why is there so much silence about how reimbursement is going in relation to the sales of new SOZA platforms and why no news on new insurance coverage since July 31? That's nearly 3 months.So I think I've pretty well addressed most of what's in here, but I'll continue to tell you that we are working really hard to build a great business. We're doing all the things that we told you we would be doing when we last spoke to you around building for scale, building the infrastructure that we need. We're working on the technology, readying it for commercial launch. We have a big software effort underway to map to that commercial launch. We also have been working towards getting private payer reimbursement. We have the small changes.And by the way, the change that has been made, none of the details of it are public. We had to go out and find this posting on the Blue Cross Blue Shield Association website and then through our own direct contacts, reach out to folks to understand the implications. And we are, based on everything that we've learned, assuming that it's going to require us to go to all of those 22. So rather than waiting for any public notice, we're off doing that work to get those medical policies change from those 22 individual Blue Cross Blue Shield organizations. And with regard to messaging the market, again, we didn't have anything that we felt was a significant announcement to make in the last several weeks, and we needed more time with our new Board to get them up to speed before they felt comfortable in making those announcements.Market has been a little bit difficult despite what concerns you might have about our making announcements or not. And we will continue to update you on the progress that the company makes in the coming weeks, months and quarters.All right. Next question is what's the progress of your sales team growth.I've already referenced this again, but we've got 4 great new professionals. It's a net out of 3, by the way, because we had the 1 resignation. But we've now got a total of 10 reps in the field. And we've got brand new leadership there as well. I've announced that before that we promoted from within a sales rep who have been here for 12 years, and he has turned out to be a great leader, but there's a lot that we didn't have here from the past. And you can imagine a company that hasn't really heavily commercialized doesn't have a lot of the sales tools that you would expect the company that is commercializing to have. So we've been going out and working on those challenges around our CRM system to get better forecasting predictability and to get more data and information in the hands of our sales reps so they don't have to spend too much time dealing with those systems or digging out weeds or finding out where to prospect because we're handing it to them.But a lot of that, we've had to build from scrap just in the last few months. So there's work to do, but we have a great sales team. We have really top-notch new hires that have joined the sales team and great sales leadership as well.What is the current state of hiring? How many unfilled positions are we trying to fill? What key positions are currently unfilled?Tim, do you want to take this one?

[Timothy Cruickshank, executive]

Sure. Thanks. Rick talked about some of the key ones, the sales reps, so the net add of 3, 4 new reps, that gives us 9 total now. We're quickly getting them trained and up to speed. We also hired a program manager. It's another big highlight. This person will help develop other indications as we work through technical, clinical and commercial strategies to build a broader platform and help with a lot of the cross-functional programs that we have in place like building out our ERP system and a number of key projects.We also hired Steven Chen. Rick took you through his background. He'll also be critical in building out the additional cancers and additional indications for us and the necessary data that we need as well as leveraging his industry context. So those are probably the 3 biggest highlights from the quarter, and we'll continue to make measured investments in the business as we prepare for scale, but of course, gating spend and hiring as we see the year develop.

[Richard Valencia, executive]

All right. The next question, I'll have Tim answer as well, but I'll go ahead and read the question. One of the brokers mentioned on your website that Wilson has held the Medical Devices and Drug Conference in [indiscernible] past week. Can you confirm that ImpediMed were scheduled to attend? I would have considered any publicity to be beneficial, not to mention the opportunity to spread the word about the medical device owned by the company in a specialist health care forum organized by a broker that is supportive of the company with a captive audience in the room. Tim?

[Timothy Cruickshank, executive]

Yes. Great. We attended the Wilson's Drug and Device Conference last year, great value add for us, and we love the work Shane and his team are doing. We would have loved to attended this year, but due to some conflicts with the timing of general meetings and commitments here in the U.S., not to mention cost considerations of international travel, we didn't attend this year, but we look forward to getting back to that event in the future.To keep people aware of some of the things we are doing in the interim, we're attending a number of upcoming events virtually in the coming weeks, including med tech industry days with Ord Minnett and Bell Potter, and that will continue to get the story out there. And then in addition, our -- we have great coverage at present, Wilsons and Canaccord, Morgans have coverage, and we host regular calls with them, including all 3 of them. Immediately following this quarterly call in the coming days, we've got update calls with them. So I encourage you to reach out to any of our analysts covering us for additional opportunities to hear from the company.

[Richard Valencia, executive]

Speaking of coverage, the next question is, will any of the larger banks be initiating coverage?

[Timothy Cruickshank, executive]

Again, great coverage, Wilsons, Canaccord, Morgans. So great coverage at present. But yes, we continue to gain interest from a number of additional analysts, large and small covering the stock. So we'll continue to invest the right amount of time into developing relationships and ones that we feel will be mutually beneficial and get the story out there.So, yes, with us continuing to achieve private payer reimbursement goals, I would envision additional coverage in the near future.

[Richard Valencia, executive]

Great. So Tim, how should we look at corporate costs going forward, stable or exponential growth in line with sales?

[Timothy Cruickshank, executive]

So I would say, very confident in the opportunity in front of us in oncology and the platform within oncology. We're building strong, talented organization around us to leverage that opportunity. So we talked a couple of times on this call already about the measured approach, though. So we've got a plan that takes us to a longer-term plan. We've stated previously, a cost base of around AUD 35 million to AUD 40 million is appropriate for this business in order to allow us to fully maximize the opportunity. But we're obviously going to be extremely disciplined and gated in making those investments as we continue to get better line of sight to positive payer coverage in the U.S. and as we look to increase the predictability of -- and productivity of our sales team and the predictability of top line revenue.So for the time being, it's about a AUD 27 million to AUD 29 million cost basis. So incrementally above the AUD 25 million we've reported historically. So for FY '24, the AUD 27 million to AUD 29 million is our range for gross cost basis. That's before obviously taking out the cash receipts that we get from ARR that will grow over the course of this year. So we continue to have strong measured control while making the right investments to get us prepared for scale. And I think the continued strength in the fundamentals of our business model such as low churn and the increase in license fee values will continue to derisk the business and give us line of sight to making those investments.

[Richard Valencia, executive]

Right. The next question is, were there any changes made specifically to the management's STI targets during the year? If yes, what effect did it have on the amounts that were paid to management?

[Timothy Cruickshank, executive]

So for this one, I assume we're talking about FY '23, the year that just finished up as we're in Q1, right, or just finished Q1 of FY '24. I think we stated in the audited annual report, the company achieved 70.6% of its short-term incentives for FY '23. This is a combination of results of the first half plan and the second half plan under our new Managing Director and CEO.So no changes to the structure, and it did not impact the amounts achieved under the plan in either scenario for either half-year plan.

[Richard Valencia, executive]

All right. The next question is, are you looking at licensing out your IP for other conditions. Actually, you know what I'm going to hold that one off to the back end. Let's jump to the next one. Tim, can you describe the difference between SaaS, core business and clinical business revenues, which is more profitable?

[Timothy Cruickshank, executive]

Sure. So the core business, that's our -- predominantly our lymphedema business at present. Contracts in this business in the U.S., bring with them north of 90% gross margins on the monthly license fees. And the contracts also have no specific end date. So they go on for an unspecified amount of time. The clinical business, on the other hand, those are contracts with companies that request to use our technology to accompany their own clinical trials. The gross margins on these contracts can also be quite lucrative and north of that 90% gross margin as well, but the timing and quantum of the contract values for these are harder to predict on the lymphedema business. And importantly, they have end dates. So there's no churn in the clinical business as clinical trials come to an end.So they're both very -- they both carry with them very profitable, strong gross margins. But clearly, the core business is the fundamental focus of where we need to be as those contracts continue for extended amount of time.

[Richard Valencia, executive]

All right. Next question. Who are the major players who may be developing competitive tech in stealth? How can you track this?

[Timothy Cruickshank, executive]

Sure. So we've had some slides in the past on the competition that's out there. There's no direct competition in bioimpedance spectroscopy and BIS, at present. But we know competitors, of course, will come in time. For now, we're monitoring ClinicalTrials.gov, FDA filings, lots of other avenues. And as we've stated in the past, we believe we've got a 2- to 3-year head start on the competition.Our primary goal is to dominate the market in oncology and all of the top cancer centers and institutions. We believe our biggest competitive advantage will always be our first-mover advantage. So we're focused on locking down those major hospital systems and cancer centers in cancer-related lymphedema and then further penetrating those customers with our broader oncology platform. So technology like ours, I think that first-mover advantage, once you're implemented and embedded into U.S. health care, it's very unlikely to be replaced, and that's -- that will always maintained. That will always be our #1 competitive advantage of this.

[Richard Valencia, executive]

Great. Last one for you, Tim, and then a few more from me. How are your manufacturing strategy -- how is your manufacturing strategy working? Are you ready for this step change in growth?

[Elyse Shapiro, analyst]

Yes, continue to prepare. We knew we'd have line of sight as we learned what states get to critical mass to grow. We'll be able to grow into ourselves. So still very confident in manufacturing. We know this is an area that can go wrong often for companies. So we don't take this lightly. But we've got over 400 or around 400 SOZO 1s available to us that can be ready for sale in a very short period of time. So sufficient SOZO 1 inventory on hand for our near-term needs.And then when the timing is appropriate in calendar year '24, also we'd be launching SOZO Pro, and we've got preorders in for SOZO Pro as well. So for the foreseeable future, we're covered from an inventory manufacturing standpoint, but we'll continue to obviously invest the right amount of time into this to ensure we stay ahead of any supply chain issues.

[Richard Valencia, executive]

All right. So a few more here, and then we'll open it up if there are any other questions from you live. Are you looking at licensing out your IP for other conditions such as heart and renal in order to make some revenue of this asset while your focus is on lymphedema?So I spent close to a decade at Qualcomm. Qualcomm is a world-renowned mobile technology company, but a big part of their revenue and margin is in licensing or patent IP. Any company would pair in comparison to a company like Qualcomm in terms of a patent portfolio and a patent business. But you can see telltale signs of an IP -- patent IP-oriented company or not. And my observation when I came to ImpediMed is that the company was not built around patent IP. The company leverages a readily available technology in bioimpedance spectroscopy, that no one is quite mastered the way we have. And there's know-how there that theoretically could be licensed at some point. But I have to tell you that the clinical, the technical, the commercial investment that would need to be made in those specific indications and others would be quite significant from where we are today to have something that someone would be willing to pay us a significant license fee for it.Otherwise, I'll tell you, we do get approached quite regularly by folks in the industry that know about what we've done in bioimpedance. And generally, what they request us to do is build them a device, build them a product. they want to pay us a fee for engineering services effectively to design and build a product for us. That's a relatively -- not a relatively -- that's a very low-margin business that we're not the right company to be in that business and a major distraction from the opportunity that we have ahead of us in limb lymphedema. So there's -- it's not that we wouldn't consider a license. Of course, we would. We're talking to a number of players that could benefit from this type of technology, but there's not a whole lot to work with there from a patent IP standpoint or that these other potential users of the technology would be willing to pay for. And so it's not a priority of ours right now. We're really going to focus in on the oncology opportunity ahead.Okay. What is the current state of the hemodialysis or renal study?We did a study. The data has been partially with us. However, we've been having to clarify, perfect, if you will, the data over the last several months, and we've recently reached that point where we think we've got what we need. Unfortunately, we just haven't had the resources to do this. I think I've mentioned in the past that we really only have one resource in the entire company that can do that type of work, and they've been focused on other priorities. With Steve -- Dr. Steven Chen now on board, we do plan -- and also our program manager who can help us manage through the effort, we do plan on getting to that and seeing what we have. That was an observational study. So it's really going to be a very early step in the overall development of the commercial product. So we still have much more clinical work to do, likely more from what we've learned just in general, so far about cost structure in that industry, margin structure in that industry, we would likely need to develop a completely different technology than our relatively expensive SOZO technology. And the commercial entree right now is not obvious to anybody. So it would be quite an effort there as well.So the current status of that hemodialysis or renal study is that it's on hold, but we are going to get to it in the same way that we're continuing to move forward with [ clear ], so the contraindications and we have a number of small studies underway in those areas, trying to sort out where the opportunity might exist.Okay. Two more questions here. Since the commencement of the new Board, there has been an increase in the selling pressure and performance -- [ did I ] read this one? Oh, I'm sorry. No, I didn't. From recent market announcements, the majority of the new Board are not shareholders, whereas the previous Board had their interest aligned somewhat with their share ownership. Does the new Board plan on buying market -- shares on market? When is there usually an open period for buying shares on market?Obviously, the Board has certain requirements around shareholder ownership that I'm sure they will adhere to, and they have expressed their intention to buy shares on the market -- on the open market in future periods when we have open windows. Those open windows can't be exactly predicted with what we've had going on here recently. The windows have been closed for quite some time and will continue through our AGM. But again, the Board has expressed their intention to acquire in the open market.Last one, when will we hear from the Board?They're working their way through the process of onboarding, as mentioned. They're mostly there. We still have a handful of deliverables to them and more meetings that we'll be undertaking to answer questions. But our AGM is coming up at the end of November, and they will be there in force and available to answer questions from you directly.Again, I'll just reiterate, we're really well aligned from a strategy standpoint. From a details and execution standpoint, there's still a lot to work through, but I don't see any big red flags or things that are worrisome to me. It's just a matter of time and education and getting them comfortable with what they're seeing and hearing. But again, the end of November, you can expect to see them at the AGM, and I'm sure we'll be happy to answer your questions there.All right. We've made it true. Let's see if there are -- hopefully, we've covered off on the remaining questions that might be coming from a couple of people, but let's figure it out. Nick?

[Operator]

[Operator Instructions] Next question will be from [ Mariam Lee ], private investor.

[Unknown Attendee]

You've got mentioned breakdown of expansion to NCCN institutions and IDNs and the new ones, you able to say how many new ones there are? And also, could you even give us some examples of some of these new institutions taking on SOZO?

[Timothy Cruickshank, executive]

Great. Thanks, Mariam. Yes. So last quarter, we didn't add any additional new NCCN centers, but we saw a lot of expansion. So across the U.S., I think there were 5 NCCN centers that added additional devices, our systems during the quarter. We don't always give out the specific names of them, but we are happy with the progress we're seeing with the existing accounts. And I know in the pipeline, there are a handful of new NCCN centers that are close to the finish line. So as we get to critical mass in those states, that would be the final late -- the last trigger point for getting those ones across the line. There are 3 to 4 additional near-term opportunities with NCCN centers that we're expecting to come in soon.

[Unknown Attendee]

And what about new organizations in tires like new health facilities like I think last quarter you had the [ Texas Best ] centers or something. Have you got any new ones out there, new change of health facilities?

[Timothy Cruickshank, executive]

Yes. So quite a number in the works. But really, I mean this concept of critical mass is key to getting their attention in getting these types of things over the line. So I mean, the example we gave of the IDN in Michigan, the final piece that we needed there after having them in the works for some time with them actually proactively reaching out to us once they realize we did hit critical mass. So it's going to take that to see a large number of these additional IDNs coming through.The best place we can focus our time right now is that land and expand strategy that we've been utilizing for some time now where we're developing further deeper programs at the existing IDNs is a much better use of our sales team's time in the short term while we build towards critical mass. So we're hyper focused on creating reference sites, creating stronger and stronger programs in our existing IDNs as opposed to getting the remaining ones over the line. But they are working on that in the background and those will come as critical mass is achieved.

[Richard Valencia, executive]

The one thing I want to reiterate, we've talked about this quite a few times about the impact of the guidelines, the NCCN guidelines. So the impact of the NCCN guidelines is very significant. It's what leads to private payer reimbursement in a lot of cases. And again, in the U.S., once private payer reimbursement begins, it rarely ever stops at any -- I've never heard of a case of it stopping. At some point, once payers begin reimbursing --private payers begin reimbursing, it's just a matter of time and the work effort that has to go in to create awareness and give them the data and then have them update the medical policy and eventually, you have 100% coverage across the entire country. That will happen for the company. But what doesn't necessarily happen is that neither payers nor providers sit around scanning the NCCN guidelines looking for changes. They look for inquiries from vendors, from providers, from patients, from regulating authorities before they move.And so we immediately, of course, upon word of the guidelines, activated our market access team to begin building these coalitions and influencing our provider customers to request the changes. But you do not see a significant shift in sales volume or uptick in new customers that haven't really already been early adopters, investing in the technology until you get to critical mass. The guidelines are not what moves the needle in and of itself. The guidelines are what gets the needle moving on private payer reimbursement and that private payer reimbursement reaching critical mass is what then moves the needle with system sales. But even that doesn't happen overnight because you still have quite a bit of a work effort to get them educated on the guidelines. There's still changing clinical workflow. Anytime any institution has to change clinical workflow, it involves multiple layers of the organization and a lot of work on their side.So we have all of that work to do that we're investing in now that we're bringing the right people in to do the work. We're acquiring and developing the right systems to manage the scale, but we're doing that in, as Tim has mentioned, 4 or 5x already in a measured way so that we don't get too far ahead of ourselves, but we focused most of our investment early on in 2 areas, sales, sales and marketing, I'll say. We also hired a downstream marketing or a marketing communications person that's focused on lead generation and supporting the sales team. And the other area is in building the right systems within the organization to support the scale.We operate on very antiquated systems. It's very difficult for us to manage the sales pipeline and have it be predictable. It's difficult for us to do our financials in 2 different currencies with the systems that we have today. So all of that, we're now investing in and building out so that we're ready for the scale when we get there. I know it's a little bit of a tangent from your question, Mariam, but I did want to make it clear that we've told you before, these next few quarters are really going to be about building and readying for that scale as we get to critical mass, but it's all about getting to critical mass before we're going to start seeing things shift in a significant way. And over the next couple of quarters, we're going to start seeing many more markets come on to critical mass and a much greater opportunity for our sales team to start bringing in new and expanding existing accounts.All right. We have one more?

[Operator]

We have 1 more question left. We have time for a brief question. That will come from [indiscernible].

[Unknown Analyst]

Yes. A quick question. I invested in the company because of the potential in renal at the time the FDA issued the permit for the device to be used in dialysis patients. The interval that is lapsed between the end of the observational study in October last year and now is frankly ludicrous. Do you recommend that people like I who have invested in the company in good faith because of the potential of this technology in renal patients and most specifically dialysis patients should sell their shares with you as the current Managing Director?

[Richard Valencia, executive]

I don't recommend that anybody sell their shares in ImpediMed right now. The opportunity that's presented to this company is unlike many opportunities at any business in health care -- U.S. health care ever sees. And so a strong recommendation is that you remain a shareholder. On the other hand, I wasn't here when that work was done. I didn't have anything to do with your decision to invest in the company. And so I'll have to leave that up to you as to what you decide you want to do going forward. But in terms of the opportunity ahead of this business, where we sit right now, it's a very unique and a very large opportunity for us that I think is very, very exciting.

[Unknown Analyst]

With the change in Board has there been no rethink as to the priority given to the renal program?

[Richard Valencia, executive]

I prefer to leave that one up to the Board, and you can ask them that question directly at the AGM. But I can tell you that, as I've mentioned several times before, we educated them on everything that we've got here within the company in terms of technology, in terms of the clinical research that we've done, in terms of commercialization opportunities, in terms of partnerships that we have pursued in the past in renal and other areas, and we came away aligned on the current strategy.Okay. Well, I do believe we're through all of the questions that came online and really want to thank you all for joining us once again. And as mentioned several times before, the Board will be out there at the end of the month for the AGM, and I look forward to your attendance there and asking them any additional questions that you have. But with that, I think we will wrap up. Thank you.

[Operator]

Thank you. Conference has now concluded. Thank you for participating today. You may now disconnect.