ImpediMed Ltd
ASX:IPD

Watchlist Manager
ImpediMed Ltd Logo
ImpediMed Ltd
ASX:IPD
Watchlist
Price: 0.055 AUD 1.85% Market Closed
Market Cap: 111.3m AUD
Have any thoughts about
ImpediMed Ltd?
Write Note

Earnings Call Transcript

Earnings Call Transcript
2025-Q1

from 0
Operator

Thank you for standing by, and welcome to the ImpediMed Limited Q1 FY '25 Results Call. [Operator Instructions] I'd now like to hand the conference over to r Parmjot Bains, CEO. Please go ahead.

P
Parmjot Bains
executive

Thank you. Good morning, and thank you for joining us on the quarter 1 FY '25 results. I'm pleased to be here with McGregor Grant, our CFO. We will be referencing the 4C quarterly activity report and presentations we lodged this morning with the ASX. The presentation is a summary of the more detailed 4C. After our remarks, we'll be taking questions.

I'll begin on Slide 3 and go through the agenda for today's call. For today, we'll start with a quick strategy recap. We'll then cover off the key metrics on quarter 1 results. We will briefly touch on the other highlights in the quarter, followed by an update on the work that Andrew Grant has been doing on the product roadmap. And to finish, we will cover the outlook for the next quarter before commencing the Q&A session.

Now turning to Slide 4. As outlined in the last quarter, the company's immediate strategy is to execute to breakeven with a focus on sales, marketing and clinical execution in BCRL. Breakeven will only come through increasing sales, while managing our cost base. As we will discuss in the upcoming slides, we are on track to achieving these goals.

Turning to Slide 5, momentum continues in the business. We have implemented the changes for the strategy that we outlined, and it is working. Momentum continues to grow and confidence within the business is strong, as we see the awareness strategies translate into a growing pipeline and into higher sales. We still have a way to go, but the signs are good, and our confidence is high.

Payor coverage continues to improve. And although we are still shy of the 85% nationwide target, we have enough key states above the 80% critical mass threshold to achieve our immediate goals, and we have done this while keeping our costs under control.

Now turning to Slide 6, there's been a lot of time and effort that has gone into implementing the new strategy. It doesn't just happen overnight, and our whole team is wholly brought into the process and is engaged. We've committed and implemented a 10% reduction on our year-on-year cash expenditure to keep expenditure more in line with where sales-focused start-up should be. This has come mostly from changes in senior management compensation with like-for-like executive base remuneration reduced by about 30%. It's not just about base remuneration. It's about holding ourselves accountable for the results, transforming the business, achieving our sales target and aligning our bonus compensation to this.

It can't be all about costs. We are a growth business. To reach breakeven, we need to significantly increase sales. We have also reduced -- while we have reduced costs, we have actually increased our customer-facing staff by 15%, but it's more than just about increasing sales staff. To be successful, you have to have the basics in place. As I mentioned last quarter, the PREVENT clinical trials outcome, the FDA clearance and reimbursement are our vital building blocks, but they are only the start.

Across the industry, there are fundamental sales and marketing processes that must be implemented to achieve sustainable growth. Our new Board and new executive team have all come from companies that have had successful programs in place. We have taken that experience and implemented a model that we know works, and we have confidence that it will work here.

Again, as you can see from the various tasks that have been listed, it has taken time and required a lot of hard work to get us to the position to achieve sustainable growth. The processes are now in place, and it's driving strong momentum in the forward-looking KPIs and our results to date are encouraging.

Turning to Slide 7, one of the keys to increasing sales starts with initiatives to drive awareness, support clinical adoption and drive lead generation. Over the next 2 quarters, the company will attend 15 national and regional conferences and put 12 media placements out. October is breast cancer awareness month, and we're supporting various campaigns during the month and have helped promote new clinical study articles that support the clinical adoption of our technology, and the results are positive when we look at our forward indicators.

All our metrics are heading in the right direction. The opportunity pipeline, which we will see on the next slide, has seen another strong increase on the prior quarter, up 34% to 585 units. As we mentioned earlier, we continue to make solid headway with reimbursement coverage with 3 additional payors providing coverage, bringing a total of 16 states with critical mass coverage.

Pleasingly, another NCCN center has implemented a lymphedema prevention program, and we are very excited about the new national accreditation program for breast cancer centers, otherwise known as NABPC (sic), [ NAPBC ] part of the American College of Surgeons Standards and the opportunity that, that brings, and we will discuss more about this later.

Turning to Slide 9, this slide demonstrates the effectiveness of the programs now in place in driving leads and building the opportunity pipeline. We discussed internally adding a TCV line to overlay this graph to answer one of Shane Storey's questions from the last quarterly call. But it's pretty easy to do a back-of-the-envelope calculation. If we were to use a $2,500 per month as a reasonable proxy, then the current pipeline has a TCV of [ $79 million ], equating for incremental annual recurring revenue of $26 million.

As I've mentioned, it's taken time and effort by the team to improve our lead generation capabilities, and as you can see, it's working. The recent changes in the NABPC (sic) [ NAPBC ] standards is already anecdotally reinforcing this. The next step is converting these pipelines into sales, and we are working very hard on this conversion.

Now on to Slide 10. In the U.S., unit sales continue to go in the right direction. 28 this quarter is up from 23 in the prior quarter. I would like to use the term encouraging when describing this quarter's sales results. In a historical context, it's clearly an improvement on what's been produced over the last 3 years, where all, but 1 quarter has been in the teens, but we are not happy yet. We need to see a sizable lift in unit sales to meet our goals. We are confident we can achieve this given the process is now in place, and it remains the focus of the whole business.

I will let McGregor go through the financials in detail, but one of the most pleasing numbers was the $4.5 million in TCV. The TCV trend historically had been concerning, and it's great to see that turnaround over the next few quarters -- over the last few quarters.

With that, I'll pass it over to McGregor to go through the financials.

M
McGregor Grant
executive

Thanks, Parmjot. Starting on Slide 11. As Parmjot mentioned earlier, this quarter saw the financials heading in the right direction. The value of new contracts signed during the quarter, which we refer to as total contracted value or TCV, was $4.8 million compared with TCV of $3.4 million signed during quarter 4 FY '24. This included the renewal of one of our longest-standing and largest customers.

Price of renewals increased 19% on average. The number -- this number was affected with the larger customer renewals, and it was around 25% for all other customers. Also pleasing was the placement of SOZO with another NCCN center in the quarter and 6 networks contracting 2 or more devices.

Contracts in place, as of 30 June 2024 are expected to generate core business annual recurring revenue or ARR of $11.6 million for the 12 months to 30 September 2025, equating to a 21% rise year-on-year and compares with ARR at 30 June 2024 of $11 million.

Over to Slide 12, revenue was the only slightly disappointing aspect of the result this quarter. Revenue came in at $2.7 million, down 7% on the previous quarter. The decrease was largely a result of 2 factors. Firstly, the timing of distributor inventory restocking, which we report, as Rest of World sales. Actual in-market Rest of World sales continued at anticipated levels, but the distributors didn't reorder inventory in the quarter. Subsequent to quarter end, distributor orders have been received. And as we've mentioned previously, we are focusing on strengthening our Rest of World strategy.

The second factor was the strengthening Australian dollar versus the U.S. dollar. On a constant currency basis, U.S. revenue was slightly up over the previous quarter.

Now to the global installed base, we continue to clean up the business. Further work identified 75 -- 78 inactive non-revenue-generating units that we have respectively removed from the historical -- retrospectively removed from the historical figures. As we mentioned, they were non-revenue-generating units, so the change doesn't affect ongoing annual recurring revenue, and there may be some upside, as our team are working on reactivating approximately 1/3 of these devices.

In the quarter, we did experience some churn, but it still remains low at 3% annually. A large part of the churn came from a single customer downsizing the program following the loss of a breast surgeon. However, importantly, they remain a customer.

Turning to Slide 13, during the quarter, the company had net operating cash outflows of $4.8 million, which was flat on the previous quarter. This was about 10% higher than budget, mainly due to timing. As the timing issues revert, operating cash flow is expected to decrease to under $3.5 million next quarter and is budgeted to remain around this level for the balance of the financial year.

Cash and cash equivalents at 30 June 2024 was $18.6 million, and there was a notional foreign exchange impact this quarter affecting the balance, but this is largely unrealized.

I'll pass it now back to Parmjot to talk through the final slide.

P
Parmjot Bains
executive

Thanks, McGregor.

Now turning to Slide 14. One extremely pleasing aspect of this quarter was the release of the NAPBC clinical standards. These standards recommend the use of evidence-based guidelines to manage survivorship and for the first time, included lymphedema prevention programs utilizing bioimpedance spectroscopy, BIS, as an objective measure, a key point from this announcement. This is highly supportive of clinical adoption. NAPBC is a quality program of the American Breast College of Surgeons, and the authors are the leaders in U.S. breast cancer care and are highly influential for clinicians. Guidelines and standards such as these can support clinical adoption and payor coverage.

In an opportunity sense, the company currently has devices in 143 of the 573 -- 570 NAPBC centers, leaving over 400 centers without a SOZO, as a tool in their lymphedema prevention programs. In TCV terms, using the same back of the envelop calculations, this could represent a $100 million opportunity.

Turning to Slide 15, updating on the SOZO Digital product roadmap project. As we announced, Andrew Grant has all but completed the project and has returned to the Board, as a Non-Executive Director. I would like to thank Andrew for stepping in and helping us with this critical project. It's just one example of how the Board is pitching in.

There are many other examples of this along the way from sharing of [ registry ] contacts to Janelle taking time out of her time in Europe to review the software development program in Greece, and Christine spending a significant amount of her time looking into our company's IP portfolio. They are fantastically supportive. The Board is now reviewing the extensive material that Andrew has compiled. We are expecting to be in a position to release an update in the next quarterly.

It's important to understand that this does not necessarily mean the company will be immediately acting on the recommendations. There are a lot of factors that will go into determining the next steps, the most important being the progress of the immediate priority, executing to breakeven in breast cancer-related lymphedema.

Finally, over to Slide 16, the outlook for Q2 is an extension of Q1. The continued focus is on executing strategy. Number one, continue activities that increase lead generation; number two, drive further improvement on sales by focusing on converting that pipeline that we've built. number three, expansion of private payor coverage; and number four, continuing to focus on controlling costs and reducing operating cash outflows.

Just a final -- a couple of final thoughts before opening to questions. When you focus on a quarterly presentation like this, it's easy to lose sight of how uniquely placed this company is and why we all joined. To recap, it has a platform technology that is applicable to multiple indications, providing significant growth opportunities. Number two, it has FDA clearances not only in lymphedema, but also in heart failure and protein calorie malnutrition. Number three, it has positive results in the Level 1 evidence global randomized clinical controlled trial for lymphedema. Number four, we already have multiple industry standards, including NAPBC and NCCN supporting its use. Number five, there's growing reimbursement in 16 states already at critical mass. Number six, we've got 1,000 devices deployed globally. And finally, we have a large pipeline with an opportunity value that more than exceeds the company's immediate breakeven target. And that makes me very excited about the future of ImpediMed.

And on that note, we will now open the call for questions.

Operator

Thank you. [Operator Instructions] Your first question comes from Todd Godfrey (sic) [ Tom Godfrey ] from Ord Minnett.

T
Thomas Godfrey
analyst

Can I maybe just start with the data you put in around the lead pipeline. I mean, the 585 million, just wanted to get a sense whether that's weighted towards your current installed base or new customers? And just your sort of updated thoughts, Parmjot, around the sales cycle for a lot of those units, how quickly we should sort of be seeing you execute on that number?

P
Parmjot Bains
executive

Yes, absolutely. A lot of it is new, so mostly new pipeline, but we do have, as I previously noted, a number of customers, where we think there is an opportunity to improve.

Sorry, Tom, what was your second question? Mix and then...

T
Thomas Godfrey
analyst

[Technical Difficulty] and then just sales cycle, like so you sort of speak to the value of the opportunity and how quickly you can get to cash flow breakeven off the back of it, I suppose, just updated thoughts around that.

P
Parmjot Bains
executive

Yes, exactly. So the conversion of those leads has a number of factors. So we know in some instances, we have some very large contracts or quotes out but those are equating up to 20 devices, but some of those systems are waiting for reimbursement. So some of these are dependent on payor coverage coming on board, which now we're increasingly hopeful about achieving that.

And then others are really just waiting through budget cycles and finance approvals and IT approvals. So what we see characteristically is a 6-month sales lead time. So they will vary, but we are very confident about converting those over. Hard to give a time because they will vary by different factors that are holding them back. But the focus for the team is really converting that and as I said, driving to cash flow breakeven as soon as possible.

T
Thomas Godfrey
analyst

Got you. No, that's clear. Second one was just around sort of the churn piece and the 78 inactive devices you've sort of taken out of your U.S. installed base. Are you happy to sort of help us with how we think about the type of customers that those inactive units were sitting at, why they weren't revenue generating? And I suppose the last part of the question, what gives you confidence you can reactivate sort of 1/3 of them?

M
McGregor Grant
executive

Yes. The -- a lot of these devices go back a long time ago for various reasons that they were sold to customers. And we don't really have a history on a lot of them. But sometimes it's a bit like it's been sold to a customer years ago, the breast surgeon or others have moved on and the units have just been sitting there -- the -- we've done a very detailed review of all of those units, and Tim has worked with the sales team to really understand that situation. There's a reasonable degree of confidence that -- that probably 1/3 should be capable of being reactivated. But work will need to be done to get that going, but they certainly have looked at it fairly closely.

P
Parmjot Bains
executive

And I think, Tom, just as a note, most of these, if you go back to historical numbers, have actually been inactive since before December 2022. So they actually -- they're pretty much -- so historically, that same number has come out. There's a significant number of them that were placed in heart failure indications for some of the history of some of these. So those are definitely out. So just various reasons, and we've kind of cleaning them up.

And 1/3 of those are ones, where we think there's legitimate kind of opportunity to kind of reinitiate with an existing -- either existing customers or new customers, particularly as [ these ] NAPBC guidelines come on or reimbursements come on. So they're very old devices placed in a pre-reimbursement environment.

T
Thomas Godfrey
analyst

Got you. No, that makes sense. And I suppose the 509 that's currently sitting in the U.S. installed base, that's the right baseline to use like they're all revenue-generating machines now? Or is it still a quite opposite?

P
Parmjot Bains
executive

Exactly. Yes, yes, no, exactly. So we did a very, very detailed cleanup of all of that base. Yes.

T
Thomas Godfrey
analyst

Okay. Great. And then I just have one other quick one. Just noting the additional 2 units contracted with AstraZeneca, is that sort of a very small project? Or is there an opportunity to expand units delivered into that over time?

P
Parmjot Bains
executive

Yes. Well, it's a Phase Ib. So really that initial study at 2 sites, again, looking at their heart failure, renal failure study. So hard to know. Hopefully, the result is positive. I think it's an early stage study, but encouraging that they continue to use this device. And I think it really builds on this view of using it as that extra vital sign, right, and the value that companies are seeing in this technology.

Operator

Your next question comes from Shane Storey from Wilsons Advisory.

S
Shane Storey
analyst

I just had one follow-up just on those 78 devices. I understand that they've been backed out of the installed base. But McGregor, did they, in isolation, lead to any adjustment for the annual recurring revenue figures that you look forward?

M
McGregor Grant
executive

No, no, because they've not been in the numbers for the last 2 years, and they're not part of the ARR.

S
Shane Storey
analyst

Okay. Right. So okay -- well, that's -- because I think you mentioned that they were all pre-2022.

M
McGregor Grant
executive

[ Correct ].

S
Shane Storey
analyst

That's actually all I had. Yes, I just wanted to clarify that just model.

Operator

Your next question comes from [ Ian Hive ] the Private Investor.

U
Unknown Analyst

Just trying to get some clarification around the NABPC (sic) [ NAPBC ]. The announcement said that the guidelines state that accredited programs must use evidence-based guidelines to manage survivorship, and then we have examples of it. So given the evidence from PREVENT, does that really add further weight to them using SOZO in their programs because the evidence says that nothing else really works?

P
Parmjot Bains
executive

Yes. There's a number of guidelines within the evidence-based guidelines, the NAPBC references in that section. So NCCN is one and then there are other guidelines in there and then they explicitly state to put in a lymphedema prevention -- an example, [indiscernible] building a lymphedema prevention program using objective measure like bioimpedance spectroscopy. So really is a very strong endorsement as part of the accreditation program.

U
Unknown Analyst

Okay. So just most people on this call are not doctors, so just -- we always struggle about the guideline and making doctors use it per se. So in layman's terms, the NAPBC is stronger than just the NCCN and that -- and the fact that they actually have audited programs that they have to monitor, et cetera.

P
Parmjot Bains
executive

Little hard for me to make a call on that one. But I would just say that they are -- the NAPBC is the quality program with the American College of Surgeons. And so, if these NAPBC centers want to be accredited, as breast cancer centers, then they are expected to follow the standards and the standards now describe prevent -- sorry, describe epidemic prevention. So yes, so if you want to meet the quality standards of the program and then have that, I think that's a really key measure and a key metric for these standards. And we're already hearing anecdotally hospitals are looking at how -- what they need to do to put these programs on to meet these standards.

U
Unknown Analyst

That's straight into my next question then. So the current accredited centers that don't have SOZO, are they in -- or are there a number of those that are in states of critical coverage for insurance and [ were ] a high priority target there?

P
Parmjot Bains
executive

Yes. Yes, absolutely. So right now, what we're doing is just working through those list of centers, and yes, [ just think ] how we can support them to drive coverage. And as I said, there's about 400 centers that don't have SOZO. And so, we're working to see how we can support them with lymphedema prevention programs.

U
Unknown Analyst

Okay. And insurance companies policy reviews underway, pending in particular, is there any update on California and Texas?

P
Parmjot Bains
executive

So they're all pending. So payor coverage is running through their own processes and time lines. We continue to kind of support payors. The ones that have been updated are primarily in New York, the ones that we listed out and put out on the press announcement, New York, Pennsylvania region on the East Coast. And so, we're continuing to see how these ones on -- in Texas, California come along. So no updates on that at the moment.

U
Unknown Analyst

Okay. And lastly, [ last ] in the past, is the case assistance program still operating for states that don't have coverage?

P
Parmjot Bains
executive

There is, but we're increasingly getting to the point, where we have got good coverage right in our critical mass state. So we continue to support the programs and the customers that need to be supported with this case assistance.

U
Unknown Analyst

Okay. But essentially, it's naturally winding down because it's less used.

P
Parmjot Bains
executive

Yes, exactly. As coverage comes on and as we've got those 16 states with more than 80% coverage, you don't need those case assistance programs anymore. But yes, as need be, we continue to support those customers that need the case assistance support.

Operator

[Operator Instructions] Your next question comes from [indiscernible], Private Investors. Your next question comes from [ Hamish Jones from [indiscernible].

U
Unknown Analyst

I was just wondering whether you can give an update on how you're feeling about your current liquidity position versus, I guess, the improvement in the operating performance of the business. And I guess, your tolerance to keep running the business at the moment, whilst you're generating that improved performance before you kind of address the elephant in the room. Just how to bridge the funding gap, I guess.

M
McGregor Grant
executive

Yes. Thanks, Hamish. So as you would have seen in the quarterly, we have 4 quarters of cash on hand, and we're forecasting a reduction in our operating cash outflows in the following quarters. So we expect that we'll continue to have 4 quarters of cash on hand at the end of the next quarter. We have a budget and a plan, and our actual requirements will depend on the achievement of that plan, including delivering on sales targets and continuing to manage our costs, as effectively as possible.

We've also modeled the business under various downside scenarios, where not so much revenue is generated, and cash flow is lower. And we have a plan to respond to that to align costs further, as required to ensure we can get to cash flow breakeven without raising further capital. It comes down to sales and execution. And as you know, it's a high-margin business. And as sales grow, that falls -- pretty much most of that falls to the bottom line. So at this stage, we're comfortable with the position, and we continue to monitor it closely.

U
Unknown Analyst

Okay. That's great. And just one technical question on the churn number. Does the 3% churn, does that include the 78 units that got knocked out?

M
McGregor Grant
executive

No. No, that's separate to that. That churn related to 6 other customers, of which half of those were customers that for various reasons, continue to use the device, they just use -- are using less. They reduced the number of devices they're using. And there were 2 small customers in that and one, where a unit was replaced. So look, it's not a big issue, and I think we're fairly comfortable with that.

U
Unknown Analyst

Great. And just you said that those units that got knocked out were what vintage units you said, they were kind of pre-2020 or...

M
McGregor Grant
executive

2022, certainly, at least prior to December '22. So these are units that have quite -- were installed quite a long time ago. And as Parmjot said earlier, there are a variety of reasons, as to why they've ceased being used. But it's not helpful having them in the installed base. And so, that's why we've taken them out. And they're out from all the data that we've shown in that deck.

Operator

Thank you. [Operator Instructions] As there are no further questions at this time, I'll now hand back to Dr. Bains for any closing remarks.

P
Parmjot Bains
executive

Yes. Brilliant. Well, thank you, everybody, and thanks, again for your continued support of the business. As I kind of reiterated at the end of my previous discussion, as a team, we are very excited about the future of ImpediMed. I think all of the critical building blocks are in place and really now the focus is just sales, growing sales and helping support our customers implement these lymphedema prevention programs in place. So thank you, and looking forward to connecting next quarterly.

M
McGregor Grant
executive

Thank you very much.

Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.