ImpediMed Ltd

ASX:IPD

Earnings Call Transcript 2021-Q4

[Trina Raymond]

Good morning, everyone, and thank you for joining ImpediMed's quarterly results investor webinar this morning. [Operator Instructions]Today's webinar will feature a short presentation from ImpediMed's Managing Director and CEO, Mr. Richard Carreon; and CFO, Tim Cruickshank. This will be followed by Q&A. [Operator Instructions] Please note, we will hold all questions until the conclusion of the presentation. I would now like to hand over to Richard Carreon, Managing Director and CEO.

[Richard Carreon, MD, CEO, President & Executive Director]

Thank you, Trina. Welcome, everyone, and thank you for joining us today. We're hosting this conference call to discuss our 4C for the financial quarter ended 30 June 2021. Joining us on the call today is Tim Cruickshank, our Chief Financial Officer; and Mike Bassett, our Senior Vice President of Corporate and Strategic Development. I'll be referencing to 4C and speaking from the quarterly activity report we lodged this morning Australian Time. This presentation is a summary of the more detailed 4C. At the conclusion of our remarks, we'll be taking questions. I'll begin on Page 3. Today, we'll be covering 3 key topics: the ongoing strength of our business, our PREVENT trial and our commercial payer reimbursement strategy. Page 4, please. Once again, we delivered a very strong quarter result in every key metric of our business and left the quarter with an annual revenue run rate of over $10 million. We continue to drive double-digit growth despite the ongoing global pandemic and without any commercial insurance coverage of our lymphedema business. Patient testing grew significantly in the quarter despite a falloff in Australia due to the ongoing COVID lockdowns. And finally, our Software as a Service business, which now makes up 74% of our total revenue, grew 111% year-over-year. Again, a very strong record quarter of growth, and we are very pleased with these results. I'll now ask Tim to provide a more in-depth analysis of our financials. Tim?

[Timothy Cruickshank, Chief Financial Officer]

Great. Thanks, Rick. Good morning, and good afternoon, everyone. Yes, I'll be taking you through some of our key financial highlights on Pages 5 to 8 of the presentation. And all figures presented are in Australian dollars, unless otherwise indicated. So if we go to Slide 5, please. We had another very strong quarter across the business. Total revenue, which comprised our SOZO and legacy businesses, was up 117% year-over-year to a record $2.6 million. As Rick stated, this puts the company at a $10 million-plus revenue run rate heading into FY '22. Cash on hand at 30 June 2021, was $19.7 million, with cash receipts from customers growing to a record level of $2.3 million and net operating cash outflows for the quarter of $3.4 million. To give some additional color on cash flow, as we have now entered FY '22, year-over-year from Q4 of FY '20 to this past quarter, Q4 FY '21, quarterly cash receipts have increased by almost $1 million and, at the same time, a reduction to R&D, admin and other staff costs has occurred. So this has led to an overall improvement in quarterly cash -- or quarterly net cash flow before government assistance of over $2 million year-over-year. And in Q1 FY '22, we expect net operating cash outflows to remain well below $4 million, in line with this past quarter's cash flow expectations. So we made great progress of late with the $10 million revenue run rate and costs down year-over-year, but we expect to see further progress post PREVENT. Based on this, we would, therefore, expect to see a significant drop in operating cash outflows as we head into the back half of FY '22. And on to Slide 6. This slide highlights the key metrics we use to measure the health of our business. SOZO revenue, $2.3 million; SOZO patient tests, over 37,000. Both were increases of 109% year-over-year. SOZO annual recurring revenue, or ARR, grew by 67% year-over-year to $8.7 million. All 3 of these metrics were record results for the company. And we continue to show strong metrics in our other key areas. Contracted revenue pipeline, or CRP, finished the year at $14.5 million led by over $12 million in contract value signed during the FY '21 financial year. Gross margins on SaaS revenue continued to be in excess of 90%. Churn rate remained negligible at just 1%. And our renewal rate on contracts was 100%. As we move to Slide 7, the graphs here are quarter-over-quarter visuals for SOZO revenue and patient tests. The graphs highlight the growth and record results achieved by the company each quarter. These results have been achieved prior to commercial insurance coverage policies, as Rick stated, in the lymphedema business and in the face of continued headwinds from COVID-19. Of note, in the revenue graph in the middle, Software as a Service, or SaaS, revenue grew by 111% year-over-year to $1.9 million. This includes $1.2 million from the core business and $0.7 million from the clinical business. Patient tests continue to grow as they did in Q4 FY '21. As Rick mentioned earlier, we expect some choppiness in patient testing numbers in Q1 due to the lockdowns in Australia, but we don't anticipate any material impacts to revenue in Q1 FY '22 from this. Even amidst a challenging environment, overall patient testing continues to accelerate. We now have over 261,000 patient tests on file as more tests were performed in the last 4 quarters than nearly all of the quarters combined since the launch of SOZO. And finally, on Slide 8. Our land-and-expand strategy continues to be a key component in our commercial growth. As a result of this strategy, as we mentioned, the ARR from core and clinical businesses combined is now $8.7 million. During the quarter, we saw 47 additional units sold, resulting in over 770 units sold to date. Of note, approximately 80% of these units in the U.S. came from newly added accounts. This includes the addition of another NCCN member institution. And between the new accounts and renewals, contracts were signed during the quarter with 10 of the top 100 U.S. health systems and hospitals. Also of note during the quarter, New South Wales Health expanded their program to over 50 units, and the company also signed its first customers to the new segmental analysis license, which became available to license in June 2021 with the Version 4.0 software release. So in conclusion, it was a very strong quarter across the business. The addition of new key accounts, increased patient testing, contract renewals and the expansion of accounts with both additional devices and new licenses has led to a continued increase in ARR for the company, now totaling $8.7 million at 30 June 2021. Thank you, all. Rick. I'll hand it back over to you now.

[Richard Carreon, MD, CEO, President & Executive Director]

Thanks, Tim. Please turn to Page 9. The PREVENT trial manuscript is still under peer review. This is not unusual given this is a landmark study and the global pandemic had slowed the entire review process for all major publications. However, we are very confident the manuscript will be published in the next 90 days. And although we have not been made aware of the outcome of the trial or its conclusions, we are extremely confident they will be positive. As I've stated in the past, this confidence comes from the interim analysis of the PREVENT trial data published 2 years ago and the recent meta-analysis publication, which examined 50 studies involving more than 60,000 patients. Recall, the meta-analysis showed statistical significance and the interim analysis concluded our technology's [ practice changes ]. Like everybody else, we are eagerly awaiting the publication of the primary endpoints of the study. While waiting on the results though, we are aggressively executing a number of key initiatives to ensure the maximum impact of these results. First, we're developing a series of physician seminars explaining the trial in detail as well as the significance of the outcomes. Our objective is to ensure our thorough and complete understanding of this landmark trial and the impact it will have on cancer survivors. Secondly, we are working with several national patient advocacies. It is our intent to have them inform their members of the study and the outcomes. And third, we will launch a series of direct-to-patient outreach programs to ensure high-risk cancer patients understand why they should be demanding to have regular L-Dex testing. The publication of the PREVENT trial is the single most important short-term milestone we are focused on. And because of its significance and the sensitivity of the peer review process, I'm unable to provide any further details or insights, and I'm sure you'll understand. I will reiterate, though, we are extremely confident in the positive outcomes of the trial as well as the manuscript being published in the next 90 days. Page 10, please. Reimbursement of our L-Dex testing is the reason we sponsored the PREVENT trial in the first place. The data necessary to obtain insurance coverage is much more demanding than that which is required to obtain an FDA clearance. As such, PREVENT was designed as a head-to-head study versus the gold standard. It is a Level I evidence study, meaning it's prospective, randomized and multicenter. We believe the outcome of this study will provide the genesis for payment and coverage by insurance carriers. Let me walk through how we will build the foundation from which we will capitalize on the publication. First and foremost, we have moved the reimbursement function in-house, replacing our outside consulting. This has allowed us to substantially expand our efforts while decreasing costs. Our new team is led by a seasoned professional, and they're focused on assisting hospitals, cancer centers and physicians in filing the necessary documentation to fight denied insurance claims. These efforts are building up case files at key insurance carriers and showing a growing usage and demand of our testing. To put how far we've come into perspective, a year ago, we were fighting 0 insurance claims for our providers. Through our consultant, we were dealing with just over 400 cases. And today, with our own internal team, they're working on more than 1,300 cases, and these are growing weekly and, finally, ensuring key regional and national insurance companies are aware of the latest data such as the meta-analysis and laying the groundwork for presenting the PREVENT data upon its publication. In addition, the lead investigators have agreed to submit an application to the NCCN for inclusion of our technology. The cancer guidelines for lymphedema showed the statistical significance to be achieved. As you can see, over the last few quarters, we have aggressively increased the resources and focus on reimbursement. We're doing this for 2 primary reasons. The first one is we're confident the results of the PREVENT trial will be positive. And this is based on the data and studies already peer-reviewed and published. Also, we regularly review the adoption rates of our technology. Today, we have sold almost 800 SOZO devices. We regularly expand the number of SOZO devices in key cancer centers globally. And the number of patients tested continues to grow double digits each quarter. For us, this data points to a technology that is medically meaningful and significantly improving patient outcomes. And second and most important reason is to minimize the time for publication when commercial payers begin reimbursing for testing. Normally, this can take from 9 to 12 months, and we believe our efforts will shorten this gap to approximately 3 months. Page 11. We achieved a number of milestones in Q4. For oncology, we released our next-generation software for SOZO. The latest Version 4.0 offers significant enhancements from the previous versions. One of the key benefits is the ability to conduct segmental analysis on patients for which we have already signed up our first paying customers for this new licensing scheme. For heart failure, an abstract was published in the American College of Cardiology on the use of SOZO for risk stratifying heart failure patients. Two posters have been accepted by the prestigious Heart Failure Society of America for presentation at their upcoming September scientific meeting. Once presented, we'll make those posters available. For renal failure, we continue to successfully deploy and support the 2 global clinical studies of AstraZeneca, and we continue to progress the regulatory and commercial strategies for renal failure. Page 12. As I stated earlier, the key upcoming milestone is the publication of the PREVENT trial manuscript. And certainly, we'll notify the market immediately upon its release. Other economic milestones, we will continue to aggressively pursue reimbursement of our LV testing with commercial payers. We continue to prepare for the submission of the PREVENT data to the NCCN Guidelines, and we've begun expanding our engagement with key corporate accounts. For heart failure, we continue to work on expanding the commercial sales for SOZO for the use of monitoring heart failure patients. And we continue to work with the Food and Drug Administration on the removal of the contraindications for use of our technology on patients who have implantable defibrillators and pacing devices. For renal failure, we will continue the deployment and support of AstraZeneca's global clinical studies and continue to advance the regulatory and commercial strategies. In closing, this is an exciting time for the company as we await the publication of the PREVENT trial. We have put all the pieces in place and are fully executing a number of key initiatives to put us in the best possible position to take advantage of the clinical outcomes of this trial. As I've stated before, the publication of the PREVENT trial data will open up a whole new set of opportunities for ImpediMed. These conclude our remarks. Trina, we're now ready to take questions.

[Trina Raymond]

Thank you, Rick. Going to now open up the webinar for questions. [Operator Instructions] The first question, if the PREVENT trial is overwhelmingly positive and opens up market access in the way you hope, how should we think about the rate at which your sales and marketing organizations expand over the next 2 to 3 years to support adoption? What is the rate at which you onboard and train new sales hires? And what target revenue rec should we work towards in our models?

[Richard Carreon, MD, CEO, President & Executive Director]

Very good question. So let me try to answer them within the context. So first of all, again, we believe the PREVENT trial will be very positive. We've already laid the groundwork. And we should start to see reimbursement come on stream within the first 3 months and build after that. So this is going to be a process, but we feel very confident in that process. Now we will add sales and we will expand our marketing as we see the revenues start to come on. As we've always said, we want to make sure that we use our funds judiciously and we grow when we start to see demand or we start to build into that demand. So right now, we're not giving any projections on how we see that coming onstream, because, again, we haven't seen the full publication, the conclusions or the analysis. So once that occurs, we'll be in a better position to give you more details on that. Trina, are there any other questions or follow-up questions to that?

[Trina Raymond]

Thanks, Rick. Sorry. Given the modest acceleration of revenue and ARR increase comparing Q4 to Q3 to Q2, what do you see are the key drivers of acceleration for revenue and patient test volumes in the coming financial year 2022?

[Richard Carreon, MD, CEO, President & Executive Director]

Well, first of all, from a patient testing standpoint, we continue to see that growth. We will see the expansion of that growth as we start to see reimbursement come onstream. We already know there's a number of key facilities that we work with that would expand their testing when the reimbursement starts to come on for private payers. So we fully expect to see that ramp up. Obviously, we're going at this very quickly now without reimbursement. So we should start to see that come onstream. The only hiccups, as I said in the meeting -- excuse me, in my comments, were the fact that we are seeing some downturn in testing from the lockdowns in Australia, but we don't expect those to last long and not have a material impact. So I think that's probably the critical piece from the patient testing. Tim, do you want to take the ARR?

[Timothy Cruickshank, Chief Financial Officer]

I think a good way to look at that is in relation to the PREVENT data as well. So we've said from the beginning an acceleration will be achieved once the PREVENT data is released, subject to positive results there. So that's a key catalyst in terms of increasing revenue and ARR for the company.

[Richard Carreon, MD, CEO, President & Executive Director]

I think across the board, what will impact both of these metrics will be the fact that, as we said, we are starting to more fully engage corporate accounts as we're starting to see more and more traction, where key customers are starting to take on additional devices or questioning us about how they can more effectively test their patients. So you'll also see that as an accelerator to both our ARR as well as our patient testing.

[Trina Raymond]

Thank you. Regarding the group master contracts that have been signed for some time, what developments are there in expanding these and progress made in editing them back on track -- sorry, getting them on track?

[Richard Carreon, MD, CEO, President & Executive Director]

Tim, do you want to take that?

[Timothy Cruickshank, Chief Financial Officer]

Yes. Sure. We continue to sign additional master agreements, and we've seen some modest progress there. The storms in Texas -- a large number of our major accounts are in the Texas area, so we did see some delays there from the addition of the Texas storms and COVID-related delays. But with travel opening back up as it seems right now, a bit, we are starting to see a lot more progress with these master accounts and getting some face-to-face time. And we're expecting a number of these contracts to come through in the first half of the upcoming financial year.

[Trina Raymond]

Thanks, Tim. Any feedback or news from AstraZeneca or doctors, hospitals who are using SOZO in the trials?

[Richard Carreon, MD, CEO, President & Executive Director]

The feedback from AstraZeneca has been very positive. They've been very appreciative of the support we provide every one of their accounts. As you know, we're in more than 31 countries. There's 2 different trials that are ongoing: one that's testing a heart failure drug and one that's testing a renal failure drug. So they rely on this quite heavily. There are weekly meetings with their team, and we address any issues or possible issues that come up. But right now, we're on track with the trials. Things are looking very positive. And they're just really starting to get into the flow of their testing. So we really have not wanted to reach out to these physicians until the device has been delivered, they've been trained and they start to test their patients. After that, then we'll start to do an outreach of that. So because of COVID, AstraZeneca has run into a few issues with the start-up, but things look to be back on track and progressing very positively. So I would say in the next quarterly update, we'll give more color on how we're progressing with taking advantage of this clinical trial.

[Trina Raymond]

Thanks, Rick. Can you please speak to how the contracted revenue has moved over the last financial year? Can you give a number -- sorry. I heard you give a number for new account licenses over the period, but has that trended up over the quarters? And can you please speak more about the new NCCN affiliates that have come into the business?

[Richard Carreon, MD, CEO, President & Executive Director]

So Tim, why don't you take the first half, and I'll take the NCCN.

[Timothy Cruickshank, Chief Financial Officer]

Perfect. And thank you, Shane, for the question. So contracted revenue pipeline, quarter-over-quarter, we would expect to see lumpiness in that number depending on the timing of when contracts are signed. But year-over-year, contracted revenue pipeline is really a solid metric for seeing the growth of the business. So we finished Q4 FY '20 at 10.9% and finished Q4 '21 at 14.5%, so solid increase there. ARR, of course, is really the best metric for looking out to the future in terms of what recurring revenue we have over the next 12-month span. When you start to look at contracted revenue pipeline, that's the revenue beyond 12 months, so 12, 15, 18 months out depending on the length of contracts signed. So I would still steer you towards the annual recurring revenue as the best metric moving forward. But year-over-year contracted revenue pipeline can give you some insights as well. In terms of licenses and renewal contracts, so around the middle part of this financial year coming up, so towards the end of the calendar year, we have a number of contract renewals that are coming up and some more significant ones. So we'll have more metrics, as I've stated in the past, on renewals and licenses as those become more meaningful and as a large number of our contracts renew over this coming financial year. I can say, over the past year, we have seen an increased ASP year-over-year in terms of the average value per device for license fees. And that's been 2 things: one, increased license fees just because of the improved software, so as we go from Versions 2.0 to 3.0 to 4.0, so the continued improvements there; as well as adding new licenses. So we have seen some improvements or increases already from the additional licenses, such as body comp now having reference ranges as well as the segmental license. And we'll continue to report -- or we'll start to report metrics on that as we get into FY '22, as those become meaningful metrics.

[Richard Carreon, MD, CEO, President & Executive Director]

So the NCCN, we continue to track NCCN accounts and National Cancer Institute, NCI, accounts across the United States. Obviously, these are the most prestigious cancer centers we have, and we target these core growth on a regular basis, either as new accounts or expansion in those accounts. So we were pleased that we were able to obtain a new NCCN center this quarter, and we will -- and we believe we'll continue to see that expansion. As you know, there were 22 founding members of the NCCN today. The NCCN includes 31 major cancer centers. And so critically important for our future growth to get into these NCCN centers, especially given the fact that 3 of the test sites that we have for the PREVENT trial are NCCN original, founding members.

[Trina Raymond]

Thanks, Rick. Why do you believe the trial will be published in the next 90 days?

[Richard Carreon, MD, CEO, President & Executive Director]

Well, there's a couple of things. First of all, the disruption by COVID has slowed down the publications across the board, in every major publication. And so we do know that the peer review process is not an indefinite period of time where it just goes on and on. A number of publications are now coming out and saying that we'll review this and give you an answer in x amount of time. And that's becoming more and more consistent across the board. So as you can imagine these physicians who not only have their day job as a physician or heading up departments or running hospitals are important, but then the reviewers themselves have their own jobs. And now they're happy to wrestle with COVID and keep up on this. So the principal investigators are letting us know that they're starting to move through the process. And as they move through the process, we believe that we're now in the queue. So I think that really gives us the confidence. The other thing I would say is the PREVENT study, the statistical analysis and the design of the trial have already been published in a peer-reviewed journal. So for instance, in the interim analysis, it's well known the model hasn't changed. And the final endpoint is going to be based on the statistical model. You can't change statistical models in the middle of a trial. So we believe that will go through the process fairly quickly. It's just a matter -- this is a landmark study, the largest ever undertaken. And so there's going to be a lot of scrutiny behind us because this could change the way that lymphedema patients are treated and as such, there's a high degree of scrutiny with the final results.

[Trina Raymond]

Thank you. Next question, are you able to quantify the level of decline in operating cash outflow in second half 2022? Are we looking at a [ 30% ] or something like a [ 27% ]?

[Timothy Cruickshank, Chief Financial Officer]

If you want me to, I can take that one, Rick.

[Richard Carreon, MD, CEO, President & Executive Director]

Yes. Go ahead, Tim.

[Timothy Cruickshank, Chief Financial Officer]

As Rick stated just before in the commentary -- in the Q&A, we aren't able to give guidance that far out into the financial year. But what we will continue to do is give quarterly updates on what the next quarter looks like. Just a number of factors in relation to the PREVENT trial and the milestones being achieved over the next 90 days that we aren't quantifying the second half of the year, but we will continue to give quarterly updates looking out.

[Trina Raymond]

Thanks, Tim. How many SOZO units do you ultimately see selling into the marketplace?

[Richard Carreon, MD, CEO, President & Executive Director]

I think the number is going to be a very large number. I mean if you think about it alone, we've got more than 800 globally, most of those in the United States, obviously. And we're just starting to crack the major centers. I can tell you that we have some cancer centers that have up to 50 devices. There's New South Wales Health. We have other centers who have 30-plus devices on their campuses. And I would say that we have a number of centers that are looking at expanding. And so what we thought originally -- so the basis on our original model of our old U400 device were if every account would have a couple, we've had to throw that model out the window. And as we increase the number of indications -- so for instance, in the cancer space alone, the number of approved indications by the FDA today has gone beyond lymphedema. We now have protein calorie malnutrition. We now have heart failure and we also have body composition in an unhealthy population. So therefore, the segmental analysis, as both Tim and I spoke about, is starting to make some headway in getting additional devices or licenses on devices. So I think it would be hard for us to say what we're seeing. What we saw a couple of years ago where we would have several thousands in the marketplace, I think we're slowly realizing that, that is a very, very low number, especially given the potential in the other indications we're currently speaking with, with the FDA such as bone density, remove contraindications as well as...

[Trina Raymond]

Thank you. Next question, what Portion of the 770 SOZO devices were revenue generating during the past quarter? What is the general lag time between the sale and revenue generated in the current environment?

[Richard Carreon, MD, CEO, President & Executive Director]

I think there's a couple of things impacting that. I don't think -- we've never released the number that we sold versus the number that have been fully installed. I don't see a big disparity in that. But think back to the SOZO software Version 1.0, we used to report that it took months from day of delivery to be able to get it fully up and running because it wasn't cloud-based at the time, we had to have dedicated servers, so on and so forth. Today, we can set up the device and get it running in about 10 minutes. So when somebody buys a device, it has to go through the certification process to make sure the device is everything it said it was, got at least the security standards that we were approved for. And it goes from that department who does that work onto the floor where we do the training. So we're talking weeks, not months, on that lag time in most cases. There are some cases because of COVID that they are only -- or they've reduced the number of patient testing to only the most high-risk patients because they want to minimize that patient's time in the cancer center. Obviously, cancer patients undergoing treatment are highly susceptible to infections and so forth, like COVID. So there's been some dynamic changes. But in the end, it's really about making sure you've got the protocol. So when we start to come out of code and we start to see these markets open up, that we see this expansion of the testing and we see expansion of the devices in key markets.

[Trina Raymond]

Thank you. Next question, is there a practical difference between HF-Dex as a monitoring tool versus it being used for diagnostic purposes in commercial terms?

[Richard Carreon, MD, CEO, President & Executive Director]

Trina, could you repeat that question again, please?

[Trina Raymond]

Sure. Is there a practical difference between HS-Dex as a monitoring tool versus it being used for diagnostic purposes in commercial terms?

[Richard Carreon, MD, CEO, President & Executive Director]

In commercial terms, there are. So in order to get a diagnostic claim through the Food and Drug Administration would require a massive study. Our approach has always been for the clinical assessment, especially given other disease states like heart failure, for instance, because we're dealing with a population that the decisions based on a diagnosis could mean life or death. So the clinical assessment, as we say, and what Scripps has found, Dr. Tom Hayward, one of the world's leading authorities, it is a great tool for that clinical assessment. In fact, there's no easy or objective way to tell if there is fluid buildup in the patient unless it's so egregious that you can actually see that buildup or you can test for that buildup by putting their thumb against their ankle because there's so much fluid. By that time, that patient has other problems. But where we can detect it at an earlier stage is where it can be most effectively treated at that time. So when we say clinical assessment, we're going to tell them that they're seeing fluid increases or weight increases that are not brought on by just gaining fat or muscle. We're talking about a fluid increase. So we can detect small shifts in fluid, fat and muscle that a clinician would not be able to do otherwise. So that clinical assessment, along with the knowledge of that physician, allow them to set a treatment path that we believe is most effective for this patient. So at this point, we're not looking at a diagnostic claim because that trial study would be 3,000 to 5,000 patients, and that would be a number of years to get those results. We believe this is the best strategy to enter and the most effective in the heart failure market at this point.

[Trina Raymond]

Thanks, Rick. Are you seeing an increase in the testing per existing machine? Or is the growth in test mainly from new placements?

[Richard Carreon, MD, CEO, President & Executive Director]

We're getting both. So we track both of those numbers. We routinely look at the number of testing done per device, per center, and we also look at the number of tests being generated through the placement of new devices. So we're seeing that not only the placement of the new devices, obviously, is generating them, but we're also seeing a growth in patient testing in their existing core business.

[Trina Raymond]

Thank you. How do you see revenue tracking compared to expenditure? With expansion, do you expect to see the expenditure curve to increase at a greater or lesser rate initially than revenue?

[Richard Carreon, MD, CEO, President & Executive Director]

We've said in the past, and we're going to hold to this, that we would see the revenue start to ramp before we would add additional resources. So for instance, let's talk about the fact that we've significantly increased our footprint and brought in-house reimbursement because we know that's critical to our future. Well, we did that by reducing -- it's less fees to do that than it was to continue with the expert outside consultant. So we've built that up, knowing that we still need to do it at a reasonable cost and if we could reduce costs. So we will continue to do that with sales and marketing. As we start to see the expansion and get traction, we will build an organization into that because we want to be very disciplined on our future expenditures.

[Trina Raymond]

Thank you. What was the value of AstraZeneca's revenue in the fourth quarter total of $2.3 million? And what is it influenced in financial year 2022?

[Richard Carreon, MD, CEO, President & Executive Director]

Tim?

[Timothy Cruickshank, Chief Financial Officer]

Yes. So our SaaS revenues, Software as a Service, was $1.9 million for our Q4. Within that, we talk about our core business and our clinical business. So our core business was $1.2 million. Our clinical business, which includes the AstraZeneca contracts as well as a number of other clinical contracts, was $0.7 million during the quarter. So as we look out to the FY '22, we would expect the core business to continue to increase while there's an expectation to maintain that clinical business on a quarterly basis over the next coming quarters.

[Trina Raymond]

Thanks, Tim. Next question, are there any competitors to the SOZO machine technology?

[Richard Carreon, MD, CEO, President & Executive Director]

So our device is a bioimpedance spectroscopy device, 256 frequencies. All of our other competitors use a handful of frequencies, 6 or less. So the competitors would have to do a couple of things. First of all, they would have to obtain FDA clearance, CE Mark approval and so on and so forth. So to get through the regulatory hurdle, they would have to show substantial equivalent to our device. At this point in time, we've not seen any that have been able to show or have even submitted any pay cohort to the FDA, asking to prove clinical significance. So from a competitive standpoint, we don't see anybody on the horizon today. And we believe we're well positioned in the marketplace with almost 800 devices, a major clinical trial going into heart failure and so forth. Not to say that somebody wouldn't try to come into that market, but I think we built up significant competitive barriers that it would be challenging at best. And with our head start, we believe -- and with our intellectual property portfolio, with what we certainly have before the FDA and what we're developing, we believe we think we can stay well ahead of anybody who would venture to enter the market.

[Trina Raymond]

Thank you. The U.S. FDA 510k clearance to include heart failure hasn't translated into increased sales so far. Do you see a positive change on that? And what is your assessment in terms of heart failure interest in concrete demand?

[Richard Carreon, MD, CEO, President & Executive Director]

The heart failure indication as we once -- or excuse me, as we said in the past, was something that we were able to obtain with the current clinical data. We still needed additional data much like we need with lymphedema where the -- as I said in my opening statements that the data needed to get an FDA clearance is not the data you need for reimbursement. So in this case, we were able to use our current data sets and be able to get an FDA compare. Now we also said we were going to go about this in a very controlled manner. Without having to invest a lot of dollars, we were going to go into pilot sites. We announced those pilot site initiatives several quarters ago. And unfortunately, it has not gone as fast as we would like. However, that's fully been COVID-related. Hospitals, obviously, have been overrun with COVID patients. The budgets are strained and limited access. So we continue to publish data like we just said at the American College of Cardiology as well as the Heart Failure Society of America, those papers. So we will continue to publish that information. However, we are seeing renewed interest as COVID starts to wane in the United States and things start to open up, and we're able to make in-person presentation. We are seeing a renewed interest in our heart failure. So we would expect to see progress made in that over the coming quarters.

[Trina Raymond]

Next question, does present revenue include private insurance players who are already convinced on the SOZO benefit? Or is there presently no revenue from private players? For example, will a successful PREVENT outcome stop private players or boost the existing private payer numbers?

[Richard Carreon, MD, CEO, President & Executive Director]

So private pay today, there is no coverage policy from the private payers in the United States to reimburse for our CPT code 93702. All of the payments that are going to the hospitals or physicians for reimbursement are from Medicare. So that's why we believe the PREVENT trial will be the genesis to really open up the private pay market. Now in the United States, Medicare accounts for about 45% of all cancer patients. The other 55% are covered by private health insurance plans. So we'll start to see a ramp-up of the amount of testing, therefore, the number of devices requested and an increase in licensing fees over the coming quarters as we start to see the private payers start to provide reimbursement on a regular basis. Now we said in the past, we are seeing some private payers paid to some of our physicians who have fought very long and hard for years to get them to start paying based on the information, but it's not widespread. Certainly, hospitals and physicians and major cancer centers have expected from private payers. That's why we've put so many times -- so much time, energy and resource into this. We believe it will be a significant ramp-up for 2 reasons. One, it does cover 55% of the market. But in the United States, a hospital, a cancer center or a physician cannot discriminate. They cannot charge only Medicare for testing and not charge the private health insurers. And the private health insurers, if they deny it, then that patient is responsible for those tests. So Medicare says you can't build a business just on Medicare and have a subsidized private pay. So most physicians and hospitals limit they're testing to only the highest-risk patients. So we, therefore, see a big opportunity as we start to get private pay to start routinely paying where we'll start seeing significant increase in the number of testing, as I said earlier, which increases the number of devices, the number of licenses and the number of centers. So private pay is critically important. I would say any payment we're seeing, our providers are seeing on a national basis are less than 1%.

[Trina Raymond]

Thanks, Rick. Can you comment to the gross margins to the initial contract, which I understand includes the hardware and the renewal, which is software only? Which scenario does the [ 90-plus ] apply to?

[Richard Carreon, MD, CEO, President & Executive Director]

Tim?

[Timothy Cruickshank, Chief Financial Officer]

Yes. Sure. Peter, thank you for that question. So we have -- you're right. When a contract is signed, it's the device, we have other things like training and warranty fees. The majority of contract value goes in that software, so the Software as a Service fees. So that $14.5 million in contracted revenue pipeline that we spoke of, that predominantly pertains to Software as a Service. So that entire $14.5 million would have 90-plus percent gross margins on it. And then when you break that $14.5 million down, the annual recurring revenue portion of that is $8.7 million, and that's the revenue that we would anticipate recognizing over the next 12 months from contracts signed to date. And all $8.7 million of that would have the 90% margins on them.

[Trina Raymond]

Thanks, Tim. Assuming PREVENT trial manuscript will publish with a positive review, how do you see ImpediMed benefiting from that in terms of time line, contracts, via selling, et cetera? Would you say it will have a significant effect?

[Richard Carreon, MD, CEO, President & Executive Director]

I will say the impact will be significant on the future of the company and the growth. I mean if you think about it for a moment, as I just said, we've got more than -- almost 800 devices in the marketplace alone. In the U.S., you would see, with a positive PREVENT trial, a whole new interest in the technology based on the fact that you have a randomized Level 1 evidence, multicenter, international study that shows, once and for all, that L-Dex can prevent the onset of lymphedema. So hospitals will have to take that seriously. They also know that Level 1 evidence study provides tremendous impact to insurance companies, private insurance companies, to cover. So we will see an immediate impact of interest that will lead to the sales, new devices and everything we've talked about. So yes, the PREVENT trial -- a positive outcome for the PREVENT trial, we will start to see an impact almost immediately to the business.

[Trina Raymond]

Thank you. Noting the total contract value of $12 million signed in financial year '21, what is the typical contract length? Does it vary much?

[Timothy Cruickshank, Chief Financial Officer]

Happy to take that, Rick.

[Richard Carreon, MD, CEO, President & Executive Director]

Tim, yes.

[Timothy Cruickshank, Chief Financial Officer]

Yes. Thank you for the question, Sally. So new contracts in our core business, predominantly 36 months in length. Clinical business, contract length will depend on the specifics of that trial that the customer is running, so not a specific time frame on those. But the predominant number of contracts within our business comes from the core business, and those are 36 months to renew. Where it gets interesting is as those contracts are renewed, as we start to get more and more devices at existing sites, we find the hospital systems often want to align their other contracts with new contracts. So when they renew, sometimes it's not for the full 36 months, it will be a period of time that will line up all of their contracts into one. So it starts to get more complicated as we grow and renew, but new contracts will be for 36 months, the predominant number of them.

[Trina Raymond]

Thanks, Tim. Next question, what is the growth in testing in existing sites quarter-on-quarter?

[Richard Carreon, MD, CEO, President & Executive Director]

I couldn't tell you that off the top of my head, I don't have that information available. So if I look at current sites, not new sites, I mean, the challenge we would have is we have to separate the devices that we place in the existing accounts that are now starting to take on. I think it would be a very complicated way to look at it off the top of my head. But yes, I don't have that information readily available at this point.

[Trina Raymond]

Thanks, Rick. Can SOZO also measure bone density? If so, could this replace the traditional DXA test for osteoporosis, for example?

[Richard Carreon, MD, CEO, President & Executive Director]

So what we've been working with and in the data we've collected and the studies we've supported show a 90-plus correlation to a DEXA scan on bone mineral health or bone density. So we feel very confident that once we move through all of the work required with the FDA, once we have the bandwidth to expand that there is an opportunity for a bone density or a bone health index to be able to provide clinicians with a patient's bone health over time. So is the bone mineral content increasing because of a drug regimen, exercise, diet or whatever? Or is it decreasing because of inactivity or disease states or things like that, like osteoporosis or cancer treatment? There's a great deal of interest in our technology to be able to do that for a couple of simple reasons. One, it's noninvasive. It's nonradioactive, right? There's no x-rays going out. Two, it's simple, and you can test the patient at any time. In the United States, typically, insurance companies will only pay for a DEXA scan with a large amount of justification in the paperwork every 2 years. Well, if you're going through cancer treatment or you're going through osteoporosis or even in an accident or an injury, finding your bone mineral health or your bone density is critically important on a regular basis. So again, we see this as an opportunity to be a player in that space. It's just a matter of putting it in the queue, completing the work we need to get done and making the final submission. But we're very, very pleased with what we're currently seeing, and we've reported this for a number of years now that this is very compelling data.

[Trina Raymond]

Thank you, Rick. After NCCN Guidelines are out, do you see changing your revenue model for a base charge per device per month and then also a charge per patient test?

[Richard Carreon, MD, CEO, President & Executive Director]

First of all, let's take that in 2 parts. The NCCN Guidelines, if achieved, will be significant because what will happen is 95% of the private pay insurance companies in the United States make a coverage determination based on the guidelines. So if, in fact, you get in the guidelines, those insurance policies will start to follow immediately. This won't be a multiyear process that we're going after. So that will be significant in and of itself. Now moving to a model where it's per patient testing is something we tried originally when we put out the device. And we ran into resistance on that because hospitals like to [ stick ] to their budgets, they like to know their overhead and they want to be able to keep expenses down while improving patient outcomes. What we found is that if a hospital starts to do more testing, they realize they need more devices. They can't funnel all patients into a single location and do testing, even as easy as it is to do with our device itself. So they'll add more devices. So New South Wales, more than 50; KU, more than 15; Baylor Scott & White, more than 20. So what we found best is it's better to allow them to test as many patients as possible, sign them up to a 3-year contract, get a monthly fee and then continue to drive more and more patients who then will increase the number of devices, therefore, the number of licensing fees and so forth. That's the model that we feel very good about. We're finding no resistance when we have these discussions with customers. And so to go back to a per patient model, I think, would be difficult at this point. And quite frankly, I don't think it would really be in our best interest over the medium to long term. I think the model that we have today is a very positive one and it's well accepted.

[Trina Raymond]

Thanks, Rick. Is partnering still the preferred option for renal failure?

[Richard Carreon, MD, CEO, President & Executive Director]

I think it is an option for us. It would be the preferred method. But we're also seeing from the data we've got some very positive outcomes from our renal failure testing that we've done and the partners that we've discussed with and the data we've looked at. So I would tell you this, it's a key focus for us. We will continue to investigate. We will continue to explore. We will continue to walk down a regulatory pathway because we do believe that SOZO can play a major role in improving the outcomes of renal failure patients as well as streamlining the testing for the current patient population. So we believe that we have a very strong position going into that market, and we'll continue to push it into those markets.

[Trina Raymond]

Thank you, Rick. We have one final question. Do you have a breakeven number of devices for ImpediMed to be cash flow positive?

[Richard Carreon, MD, CEO, President & Executive Director]

Tim, do you want to take that?

[Timothy Cruickshank, Chief Financial Officer]

Yes. Thanks for the question. We haven't disclosed that information. I can tell you, I mean when you look at our business model, there's a number of different levers. So in addition to getting devices out, there's also the opportunity for the additional license fees as we grow these existing accounts. So key to the land-and-expand strategy we've said from the beginning, we need to be in the top hospital systems, cancer centers in the U.S., get our footprint there and then, from there, continue to expand devices and licenses. So while we haven't given the specifics on breakeven numbers for devices, you will continue to see growth in all of those growth in those metrics moving forward.

[Trina Raymond]

Thanks, Tim. That concludes today's Q&A session. I would now like to hand over to Rick for closing remarks.

[Richard Carreon, MD, CEO, President & Executive Director]

Thank you, everyone, for your patience today as we went through the presentation and went through the updates and went through the questions. We appreciate it, and we're looking forward over the next 3 months to be able to present the PREVENT data to you. So thank you. Have a great day.

[Trina Raymond]

Goodbye.