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Thank you for standing by, and welcome to the ImpediMed Limited Quarterly Results and Investor Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Richard Carreon, CEO and Managing Director. Please go ahead.
Thank you, Travis. Welcome, everyone, and thank you for joining us today. We're hosting this conference call to discuss our 4C for the financial quarter ending 31 March of 2022. 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 the 4C when speaking from the quarterly activity report we lodged this morning Australian time. This presentation is a summary of the more detailed 4C. After our remarks, I'll be taking questions.
Let's begin on Page 3. Today, we'll be covering 3 key topics: First, the continued momentum and ongoing strength of our business, even as the health care industry yet again felt the disruption from a third wave of COVID-19, this time being driven by the Omicron variant. We will show you graphically how we saw it play out in both the number of patient tests conducted during the quarter as well as in sales.
Second, we'll review how we are assembling all the necessary tools to accelerate growth post PREVENT as we move towards full reimbursement. We'll cover the success of the Case Assistance Program, the NCCN submission and how we are establishing a strong footprint in some key accounts ahead of full reimbursement.
And third, we'll discuss the steps for us to get to breakeven. We know it's all about revenue at this point. And we're expecting with COVID almost behind us and a strong foundation in place, we can deliver unit sales growth and increased ASPs over the balance of the calendar year.
Please turn to Page 4. I'll ask Tim to provide a more in-depth analysis of our financials. But just quickly for me, in what has become the most challenging environment with COVID Omicron variant causing disruptions across the U.S. and Australia, most acutely experienced within the health care system, the company still delivered very robust results.
Some of the highlights. We established records for both total revenue and SOZO revenue, SaaS revenue growing 28% year-on-year. And we maintained our annual revenue run rate of over $10 million with an 18% year-on-year growth in quarterly revenue. We continue to deliver double-digit growth despite the ongoing global pandemic. The leading indicators of our business continue to look very positive. We have made substantial progress with reimbursement over the last quarter, which together with the expanding footprint in key accounts, puts us in a strong position to execute our business plan throughout 2022.
I'll now ask Tim to provide a more in-depth analysis of our financials. Tim?
Thank you, Rick. Good morning, everyone. I'll be taking you through some of our key financial highlights from the past quarter of Q3 FY '22. All figures are presented in Australian dollars, unless otherwise indicated.
First, revenue and SaaS metrics. Amidst the significant levels of disruption from Omicron variant, the company still recorded record results, as Rick stated, for total revenue, SOZO revenue and software as a service revenue, most notably a 29% increase year-over-year in our software as a service revenue. While these are record results, we would have expected even better results absent the disruption from COVID-19 during the quarter. ARR for the core business was up 37% year-over-year. Continued growth in the core business will be critical moving forward as the AstraZeneca contracts eventually wind down in the coming quarters.
Contracted revenue pipeline, CRP, finished at $14.6 million, up 1% year-over-year. Within that metric, we signed an additional $2.2 million of contract value from the 17 new units sold as well as our numerous renewal contracts. CRP and TCV will continue to be important metrics moving forward as both new customer contracts and renewal contracts come in at higher values. Our focus on increased average monthly license fees both for these new and existing customers are already having an impact on the business and will continue to drive significantly higher CRP and TCV over time.
As mentioned, in relation to the CRP, in previous quarters, we've mentioned, with the SaaS gross margins in excess of 90%, we expect that 90% margin on the full $14.6 million of future contracted revenue pipeline that will be recognized in the coming quarters.
Our churn rate remained negligible at just 2%. And our renewal rate on contracts up for renewal in the quarter came in at a healthy 97%, a dip from our typical 100% renewal rate, related to one customer contract that had a single SOZO unit in a rehabilitation site. In total, to date, over 840 SOZO units have now been sold commercially since the launch of SOZO.
While COVID disruptions impacted the number of new accounts added in the quarter, the quality of accounts remains at an extremely high level. As Rick will detail out in a coming slide, our growing footprint in hospitals and health systems will serve as a key foundation for an acceleration of growth as reimbursement takes hold.
Finally, on revenue. We announced earlier in the quarter the expansion and extension of a second AstraZeneca contract. Under this agreement, they've added an additional 3 months of duration to the contract, an additional 23 SOZO units, and the contract will generate approximately $500,000 in additional revenue in the coming quarters.
For cash flow, we recorded $2.6 million in cash receipts from customers. As mentioned on last quarter's call, the Q3 FY '22 net operating cash outflows increased temporarily to $6.5 million in the past quarter. As we head into Q4 FY '22, we anticipate cash receipts from customers will steadily increase, and the net operating cash outflows are expected to once again revert to less than $3 million. As the -- with the anticipated increase in revenue over time and a cash balance of approximately $43 million, this provides sufficient cash to reach breakeven.
Thank you. Rick, I'll turn it back over to you now.
Thanks, Tim. Let's turn to Page 6. Before I take you on the journey that was patient testing throughout Omicron, I thought I would mention that the company reached a new milestone with 400,000 patient tests now completed and on record. We're very proud of this achievement and what it means for patient outcomes. And we normally show a quarterly bar chart for patient testing, but we decided the monthly chart you see on the right provided a better insight into what was happening throughout the period when Omicron was affecting the hospital systems. And as I've stated previously, patient testing is the leading indicator of the health of our business.
In the month of December, we experienced a sharp drop-off in testing as hospitals and cancer centers restricted access and focused on a huge influx of COVID patients. The Omicron drop-off was more pronounced than what was experienced throughout the Delta wave, primarily due to how quickly the Omicron variant spread and overwhelmed hospitals. The decline persisted and bottomed out in January. As you can see, we started to observe an important -- an improvement in February. And by March, we had recorded the strongest month of patient testing in the company's history. Now this strong recovery in patient testing has continued well into April, and we expect that to continue for the balance of the quarter.
It's important to note that sales reflects what we saw in patient testing. The disruption to the hospital system saw a very slow start to the quarter as hospitals restricted access. However, as Omicron cases dropped and the hospitals began to open, we experienced a strong recovery in March. It should be noted that due to the severity of COVID cases in Australia, no sales occurred in this market during the entire quarter, which is the first time this has occurred since the launch of SOZO. Now the good news is sales have begun to recover in Australia as well. And with patient testing, the momentum has continued, and the company has its strongest pipeline going into the fourth quarter than we've had since the beginning of COVID.
Turning to Page 7. As we said in the last quarterly call, we believe we are at a tipping point. We continue to invest in the tools that can accelerate growth as we move towards breakeven, and the key to reaching profitability is reimbursement. It's the reason we invested in the PREVENT trial, and what must not be forgotten is that it was published just this past quarter.
So it's still early days, but we're already seeing the benefits. It's aiding our Case Assistance Program, which we'll go into shortly, and will provide the backbone for submissions over the remainder of the calendar year to insurers for private pay reimbursement and provides a Level 1 evidence required for the strong submission to the NCCN. But it has already provided early tangible results through discussions at the recent American Society of Breast Surgeons annual conference where we built a strong pipeline of interest for our sales team.
We continue to focus on a dual-path approach to reimbursement. We're aggressively pursuing both private pay reimbursement, which is the traditional path companies undertake, and we are pursuing and obtaining reimbursement through applications to the NCCN. We are fortunate to have the ability to go down both paths. It's because we have a technology that is unique, it's not a me-too product, and it addresses a major medical issue faced by cancer survivors. And we have a statistically significant Level 1 evidence study. We only need one of these paths to succeed in order to obtain full reimbursement for our customers.
So let's talk about private pay reimbursement. This is done through a combination of utilizing the Case Assistance Program to demonstrate demand and through submissions for policy determinations. We mentioned on previous calls that we have moved the reimbursement function in-house. This has allowed us to substantially expand our offerings and establish a case -- a robust Case Assistance Program.
Reimbursement assistance system programs are standard industry tools to establish reimbursement for new technologies. The aim of our program is to, one, assist hospitals, cancer centers and physicians in filing the necessary documentation to fight denied insurance claims. This is building up cases and files of key insurance payers in showing the growing usage and demand for our testing. And two, it ensures key regional and national insurance companies are aware of the latest data, such as PREVENT.
The results to date have been outstanding. Since the last call, you can see the very strong growth in cases our team has been successful in winning and obtaining reimbursement for physicians. Case wins have grown to over 2,600 at an incredible win rate of 99% where the patients have the right to appeal. This was just 1,700 at the last call and only 300 at the time of our capital raise. Notably, the case wins are across the country and against every major payer.
On our last call, we mentioned there were over 100 external appeals that we have won, which has now doubled to over 200, and we are expecting this number to continue to grow into the current quarter. These are important cases as they are costly to the insurance companies as they come with fines of up to $10,000 per lost appeal.
Let's put some context to this. Those fines have a face value of USD 200 million. So those 200 cases are equivalent to 10,000 claims at the average reimbursement rate. From an economic perspective, that cannot be sustainable for insurance companies. In addition, the success of these Case Assistance Programs and the Level 1 evidence provided by PREVENT gives us the confidence that we will obtain automatic reimbursement for SOZO L-Dex testing in time.
The second path, via changes to the NCCN guidelines, specify the use of BIS when testing for lymphedema. Earlier in the quarter, the lead investigators submitted an application to the NCCN. The NCCN have both annual and out-of-cycle meetings to address submissions. Unfortunately, they're not a regulatory body, and they don't have a fixed time frame in which they operate. But we are anticipating a resolution in the second half of the calendar year, given the history with NCCN and the compelling PREVENT outcomes.
Let's turn to Page 8. We touched on our rising average license fees last quarter, and we had a number of questions over the ensuing period, and we thought we would address some of those aspects today. First, we have steadily increased the monthly SOZO licensing fees since inception. As you can see from the graph, average monthly license fees have increased over 75% since we launched SOZO. And in this past quarter, we averaged over USD 1,500 a month for new signed contracts. We've managed to obtain these increases by continuing to add value to the product over time. An example of this is improving the body composition product line and increasing the number of clients that purchased this module as opposed to just a lymphedema module.
In the upcoming 4.1 software release, there are a number of features that we believe can continue to add value to our clients such as electronic [indiscernible] and the first compliance dashboard. And it's worth pointing out that these increases have been achieved in a pre-reimbursement environment. Our reimbursement is widely available -- once reimbursement is widely available, it significantly changes the economics for our providers. This again improves our ability to significantly increase the average monthly licensing fees.
The second point I'd like to make from this slide is the growing number of key account agreements and what they could mean in a post-reimbursement environment. During the past calls, we have spoken about the corporate account teams improving our footprint across key accounts. These include a number of integrated delivery networks, or IDNs as they're commonly known. We've had a few questions about them recently as a larger listed player managed to secure contracts with a number of them over the last year, and these are a big deal. The top 25 IDNs represent over 1,700 hospitals and 24,000 facilities in a recent report.
And we're pleased to report, with the signing of a master agreement with Sutter Health this quarter, we are now in 15 of the top 25 IDNs. In addition, we renewed or expanded contracts with an additional 3 IDNs in the quarter. We would expect to add to that tally again this quarter. To date, IDNs account for about 80 SOZOs or about 10% of our overall units in the field. And unlike many other health -- many in the health care space, we've not had to discount to gain access or to sign these contracts. The master service agreements and IDN contracts will significantly reduce our sales cycle times. Today, when we make the sale, we work with more than 5 different departments or groups with physicians to show the clinical utility of our device and how it will improve patient outcomes. We work with IT to improve our technology to be integrated into their network safely. We work with the security partners to prove that we can handle patient data in a responsible way. We have to work with the revenue cycle teams to show them how to obtain reimbursement and with purchasing to negotiate the contracts and the terms and conditions. These MSAs and IDN agreements we've just signed, we've already negotiated the terms and conditions. We've pooled our technology at the national and regional levels to the IT departments, and we've proven that we can handle the patient information responsibly and provided them with the necessary certificates.
Now what we can focus on are the clinical sale and local reimbursement. All these other issues that have the longest lead times to our sales cycles have now been handled once and for all. But most importantly, it's a footprint we're looking at expanding within, especially once we have established widespread reimbursement. It's a very important part of the future for the company in this post-reimbursement world.
Now of particular note, we just completed and passed a year-long security review of how we manage patient data in the cloud. This test was undertaken by one of the largest hospital systems in the U.S., and we'll have more to report out on this next quarter.
Let's turn to Page 9. We've touched on a number of these milestones throughout the presentation, so I'll just mention a few. Clearly, the biggest achievement was the publication of the PREVENT trial. This has subsequently led to the NCCN submission by PREVENT trial principal investigators. We have discussed increasing revenue per month by adding new applications, and the paper showing the correlation between SOZO and DXA in bone mineral content gives you a flavor of what we're thinking with the applicability in an oncology patient where hormone treatment often leads to bone loss.
In heart failure, although progress has been slower than we would have liked, AdvocateAuroraHealth has now obtained final approval from [indiscernible] to begin testing heart failure patients. We see this as a substantial opportunity over time, and the level of engagement with them remains very high. And finally, it's good to get the renal failure observational study underway with Balboa and Fresenius dialysis clinic. We look forward to giving you an update on the renal failure progress at the next quarterly.
Turn to Page 10, please. Turning to the focus areas for Q4, a couple of points of note. Our key focus is and remains revenue growth. We will continue to focus on accelerating unit sales and further increasing the average monthly licensing fees. In oncology, the focus is continuing the outstanding results from the Case Assistance Program, expanding our footprint in key accounts and launching SOZO 4.1 software. For the heart failure, it's all about successful implementing the pilot program of -- with AdvocateAurora. And in renal failure, it's completing the observational trial.
One final note is the progress on the development of SOZO II. This was a key project from the capital raise and is critical for the company as it potentially opens up a number of new markets such as heart failure and renal failure in our digital oncology indications. Prototypes have been built, and initial testing is underway. It's early days, but we are incredibly pleased with the initial results. The project remains on track for a commercial release later this calendar year.
You can see from the rendering of SOZO II on the front cover of this presentation. So if you've got it, you may want to take a look at it. We stuck it in at the last minute. And we've kept this -- we've kept the iconic form factor. We've added a medical-grade scale that can weigh patients up to 220 kilos, and the accuracy has been enhanced. We've also increased the measurement range allowing for chart measurements, and a new software suite will be introduced at the time of the launch. All of these are designed to substantially improve the patient workflows and allow medically meaningful and actionable data to be available to clinicians anywhere at any time on any platform. One test will provide data streams to multiple clinicians to ensure improved patient outcomes.
In summary, although it's been a tough quarter with COVID again impacting the industry, we are pleased with the results and the progress we've achieved. We are uniquely positioned and well set to capitalize on the foundations that have been laid across the coming quarters and across the balance of 2022.
I want to thank you for your continued support. This concludes our remarks. Travis, we're now ready to take questions.
[Operator Instructions] The first question today comes from [ Paul ] [indiscernible] from [indiscernible].
Yes. I was just wondering if you could just comment on the increased staff costs.
I'm sorry. I couldn't hear you. Increased what now?
The increased staff costs.
Got you. Tim, do you want to take that?
Yes. No problem. Yes. So as we outlined in our 4C last quarter in the commentary, we had held out the -- held over the short-term incentive bonuses for executives and management of the company until post PREVENT. So those were related to FY '21 financial year that were withheld until PREVENT was released. So we've been updating the market over time on that, and those are finally released last quarter. So that's where you see that onetime or annual spike in the cost. And what I mentioned in the cash flow commentary, we expect cash flow to be below $3 million for net operating cash outflows next quarter, which is reflective of those staff costs coming back down.
[Operator Instructions] The next question comes from [ Jonathan Scales ] from [ Metro ].
Rick, just if you could give us an idea on the duration of new contracts, given that you're expecting to get a more robust reimbursement or NCCN inclusion in, I don't know, 12 months. Do you expect -- will you keep the duration of the contracts shorter when you renew?
[ Jonathan ], no, what we're doing is we continue to work with our customers. And I will tell you, there's overwhelming support for 3-year contracts. And we're not expecting to shorten those durations. In fact, what we're trying to do is lock in customers into the base program that we have. And then as we add new software, new features, new indications, everything we've talked about, that we'll be doing as we add to those contracts. So those contracts for us really are just a framework that allow us to lock them in for a long period of time, but it certainly doesn't restrict us to keeping the current pricing that we have. At that point, you see the increased ASPs.
Okay. So as an example, if you were to achieve NCCN inclusion, what do you think the monthly charge would go to, from $1,500 to what?
Well, we're going to continue to apply. I mean, we've not set out a total program yet. And if we get the NCCN guidelines, first of all, obviously, that will be a huge uplift for the company, and we would increase pricing at that point. But we haven't come up with any final decision on what that would be.
But I can tell you this, though. It would be -- I can tell you this, though, [ Jonathan ]. It's a good point, and we would be taking price increases. I mean, we have been aggressive, as you've seen in that graph. And we're going to continue to be aggressive. And if we do get the NCCN guidelines, we would increase that aggressiveness, obviously.
If I could just add something there. All I'd just add is that reimbursement is the key. NCCN obviously is large reimbursement. We've done a lot of work on what the surgeons and specialist hospital systems would have available to them in terms of patient numbers, in terms of what the total revenue that they could obtain in following our programs. And we definitely look to be in line. So the pricing that's been before has all been in a nonreimbursement world. And we've been able to lift that pricing despite that in a post-reimbursement world where all of a sudden, the -- as those become economic, then clearly, there's an ability to reprice it.
[Operator Instructions] The next question comes from Martyn Jacobs from Canaccord Genuity.
Just following on from those comments. I was wondering if it's possible to proffer some kind of percentage split that you would arrange with doctors in a post-reimbursement world. And then secondly, could you give us some understanding as to why AdvocateAurora is being so slow since the contract is still signed?
Yes. Good point. So first of all, let's talk about studying with physicians and so forth. Reimbursement doesn't work that way in the United States, Martyn. What we can do is -- what we negotiate with providers is what the cost of the device is going to be for them or the monthly fee that we have. And then they have to contract it with insurance companies. And some hospitals have 15 or 20 insurance companies, including the federal government under Medicare. So what they do is those contracts vary from provider -- excuse me, from payer to payer for the provider. So we have a set program that we provide them.
And then based on how they see their reimbursement and the contracts they negotiate with the payers, that's how they get paid. But we have no direct involvement, and it would be illegal for us to put together a scheme that would say that we would do a percentage split with them.
Yes. Okay. I think it's shorthanded, but yes. Okay. And then on the...
Yes. Let's talk about the Advocate. So Advocate, because of COVID, they had been very cautious about opening up a new program in their heart failure centers. As you know, when you have a heart failure patient, they're a very sick patient population, especially when you get into the different classifications, when you get into a third or fourth stage heart failure patient. And these patients, they didn't want to start a new program, and they didn't want to bring in a new device where they would have to start measuring patients and bringing our staff in to train their staff and help them walk through and assimilate the program into their patient care pathways until they felt that Omicron was behind them and they could safely do that.
So they've been working through that. But they haven't stopped engaging with us. They've been working through their protocols on how they're going to test, when they're going to test, the types of patients they're going to test, which physicians, heart failure specialists are going to use the device, so on and so forth. So we have been busy in the background working through all of those. And we have a very, very strong person with more than 20 years in the heart failure center who has been managing that process for us with Aurora. And she plans to go out there for the training. And she will be on site there for the -- in the coming weeks as they go through their initial start-up.
So it really wasn't because they didn't want to start it. It was just because of COVID, and they wanted to get to a much safer place and make sure that Omicron is on the downhill slope and they're opening up their hospitals entirely that this would be the perfect time to start.
If I go back to the earlier question, in a reimbursement world, in a fully moduled SOZO device for a physician, if you're selling at $1,500 a month now, in 2 years' time or whatever that might be, is something like $5,000 a month, is that unrealistic?
No. I would say that would not be unrealistic at all. I mean, if you think about it for a moment, right now, we're focused on lymphedema. We've talked about the fact that as we've expanded into the greater oncology market -- because really, what we've talked about now is we're not a lymphedema company, we're an oncology player. We talked about the fact that as we start to broaden into the broader oncology group, we not only have our lymphedema offering, we also have hydration, critically important, right? It's under the Body Comp segment, but it's critically important for patients undergoing chemotherapy, radiation therapy and -- or excuse me, chemotherapy and radiation. We take a look at when we're -- currently, we've announced that we're working with the FDA on bone density. And you saw the paper that was published.
So when cancer patients are undergoing treatment, hormonal treatment, they're losing bone mass. And so they can't always get a DXA scan. And in the U.S., it's reimbursed typically every 3 years. And so they'd be able to get a regular one. So we're going to be charging for every one of these modules. And in the future, we'll be charging for certain portions of our software. So you can imagine, a large institution may have oncology. They may have heart failure on the same device. They may even have renal failure coming into their centers. And with the number of SOZO devices spread out over their facilities, you can easily come up with a scenario that would say that we could get $5,000 plus per month per device. Because again, we're not -- on the device itself, it doesn't care what kind of patient it is. All you need to do is tell us what kind of information you want. Is it a heart failure? Do you want it for oncology? Do you want it for renal failure? And then you have the information.
At this time, we're showing no further questions. I'll hand the conference back to Mr. Carreon for any closing remarks.
Thank you, everybody, for joining us, and we're looking forward to this upcoming quarter. We believe with the headwinds of COVID quickly abating that it's going to be a very robust quarter. So we appreciate it, and we'll be speaking to you in the near future.