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Thank you for standing by and welcome to the ImpediMed quarterly investor update conference call. [Operator Instructions]I would like to hand the conference over to your speaker today, Mr. Rick Carreon, CEO and MD. Please go ahead.
Brook, thank you. Good morning, everyone, and thank you for joining us today. We're hosting this conference call to discuss our 4C for the third fiscal year quarter ending 30 June 2018. This report was lodged with the ASX this morning Australian time. We also lodged with the ASX this morning an updated investor presentation. I will be discussing information from both these filings during our call. With me today, I have our CFO Morten Vigeland and our Senior Vice President of Clinical and Regulatory Cathy Kingsford.As we normally do, we'll take questions following my comments. The financial results for the period ending 30 June were as follows: Total revenue for the period was $1.4 million, which is flat to the previous quarter. However, medical revenue for the quarter was up 22% from the previous quarter to $1.1 million. The blended gross margin for this revenue was approximately 72%. The recognized revenue from SOZO contracts for the quarter was $0.4 million, up from $0.2 million last quarter. Subscription revenue now accounts for 10% of the company's quarterly medical revenue, up from less than 3% in the previous quarter.We had a very strong quarter of signing new long-term SOZO contracts. Our total contract value for the quarter was $1.9 million, up 111% from the previous quarter.Our contracted revenue pipeline increased to $3.5 million, up 75% from the previous quarter. The gross margins for this contracted future revenue is plus 90%. We're very pleased to have been able to build our contract revenue pipeline to $3.5 million in a relatively short period of time. We are seeing customers wanting 3-year contracts, which, we believe, is a positive sign based on the limited time SOZO has been available as a new technology. We will continue to focus on adding new customers and converting existing customers from our legacy device to our SOZO Digital Health Platform.Annual recurring revenue for SOZO contracts increased to $1.3 million, up 44% from the previous quarter. Net operating cash outflow for the quarter was $5.7 million, down from $6.1 million in Q3. Cash receipts from customers for the quarter were $1.3 million and cash on hand as of 30 June 2018 was $31.3 million.I want to draw your attention to next quarter's 4C Item #9. We estimate our operating cash outflow to be $6.4 million. This is consistent with previous first quarters over the years, as they contain annual onetime costs such as payments for short-term incentives and receipts for our annual R&D tax credit. We would also like to note that the $6.4 million will be offset by receipts from customers when looking at the net operating cash outflows for the quarter. Also, of note, our underlying staff costs are down.Other items from the 4C of importance. Dr. Kilgore of the University of Kansas Cancer Center presented and published an independent clinical study using bioimpedance spectroscopy to monitor 146 breast cancer patients at risk of developing lymphoedema. These patients were followed for 3 years. Her study showed an 82% improvement over reported incident rates of clinical grade lymphoedema. The abstracts conclusion states: Our results demonstrate that early intervention for breast cancer patients at risk of breast cancer-related lymphedema who were prospectively monitored utilizing BIS significantly lowers the rates of breast cancer-related lymphoedema.This quarter, we completed the initial installation and training of 2 additional Centers of Excellence, bringing our total to 3 centers. Of particular note is the addition of the University of Kansas Cancer Center. This new SOZO Center of Excellence is a founding member of the NCCN. They're the noted body that produces the U.S. cancer guidelines and the private payers follow when making their coverage decisions. There's also a major enrolling site for the PREVENT trial. And as mentioned earlier, is the institution that Dr. Kilgore undertook her study that I just covered.Yesterday, the case study for SOZO versus CardioMEMS was published. You'll find a summary of the abstract in the investor presentation. The study concluded that SOZO measurements had a correlation of 87.6% with changes in diastolic pulmonary artery pressure as measured with CardioMEMS to detect fluid excess and impending congestion before hospitalization.Another clinical study comparing SOZO to echocardiograph parameters in heart failure patients was included on Slide 23. Echocardiographic parameters are routinely used to assess fluid overload in heart failure patients. Patients in this study were measured 3 times per week and followed for 4 weeks. This new study shows strong correlation between SOZO and echocardiograph parameters. We believe these 2 studies and other independent studies clearly show that our technology is able to detect small fluid shifts in heart failure patients that are medically meaningful.Let me conclude by saying, the acceptance of our new technology and the transition to our new subscription business model is going very well. The new studies just published and those are to be published put us in a very strong position to gain private payer coverage as well as opening up the heart failure market. We look forward to keeping the market updated as we continue to build our digital health subscription business.Brook, let's now open the line up for questions.
[Operator Instructions] Your first question comes from Matthijs Smith from Canaccord.
First question, just in terms of the subscription revenue that you have coming in. Is that purely from existing customers, which you had prior to moving to this model? Or is the company still signing up customers? And if the latter, previously you've given us some pretty clear guidance as to targets of new customers. Are you able to provide those or give us some idea of maybe what the split is between new customers and existing customers?
I would say that, Matty, we continue to go after not only new customers, new high-value, high-targeted customers, but also converting our current customers. I would say the current $3.5 million, majority of that is with our current customers.
Okay. And you made a comment about the contract time. Would it be fair to assume that the majority of contracts sort of heading the 3-year time frame? Or I guess, another way is what would be the average contract time weighted across what you're putting in currently?
I think the best way to really take a look at that is to take a look at the annual recurring revenue. That's gone from $0.9 million to $1.3 million. And you can see where the weight is. If you look at the total $3.5 million, that's scheduled for the coming years. $1.3 million will fall under the next 12 months. That will probably give you a very good idea how they're weighted.
Yes, okay. I might even be able to do that math. The other thing is you've also previously spoken about bringing private payers on board. Do you have any update in terms of the timing of that occurring?
Yes. We continue to say that as soon as we get the data coming out of the PREVENT trial, once that's in a peer review journal article, we're prepared to immediately start meeting with the major private payers in the U.S. along with submitting an application to the NCCN for inclusion in their guidelines. So we have a very strong strategy moving forward. We work very hard with our advisory board, former private pay executives in Medicare. And we are prepared as soon as that publication hits to start moving forward aggressively. We believe we'll have...
Okay. So it's pretty much contingent on the publication of the PREVENT trial data?
Yes. The private payers are waiting for Level 1 evidence study. That's what they have been asking for long before I got here. And so the critical thing that we have to do is to be able to provide them that Level 1 evidence study.
Okay. I think the, sort of, big news that is in the presentation is the first glimpse at the cardio data which at first glance anyway looks incredibly encouraging. Do you have any comments in terms of, I guess, your confidence or the ability to go into that market having for the first time seeing the ability of SOZO to detect those types of fluid changes?
Yes. I will tell you that there's a couple things that we're very encouraged about. First of all, as you know, this is the very first glimpse we're seeing of the data. It is a case study. But make no mistake about it, when you have a correlation to an implantable device, so as you recall that CardioMEMS is an implantable device. It's implanted in the aorta. And we can correlate at 87.6%, that is extraordinarily strong on a device that is, as we stated in the past, rental rate of $60 a month for these patients. I mean, this is not only encouraging, but the data being this strong that the principal investigators wanted to get information out in the marketplace. They continue to follow a number of CardioMEMS patients. So additional data will be coming out. But I think, it's also worthy to note that the study that was done on the echocardiograph to have a high correlation to that. So when a patient is admitted into a hospital and they get an echo and they're looking for fluid overload, that we could have a correlation that you can simply stand on a device and get that high correlation. So that and, I believe, coupled with the information that's already in the marketplace using our device and other independent studies for heart failure patients, I think, we proven beyond any reasonable doubt that we have a device now that can measure small fluid shifts in the human body for heart failure patients that are medically meaningful. The next phase here is for us to quickly move into a study to show the clinical utility, so what drug changes do you have to make in order to balance fluid and we're rapidly moving into that.
Okay. Well, I'll be following the sales numbers for CardioMEMS with a great deal of interest over the next couple of years.
Thank you.
There are no further questions at this time. I will now hand back to Mr. Carreon for closing remarks.
Okay. Thank you, everybody. We appreciate it. We're in the market this week. So I know we have a number of meetings scheduled. So thank you.