Perimeter Medical Imaging AI, Inc.

Greetings. Welcome to the Perimeter Medical Q1 2022 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad, and please note that this conference is being recorded. I will now turn the conference over to Mark Komonosky, Investor Relations. Thank you, sir. You may begin.

Good afternoon. Thank you for joining us on this call and webcast today to provide the first quarter 2022 update for Perimeter Medical Imaging AI or Perimeter. On the call with me today is Jeremy Sabota, Perimeter's Chief Executive Officer, who will provide a financial summary and business update. Following Jeremy's prepared remarks, we will open up the call for questions. Please be advised that during this call, we will be making a number of statements that are forward-looking, including statements regarding the future financial position, the strategy and strategic goals, competitive conditions, research and development activities, projected cost and capital expenditures, research and clinical testing outcomes, the potential benefit of our products, including the Perimeter S Series OCT, Perimeter B Series OCT, and the perimeter image assist, the efficacy of our clinical trial designs, the timing and anticipated enrollment in our clinical trials, and the timing of potential publications or presentations of future clinical data. Forward-looking statements are subject to numerous risk and uncertainties, many of which are beyond our control, including the risk and uncertainties described from time to time in our CDAR filings. Our results may differ materially from those projected on today's calls. We undertake no obligation to publicly update any forward-looking statement. For additional information about the risks facing our business, I encourage you to review our public filings and press releases, which are posted on CDAR at www.cdar.com. Today's press release summarizing this business update will be made available under the Investors section of our website, at www.perimetermed.com and filed with CDAR. Now I'd like to turn the call over to Jeremy Sabota.

Jeremy. Thank you, Mark, and good afternoon, and thank you, everyone, for joining us today. Yesterday we issued a press release summarizing our first quarter 2022 results, and I will start today's call with a financial overview of the first quarter. After that, I'll move into an overview of our industry and business. And lastly, we'll open up the call, and I will be happy to take any questions you may have. Before we begin with the Q1 results, you may have seen the additional announcement we put out this morning regarding the appointment of Chris Scott as Perimeter's new CFO. I would like to take this opportunity to officially welcome Chris to the team. Chris is a collaborative leader who brings a wealth of experience directly relevant to Perimeter as we continue to execute on our commercial, clinical, and corporate development goals. Most recently, Chris served as Chief Financial and Operating Officer of Eradimen, a NASDAQ-listed company that designs, manufactures, and sells MRI-compatible medical devices, disposables, and related services. He was with them since 2013 and played a key role in leading them through their IPO and subsequent scale-up, achieving revenue CAGR of over 20% during his tenure, five times headcount growth, and growing market capitalization from a pre-IPO value of approximately $10 million to over $600 million at the end of 2021. Previous to that, Chris held a management position at Darden Restaurants Incorporated from 2010 to 2013, where he provided accounting and reporting oversight. And from 2002 to 2010, Chris was with KPMG. Again, Chris is a collaborative leader who builds great teams and brings both a depth and breadth of experience in our space, and I look forward to his contribution supporting Perimeter's mission of transforming cancer surgery. Chris is based out of our Dallas office with me, and as this is his first official day, I would like to welcome him. Chris has joined us on the call today and will be available for questions in the Q&A session. Now turning to Q1. Yesterday we reported our Q1 results, and I'll quickly provide a financial overview here. Unless otherwise noted, I'll state the financial figures in Canadian dollars. Operating expenses for the three months ended March 31, 2022, were $4.8 million compared to $3.8 million during the same period in 2021, primarily reflecting the increased activity on both the commercialization and clinical fronts. The net loss for the three months ended March 31st, 2022 was $6.4 million compared to a net loss of $4 million from the three months ended March 31, 2021, which in addition to the expanded operating costs just mentioned, included a $1.7 million non-cash expense from the change in fair value of liabilities associated with the warrants issued as part of the private placement we closed in January. Given the nature of these financial instruments, they are categorized as fair value through profit and loss in our financial statements. From a cash flow perspective, the three months ended March 31, 2022. Cash used in operating activities was $3.6 million. The cash used during the quarter was mainly driven by costs associated with expenditures supporting our growing commercial operations as well as research and development activities. Additionally, in the same period, we used $7.7 million in investing activities attributed to the purchase of OCT equipment. And finally, as of March 31, 2022, our cash and cash equivalents were approximately $50 million. With that, I'll turn to a Q1 overview. And although we did just have a call weeks ago, I would certainly like to reiterate the transformative nature of the progress we made in the quarter. As previously mentioned, having a strong balance sheet through these next phases of the company's development was absolutely critical as it provides a foundation from which we can react to our customers' needs while ensuring we remain focused on taking action to create long-term stakeholder value for patients, for our customers, for our employees, and for our shareholders. January's private placement closing provided just that with net proceeds after transaction costs of nearly $50 million And comparing that to the previously mentioned use of cash from operating activities in the quarter of $3.6 million, we're very comfortable with our runway. From an industry perspective, Q1 started to show signs of a transition for our customers. As you have heard several of the larger medical device players mention in their conference calls, procedure volume has been closely watched, particularly elective or procedures that are considered deferable in light of the changing COVID level in hospitalizations. And what seems to be a consistent theme is that during Q1, pockets of therapeutic areas started to show signs of procedure volumes normalizing. I say pockets because it appears that there are some areas experiencing a lag. For example, one recent survey on women's health found that nearly 50% of women ages 16 to 54 had not seen a medical professional in the prior year. And this is worrisome for some of the earlier stage detection and screening procedures that, when performed regularly, can help enable a less invasive path of care for those patients. Thankfully, it sounds like our customers are seeing indicators of that trend starting to turn, and we believe that backlog places even more emphasis on our customers' ability to be as effective as possible in the first surgery for their patients as volumes do normalize. And I mention these macro trends really to set the context for what felt like a turning point for our early commercialization efforts on the S-series devices. Exiting Q1 and early into Q2, we had a very busy industry conference season, which gave us the opportunity to engage with our customers at scale in a manner that we really hadn't experienced since launching the product. Many of these were the first time those particular customer communities had returned for a large industry event since the onset of the pandemic, and it was really invigorating to feel the energy and excitement across the board. There was certainly a pent-up demand to hear about the latest research in the communities and see what new innovations have come to market since last getting together with industries. Now, that said, there's a lot of scale that can be unlocked with virtual interactions, and our commercial team has certainly done very well in that environment. But the quality of the physical interaction with our device, particularly after the educational content that our key opinion leaders presented at these conferences, was just a different level. And while it takes time for the impact of these activities to materialize while we're working through the standard typical sales cycle process with those customers, we left Q1 with significant optimism about the rest of the year, and we reaffirm our guidance for the full-year installation numbers of 15 to 20 units. Next, our Atlas AI project, which includes the pivotal clinical trial on our SDA breakthrough device-designated Perimeter B Series OCT combined with Image Assist Artificial Intelligence also continue to make solid progress. The engagement from our investigators is high, and the various site startup activities are going well, with five of the eight clinical sites officially activated, and we remain on track to complete patient enrollment by the end of the year. As a reminder, the trial, when fully enrolled, will consist of over 300 patients undergoing breast conserving surgery across eight U.S. clinical sites with the aim of assessing unaddressed positive margin rates of surgeries utilizing perimeters technology compared to the standard of care. We certainly believe that this further enhancement of our technology is going to empower surgeons with an incredible tool set to help them improve healthcare outcomes, and we look forward to updating you on progress of the study as it moves towards completion. The team here at Perimeter is committed to transforming cancer surgery with advanced imaging, AI, and machine learning tools to improve patient outcomes and lower costs within the healthcare system. And as always, I would like to thank all of our employees and stakeholders for everything they do. I'm excited for what we're building here, and I look forward to updating you on our progress and future calls. And now I'd like to turn the call over to the operator and open up our line for questions for either myself or Chris. Operator.

Thank you, sir. This time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing any star keys. One moment, please, while we poll for any questions. Our first question comes from the line of Frank Takkanen with Lake Street Capital Markets. Please proceed with your question.

Great. Jeremy, congrats on all the progress. And Chris, welcome to the team. Look forward to working with you. I'll save some questions for you for when you get your feet under here a little bit more, but look forward to working together. Maybe just to start off on the commentary around turning point, you mentioned Jeremy. How should we be thinking about the selling cycle and expectations around that and how that process would work? Maybe think about from initial conversation to introducing a demo, how many times they need to use it to eventually converting that to an actual install. How long do you think that process takes and what are some of the elements that are important in that process.

Yeah, thanks, Frank. Happy to take the question. And I think, you know, when we gave the guidance, we made it pretty clear that we expected that to be a, you know, a back-weighted kind of ramp into Q4, really based on the turning point and the experience that I described in those prepared remarks. So, you know, I'd say that that varies pretty, pretty broadly across different institutions. You know, some particularly larger institutions will have a little bit longer sales cycle as you're working through different committees and, you know, getting up potentially to regional offices and things like that for, you know, for the budget approval on our kind of spend. So, you know, I'd say from initial conversation, you know, customers or surgeons particularly are really excited. You know, there is a bit of a hurdle getting into the operating room for the live demo, which is really important, particularly for a new disruptive technology like ours. And, you know, that process could take anywhere from three to six months, depending on the institution. And then again, you know, it really depends on the surgeon's volume. I think we're seeing out there somewhere between five and 15 cases of evaluation type cases for a surgeon to really get comfortable. And that also depends a little bit on how much time they want to invest in learning the technology in parallel with those evaluation cases. So pretty consistent with what we've said all along. One, we're in the discovery phase, so we're learning a little bit about different customer profiles from a surgeon user perspective, also from a hospital supply chain perspective as well. And then, you know, really zeroing in on what that timeline looks like. All that to say is we'd expect maybe our grand mean sales cycle from, you know, initial contact or initial excitement to close to be, you know, somewhere in the six to nine, 12-month range on a normalized basis.

Perfect. That's really helpful. Maybe...

Talking about value analysis committee conversations a little bit more, what are some of the anecdotes you can share with us in relation to those conversations, the questions being asked, the counterarguments, those different conversations? Any color around those would be fantastic.

Certainly, and I think here again, this also just shows the intricacies of the U.S. healthcare system, but I think depending on the payer-provider environment. We're having different conversations with different value analysis committees. But one thing is for sure, this is widely acknowledged as a low-quality outcome that hospitals are experiencing today. You've probably heard me say historically, there isn't a surgeon out there that's satisfied with a 75% success rate on their first operation. So they are hungry and keen to have some kind of technology help them solve this. From a perimeter technology perspective, I often say we solve the triple bottom line in medical devices. So we're good for the provider, and I'll say the surgeon, including the hospital, in that good for the provider, good for the patient, and good for the payer in that we're really making the whole system more efficient. So as we think about different stakeholders within value analysis committees, You know, women's health is a point of emphasis for different hospitals. You see a lot of these facilities wanting to become, you know, centers of excellence for breast cancer care, women's health care. And, A, we're making them more efficient. We're making better use of their operating room time so that you're not, you know, consuming a lot of time to use multiple procedures to get one episode of care taken care of. We're attracting more patients. I think, you know, some of our surgeons that are looking to build their practice and looking to become, again, that center of excellence, they're seeing technology like this as a differentiator for their practice compared to other competitive practices in the area. And then finally, Again, you know, the cost of a re-operation is an additional $16,000 on average. So being able to cut that cost, you know, down to something far less significant is a big, big value prop for particularly the integrated payer providers. So they're seeing the bigger picture there for sure.

Okay. That's great. And then maybe just the last one for me, appreciate the commentary you provided on procedural volumes, maybe extend the thought a little bit more into what you've seen in April and May. I think you talked briefly about some of the more recent trends, but maybe talk a little bit more about procedural trends and if the facilities you're working with are feeling like they're getting back to pre-COVID levels or exceeding pre-COVID levels as they start to address some of the backlog that seems to be out there.

Yeah, definitely. I'd say on the whole, it certainly feels like they're getting back to pre-COVID levels. Now, again, in pockets, some of the areas we've seen, the procedure mix has been a little bit different in that we're seeing some more mastectomies than lumpectomies in certain areas. And there are obviously early days on that, and it's anecdotal at the moment, but not going for your mammography screening for two years, you know, we're seeing patients present with more progressed disease. So that's a really unfortunate byproduct of some of the COVID measures that, you know, people, individuals and institutions have implemented. So that's an unfortunate thing that we're seeing in certain areas. And really, I'd say from that perspective, what we've found is it's not really getting back to exceeding pre-COVID levels in that the bottleneck is upstream from us. So mammography facilities and radiology is kind of the bottleneck and they're really only able to get through that backlog as capacity allows. And really that's kind of the upstream flow of patients in our part of the funnel in the OR. So we're seeing return to normal volumes, but certainly a backlog there. And as I mentioned in the prepared remarks, I mean, from my perspective, this makes it critical that we flow through that backlog as quickly as possible.

And in my mind, a big part of that is getting it done right the first operation, for sure.

Perfect. Okay. I'll stop there. Congrats again on all the progress, and thanks for taking my questions. Thanks, Frank.

Thank you. And our next question comes from Yue Ma with Research Capital Corporation. Please proceed with your question.

Hey, good afternoon. Thanks for taking my questions. So first, Jeremy, I was wondering if you could comment on the revenue this quarter. So why there were no sales revenues recognized in Q1, you know, given the company has already placed the systems in hospitals in late Q4 last year. Was that due to no procedures performed or or is this some sort of like accounting treatment? Just want to get clarity on that.

Yep. Yeah, so we don't, you know, our per procedure revenue numbers are package unit procedures. So, you know, the Q1, you're exactly right. So we just didn't get to the reorder point from a revenue perspective to drive additional revenue. volume there, and that's really what I was just describing from, you know, we're kind of leaving the corridor, seeing some of those numbers start to get back to normal volumes, and that's what we experienced from a revenue number in Q1 there. You know, I'd just say, really, I think if we rewind, you know, we had our full year call just a month ago and gave, you know, gave our guidance then, and we were, we were well aware of where we stood at the end of Q1 when we gave that guidance and still feel very optimistic about what we did.

Okay. Thanks for the color. And also there were no installation in Q1 either. Is that correct?

That is correct.

Yep. Okay. So now since we're in June already, so I was wondering if you could provide any color the product installations in Q2 and based on what you have seen so far for this quarter?

Yeah, and definitely that continues to be kind of a follow on from some of the color I gave in the prepared remarks and that really was the end of Q1 for us. That was kind of the turning point and the, you know, the reasons for optimism and all the activity we felt then. So, you know, we again, we had those different industry conferences. We, you know, were able to see some of our key opinion leaders present in front of their peers. And again, the early evaluation activity and, you know, early commercial users are seeing fantastic results. You know, our first commercial user that you referenced still to this day has not had a re-operation since using the technology. And that's extremely encouraging. And that's a, a great data point that's continuing to give us more and more confidence as we're seeing similar results with our evaluation activities. And the scale with which we expect to reach those customers really happen towards the end of Q1, exiting Q1, and that's what kicked off the vast majority of that sales cycle that we were just talking about in the last Q&A. So feeling really, really good about where we're at in Q2. The activity's been high. Lots of demos happening that are really setting us up for a big back half. And again, I mentioned it earlier, we guided that it would be back loaded, Q4 loaded particularly, and we're still on track to recognize that kind of install trajectory.

Okay, thanks for that. And then just lastly, I just want to make sure I heard it correctly on that sales cycle. So the current sales cycle is probably around three to six months, depending on the size of the institutions. And you're hoping that sales cycle shorten to up to nine weeks once the setting process gets normalized. Is that correct?

No, I would say six to nine months would be expectation of the sales cycle through normal days. Obviously, it's a bell curve kind of thing there, and there will be outliers on the shorter end, particularly some of the more decentralized institutions that can make decisions a little bit faster, and some larger academic or corporate-controlled integrated delivery networks.

would be on the longer end of those.

Okay, perfect. Thank you. I'll stop here.

Okay, thanks, Toby.

Thank you. At this time, we have reached the end of the question and answer session, and I will now turn the call back over to Jeremy for any closing remarks.

Just I'll reiterate some of the comments I made in the opening remarks. Definitely a big, big welcome to Chris and excited to have him on board, thrilled with the experience he's bringing, living through scaling up, you know, taking the medical device company public and scaling them up and lots of learnings that he can apply to his time here in Perimeter as we go through scale up and growth in our expectations. And once again, thank everybody for joining the call. We look forward to keeping you updated as we get through the rest of the year.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great rest of the day.