COMPUMEDICS LTD TALKS NEXT GENERATION GROWTH IN PROACTIVE Q&A SESSIONS – TRANSCRIPT

Compumedics Ltd’s (ASX:CMP) Dr. David Burton, founder, chairman and CEO, will exclusively join Proactive Q&A Sessions™ in a four-part interview series.

Interview 2 will cover: Next Generation Growth; Core and Step-out.

Timeline:
– 22nd June: ACCESS HERE: Revenue Growth & Peer Valuation.
– 29th June: BELOW: Next Generation Growth; Core and Step-out.
– 6th July: Customer Engagement, Acquisition and Retention Strategy.
– 13th July: China, Asia, and Beyond.

PROACTIVE INVESTORS: Welcome David.

Can you outline Compumedics next generation product growth platform, over both the short to medium term, and forecast costs in getting product to market?

David Burton:

Compumedics has three next generation growth platforms, each of which emanates from one of the three core businesses, being sleep diagnostics, neurological diagnostics and brain blood flow.

The first next generation growth platform emanates from the Companies existing sleep diagnostic capability is built around Nexus 360 and Somfit. Both are cloud-based products utilising our existing sleep diagnostic technology. Nexus 360 is a cloud-based software platform for use by medical professionals in conjunction, initially, with our existing hardware offering. Somfit is a consumer-targeted device for monitoring quality of sleep in the home. The device and software platform for consumer application are in the final stages of development. In both cases these two new offerings enable the business to generate recurring revenues, through a per-use or monthly charge.

Compumedics has already executed USD10m of new contracts for the Company over the next 5 years related to the introduction of Nexus 360 in Asia. The Company is currently installing its first Nexus 360 sites in the US.

The second next generation growth platform emanates from the Companies existing neurological diagnostic and monitoring capabilities, and in particular our high-end brain analysis technology. In this case the Company has signed a Licence Agreement with KRISS in Korea (similar to CSIRO in Australia) to access their highly innovative MEG hardware to use in conjunction with Compumedics gold standard MEG brain analysis software, CURRY.

This is potentially a game changing deal for Compumedics as we move from selling a single USD30k piece of software, to selling a $4m to $6m complete MEG solution, with the expectation of selling several systems a year, within the next 3 or so years.

The third next generation growth platform relates to our brain blood flow business and in particular traumatic brain injury (TBI) or concussion. This technology is still perhaps three years from commercialisation, but potentially will open very significant markets opportunities to the Company for a simple hand-held screening device for use at sporting events, along with military and other applications where early TBI detection can be life-saving.

Which specific markets will the company target in its next growth phase, what is the global value of these, and will the focus be on services or capital equipment?

David Burton:

In each of the three opportunities identified, the market opportunities are significant. The five year outlook for mobile health, which Nexus 360 would potentially be part of, shows a global market of USD23bn pa at that point in time. The wearable market, which Somfit would be targeted at, is estimated to be USD50bn, whilst the telemedicine 5 year annual sales outlook is USD35bn. Clearly these are large opportunities and Compumedics will be focused, in conjunction with a commercial partner, as it relates to Somfit, to target specifically that part of the wearable market for its initial introduction. With both Nexus 360 and Somfit the Company will, over time, move towards generating more of its revenues from recurring monthly charges and fee-for-service charges built into both business models.

A similar path would follow with TBI, but this as noted, is a bit further away from commercial prospects, at this point in time.

As it relates to MEG, whilst this is still, typically capital equipment business, the per sale revenue opportunity is materially larger than the Company has had access to.

With that said, the Company will continue to focus on recurring revenues for these, close at hand, opportunities and future business models.

Touching on Compumedics core drivers, the company has over 20,000 NeuroScan LTEM systems world-wide. Where will revenue growth be derived from over the short to medium term – servicing or selling more units?

David Burton:

Over the next two to three years the Company will continue to generate up to 70% – 75% of its revenues from the sale of units and the selling of more units around the world. With that said, as we move into FY2018 we should begin to see the new growth platforms materially contribute to revenue growth and as a consequence over the ensuring years recurring revenues should increase to 40% and then 50% and more of total revenues.

Taking a broad view on Next Generation Growth, how will Compumedics not only increase its sales force, but how will they be subsequently upskilled in a timely manner, and significantly larger staff costs financed?

David Burton:

The great thing with the MEG opportunity is that there will not be a significant need for a material increase in selling resources to drive a large increase in sales. This is because existing resources in the business will, initially, be responsible for securing the first MEG sales after which time, additional resources can be added. This opportunity, should be cash neutral and in fact may deliver positive cash outcomes from the start, as a large part of the investment cost has already be incurred by both KRISS and Compumedics.

As it relates to the Somfit and Nexus 360 opportunity, we will engage in the large scale commercialisation of Somfit with an experienced consumer partner, which will not only provide investment, but also critical skills and knowledge related to the sale of a consumer device.

Specifically, as it relates to Nexus 360, this will be rolled out in a systematic and co-ordinated way using our existing sales resources with one or two additional resources solely accountable for delivering the initial revenues from this model. Then as the model gains traction further resources can be added, without having a material impact on expenses and cash. Again in both these cases, the technology is either in place or largely completed and therefore those development costs have already largely been incurred.

How does Compumedics protect both its intellectual property, and already established market share?

David Burton:

Compumedics started in 1987 as the first medical devices manufacturer and supplier for sleep diagnostics in the Asia Pacific region and we have since gone on to become the gold standard in this patient monitoring space.

We have maintained our position in the highly innovative sleep market for more than 25 years now because we have never stopped advancing our technology and products, reflected in our strong investment in R&D and high barriers of market entry, established over many years.

We have trusted analytics to measure accurately sleep, respiratory and brain analysis and we have regulatory approvals in place for all our products.

We have extended this key experience into neurology and trans- cranial Doppler through the acquisitions of Neuroscan, in America, in 2002 and DWL in Germany in 2004.

The Company has an extensive patent portfolio that protects all the key intellectual property developed and owned by the Company.

PROACTIVE INVESTORS: Thank-you again David.

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