Volpara Health Technologies : Half Year Accounts

Interim onlyFinancial Report

useFor the six months ended 30 September 2021 personalFor

Volpara Health Technologies Limited

ASX:VHT (NZ Company no. 2206998/ARBN 609 946 867)

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Key figures

Interim Financial Report
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for the six months ended 30 September 2021
3	Key figures
4	Director's report
7	Auditor's independence declaration
8	Financial statements
12	Notes to the consolidated interim financial statements (unaudited)
21	Independent review report
23	Company directory
personalFor

MARKET SHARE OF NORTH AMERICA*

34% +2%

Compared to the period ended 31 March 2021

REVENUE

$12.3 m +30%

Compared to the prior corresponding period

ARR (US$)

$20.4 m+10%

DATABASE IMAGES

49.2 m +25%

Compared to the period ended 31 March 2021

GROSS MARGIN

91.4%

Volpara Health Half Year Report 2021

Compared to the period ended 31 March 2021

Compared with 91.7% in the prior corresponding period

*Of US and Canadian women screened for breast cancer, approx. 34% had at least one Volpara product analyse their data and/or images

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Directors' report

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	The Directors are pleased to present their report in	researchers around the world to help them understand
	conjunction with the financial statements of Volpara Health	what optimal breast cancer screening might look like for
	Technologies Limited (Volpara or the Company) and its	their populations. To reach and educate women directly,
	subsidiaries (together referred to as the Group) for the	we launched a consumer-facing breast density website
	half-year (HY) ended 30 September 2021, and the auditor's	and customised patient density notification letters.
	report thereon. The financial statements have been
	reviewed by the Company's auditor and approved by the
onlyDirectors on the recommendation of the Audit Committee.	Results of operations
use		After an excellent finish to FY21, Volpara has focused on
	accelerating out of COVID‑19. Adapting quickly last year to
	Directors	a new, digital way of working, the Company has maintained
	The Directors of Volpara in office during	its momentum and posted its best-everhalf-year result
	the half-year and at the date of this report	in terms of new business won. Annual Recurring Revenue
	(unless otherwise stated) are as follows:	(ARR) increased by over US$1.8M to US$20.4M+ (up almost
	•	Paul Reid (Chair)	10% from end FY21) with a corresponding increase in
	Accounting Revenues of NZ$2.9M to NZ$12.3M (up 30%
	•	Dr Ralph Highnam (CEO)
	from $9.5M for HY21, or 38% constant currency). The net
	•	Roger Allen AM
	loss for HY22 was NZ$8.5M, an improvement of 4% from
	•	John Pavlidis
personal		NZ$8.9M in the prior period. Similarly, Normalised non-
	•	John Diddams	GAAP EBITDA1 has improved 4% from NZ$6.6M to NZ$6.4M.
	• Dr Monica Saini (retired 18 August 2021)	We also made some key changes to the business during
	•	Karin Lindgren	the HY. Jill Spear was brought on as Executive Vice
	• Ann Custin (appointed 1 September 2021)	President of Sales and Marketing for the US region; we
			also hired Kristin Bravo as Director of Product Marketing
	Impact	and Innovation and MaryAnne Molter as Director of
	While clearly indicating an incredibly busy commercial HY,	Clinical and Consumer Marketing. All three have had a
	we also recognize that a focus for many of our employees	tremendous early impact on the business, delivering on
	a number of key initiatives with more well underway.
	and investors is impact. With coverage now of over 13.4M
	US women with at least one of our products, it is clear we	We said farewell to some longstanding employees. In
	are helping many women get safer, more comfortable, and	September, Mark Morris retired after serving for over
	more accurate breast cancer screenings. Results from	22 years first as CEO of MRS Systems, Inc., and then
	studies like the DENSE trial show that such screenings	as Executive Vice-President of Customer Success for
	lead to significant increases in the numbers of cancers	Volpara since the acquisition. We thank Mark for his
	caught early. Furthermore, we continue to work with	contribution and wish him well in his retirement.
For
	1 Reconciliation to Normalised non-GAAP EBITDA		HY21	HY22	Change
	IFRS Net Loss Before Interest and Tax		(9,837)	(8,969)	-9%
	Business acquisition- and merger-related expenses		196	33	-83%
	Share-based payments expense		732	534	-27%
	Depreciation and amortisation		1,459	2,245	54%
	(Gains)/losses on foreign exchange transactions		261	(432)	-262%
	Revenue adjustment		522	171	-67%
	Retention plan costs		-	2,540	100%
	PPP loan forgiveness		-	(2,478)	-100%
	Bad debts written off		23	(3)	-113%
	Non-GAAP earnings before tax, depreciation, amortisation, impairment,	(6,644)	(6,350)	-4%
	one-off items, and non-cash items

We also said farewell to Dr Monica Saini, who stepped down from her position as director, begun in 2018, to pursue her new venture, Breast Institute of New Zealand- the first clinic in Volpara's backyard to use Volpara® Scorecard™ software to inform women of their density. We thank Monica for her contribution. We also welcome a new addition to the board, Ann Custin, former CFO and board director of Siemens Medical Solutions.

We continue to integrate CRA Health, LLC, into the wider Volpara family. As we did with the MRS acquisition, we are taking a very careful and considered approach to the integration to ensure we are

setting up the Company for long-term success.

Last year at this time, Volpara completed a major reworking of the underlying on-site product architecture to allow it to scale much more easily and cost-effectively as the Company's footprint grows. This year, that focus on scalability has come to fruition with the worldwide September 2021 release of the significantly upgraded version 3.0 of Volpara's key cloud product, Volpara® Analytics™. This roll-out is due to be completed at about the time this report is published. The upgrade includes significantly enhanced user interface (UI) and user experience (UX) features, among other updates. Importantly, it also includes a number of back-end changes that allow for vastly improved scalability and a materially reduced cost to serve. This release has been an all- Company effort and places our market-leading product in good stead as we continue to innovate in this space.

Operating costs have increased year on year, largely because of the acquisition of CRA and a number on non-cash costs that result from acquisitions (e.g., amortisation). After accounting for CRA's addition to the Group's costs base, Volpara's costs, on a constant currency basis, have reduced slightly (approx. 4%) when compared with the prior period, showing the underlying scalability of the existing cost base.

Cash receipts have remained strong with both Q1 and Q2 delivering consecutive record growth as we accelerate out of COVID. For HY22, Group cash receipts increased by over 40% to NZ$13.5M (or 48% in constant currency) compared with NZ$9.6M in the prior period. As we continue the transition to Software as a Service (SaaS), cash receipts from subscriptions increased approx. 50% to NZ$13.1M compared with NZ$8.6M in the prior period; whereas receipts from Capital sales decreased approx. 55% to NZ$0.5M compared with NZ$1.1M in the prior period.

With $25M in the bank, no debt, a strong sales pipeline and access to capital markets, we remain in a good financial position.

The SaaS metrics have continued to show solid growth, with ARR increasing from US$18.6M to over US$20.4M since the end of FY21. Average Revenue Per User (ARPU) continued to increase steadily over the period, from US$1.40 to over US$1.46 (an increase of over 4%). US market share has also increased from a little over 32% at end FY21 to over 34% at the end of H1FY22. This shows growth not only from within our existing customer base but also from new customers. Importantly, these results have been driven not by any single product, but by a mix of products across the entire portfolio. Platform sales have also contributed, including various product configurations, allowing us to meet our customers' needs while providing the business with upsell opportunities in future as our customers grow with us.

Additional highlights of this HY include the following:

• The Company made an initial investment into RevealDx, a lung AI company based in Seattle, and signed a collaboration agreement with Riverain Technologies, also US based, positioning Volpara for lung market expansion.
• Volpara entered into collaboration agreements with Natera and Invitae, both leaders in the genetic testing market. This adds to the Company's existing agreements with Ambry and Myriad and allows Volpara customers a choice of service provider.
• BreastScreen South Australia, after almost two years of COVID-related delays, have announced a breast density research project using Volpara for the public screening programme in that state. This is set to launch in early February 2022. Once established, every breast imaging site in both public and private screening in South Australia will be using Volpara.
• Volpara reached the milestone of 200 peer-reviewed articles. This is an outstanding achievement and clearly sets the Company apart from the competition. It demonstrates Volpara's commitment to providing the most clinically validated breast density software available and the continual investment
  in research and development of core IP.
• The Company successfully piloted "Project Thumb", which is a move towards empowering women with breast density information by including their images directly into their letters. In conjunction with that we also launched a consumer facing breast density website.
• The Company achieved a new SOC certification for CRA, confirmation that its control set meets the SOC 2 Security Criteria standard for the six-month period evaluated.
• Volpara achieved MDSAP and ISO27001 certification. These key audits validate the Company's commitment to regulatory and security standards.

Volpara Health Half Year Report 2021

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Auditor's independence declaration

onlyOutlook

Volpara is focused on delivering the revenue guidance given at the start of this financial year, namely NZ$25-26M.

However, we are also continuing to build out key strategic initiatives, including, amongst others, the following:

• Analytics in Action™. This client-centred service,

use	exclusively for customers of Volpara Analytics, is
designed to help breast imaging facilities develop a
culture of continuous performance improvement and
	recognise technologists that meet quality benchmarks
	as objectively measured by Analytics, the leading
	software for providing automated and objective
	assessment of image quality on every mammogram.
	The program provides personalised, hands-on training
	delivered by positioning experts Mammography
personal	Educators, further differentiating the Analytics product
while potentially increasing staff engagement, customer
	retention, and ARPU. Analytics in Action is set to begin
	a pilot program with several customers and in late
	November will be a highlight of Volpara's at RSNA, the
	world's largest radiology conference, in Chicago.
• Volpara Club™. The goal of Volpara Club is to provide
	customers with an integrated, relevant, and engaging
	digital experience that leads to their long-term
	success-clinical, financial, and operational-and
	results in retainment, expansion, and advocacy. The
	desired outcome is to ensure churn remains low,
	generate upsell and expansion opportunities, and
	nurture advocates to support new customer acquisition.
	Delivered via a branded online platform, the Volpara
	Club community will allow customers to obtain expert
	support from customer coaches, provide product
	feedback, access tools for marketing their services
For	to patients and primary care physicians, participate
in focus groups and user forums, and more.

• Expanding the Electronic Health Record (EHR) sales channel. Volpara Strategic Advisor Teri Thomas, previously an Epic executive, is leading the effort to strengthen this channel and leverage CRA Health's expertise in EHR.

• Building out Volpara's data platform. With over 49M images in the cloud, we have one of the world's biggest data sets of breast x-rays.We continue to bring commercial value to the Company by using this data set, and continually look to expand its scientific value beyond images that match up with the data collected by our whole platform. The data set is the key to our efforts to change the paradigm of screening from detection to prevention.

We also continue to await the release of the FDA's breast density legislation, delayed due to COVID, US elections, and the subsequent change of administration. The latest news we have (25 October 2021) is that the FDA is working diligently in this area. We also note that a new FDA Commissioner has now been nominated.

We have an incredibly busy and exciting few months ahead of us as we head to Chicago for RSNA, and then look to complete Q3 and Q4, which are traditionally our biggest quarters.

Dividends

No dividends have been paid or proposed.

Events subsequent to balance date

No matters or circumstances have arisen since the end of the period which have significantly affected or may significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group in future years.

Paul Reid​	Ralph Highnam, PhD​
Chair	Chief Executive Officer
Dated this 23rd November 2021

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out below.

Auditor's Independence Declaration

As lead auditor for the review of Volpara Health Technologies Limited for the half-year ended 30

September 2021, I declare that to the best of my knowledge and belief, there have been:

1. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and
2. no contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Volpara Health Technologies Limited and the entities it controlled during the period.

Kevin Brown	Wellington
Partner	23 November 2021
PricewaterhouseCoopers

PricewaterhouseCoopers, PwC Centre, 10 Waterloo Quay, PO Box 243, Wellington 6140, New Zealand

T: [phone], pwc.co.nz

Volpara Health Half Year Report 2021

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Consolidated statement of profit or loss and other comprehensive income

for the six months ended 30 September 2021

only		2021	2020
	Unaudited	Unaudited
		Notes	NZ$'000	NZ$'000
	REVENUE
	Revenue from contracts with customers	4	12,323	9,465
	Cost of revenue	5	(1,059)	(783)
	Gross profit		11,264	8,682
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	Government grants and other operating income	11	2,506	1,001
	Sales and marketing	5	(6,652)	(6,518)
	Product research, development, and engineering	5	(7,702)	(7,218)
	General and administration	5	(8,808)	(5,523)
	Foreign exchange gains/(losses)		423	(261)
personal
Net loss for the period before interest and tax		(8,969)	(9,837)
		87	389
	Finance income
	Finance expense		(76)	(92)
	Net loss for the period before tax		(8,958)	(9,540)
	Income tax benefit		448	675
	Net loss for the period after tax		(8,510)	(8,865)
	OTHER COMPREHENSIVE INCOME
	Net loss for the period		(8,510)	(8,865)
	Other comprehensive income/(expense)
	Items that may be reclassified subsequently to profit or loss (net of tax):
	Exchange differences on translation of foreign operations		108	(1,885)
	Other comprehensive (expense)/income for the period (net of tax)		108	(1,885)
For	Total comprehensive loss for the period, net of tax		(8,402)	(10,750)
	Basic and diluted loss per share (NZ$)	6	(0.03)	(0.04)

The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

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Consolidated statement
of financial position
as at 30 September 2021		As at 30	As at 31
	September	March
		2021	2021
		Unaudited	Audited
	Notes	NZ$'000	NZ$'000
ASSETS
Non-current assets
Fixed assets		629	720
Intangible assets	9	46,543	46,426
Right-of-use assets		2,536	2,686
Contract costs		2,284	1,753
Deferred tax assets		266	80
Investments	10	362	-
Total non-current assets		52,620	51,665
Current assets
Cash and cash equivalents		12,269	7,873
Cash on deposit		12,761	24,357
Trade receivables		8,499	7,754
Contract assets		795	862
Prepayments and other receivables		1,949	1,608
Inventory		53	53
Contract costs		627	442
Total current assets		36,953	42,949
Total assets		89,573	94,614
EQUITY AND LIABILITIES
Equity
Share capital	6	181,066	180,678
Share option reserve	7	4,132	3,759
Foreign currency translation reserve		(1,475)	(1,583)
Accumulated losses		(118,567)	(110,057)
Total equity		65,156	72,797
Non-current liabilities
Employee entitlements		-	856
Lease liabilities		2,208	2,416
Borrowings	11	-	486
Deferred tax liabilities		7	281
Total non-current liabilities		2,215	4,039
Current liabilities
Trade and other payables		7,855	3,872
Deferred revenue		13,788	11,434
Lease liabilities		559	483
Borrowings	11	-	1,989
Total current liabilities		22,202	17,778
Total liabilities		24,417	21,817
Total equity and liabilities		89,573	94,614

For and on behalf of the Board, who authorised the issue of these consolidated interim financial statements on 23 November 2021.

Ralph Highnam

John Diddams

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

Volpara Health Half Year Report 2021