Alcidion Group Limited (ALC) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining us for today's webcast to discuss Alcidion's full year results for the financial year 2020. Joining us today is Alcidion's Managing Director and CEO, Ms. Kate Quirke; as well as Alcidion's Chief Operating and Financial Officer, Colin MacKinnon. Now before I hand it over to Kate today, I'd like to inform you that this webcast is being recorded. There will be a Q&A after Kate's presentation. So if you do have a question, you can type it in at any time using Zoom's Q&A panel at the bottom of your screen, and we'll be aiming to finish up today at around 12:45 p.m. With that introduction, I'd now like to hand over to Alcidion's Managing Director, Kate Quirke.

Thanks, Sam, and thanks to all of you for giving us your time today during what I know is a very busy time in the financial year for a lot of you. I have to apologize ahead of time for any unexpected background noise as I'm based in Melbourne, where we're in stage 4 lockdown. So I'm doing this Zoom call from home, with kids doing home schooling and dogs in the background and all sorts of things. So I apologize ahead of time if there's any untoward noise. I'd like to start the session today by just taking a couple of minutes to play you a video. [Presentation]

Thank you, and thanks for letting us take a couple of minutes to remind you of the purpose of Alcidion. I thought it was a good way to kick off the session this afternoon. This morning, we released our FY '20 financial results to the market and give a general update on market conditions and outlook in terms of what we documented in the annual report. We're pleased with the progress we've made over the past year in what's been one of the most challenging business environments certainly that I've worked in. Alcidion continued to grow our revenue, delivering full year revenue of $18.6 million, which is 10% up on the prior year. Notably, the recurring revenue base has increased by 35% on the prior year, up to $10.5 million. As we've continued to transition the company post the acquisition of MKM Health and Patientrack, increasing the recurring revenue base, predominantly from product sales, has been one of our key objectives. So it's very pleasing to see the growth in our recurring revenue base. And this is the result of a deliberate strategy to move our customers to a subscription recurring payment licensing model. And we're seeing the health care sector begin to adopt this more each year. It's still a work in progress because we still have governments that do some targeted grant-type funding for acquisition of digital health, but we are certainly seeing that shift. And the benefit in this move to more recurring revenues also reflected in our healthy forward sold revenue number, which is $29.8 million out to 2025. And predominantly, that's made up of recurring revenue from products. I'm really very proud of the manner in which Alcidion has come together as one cohesive company, unifying the operations across the 3 markets and across the acquired businesses. And although the integration of MKM Health and Patientrack businesses commenced back in 2019, it's really been during FY 2020 that the real value and potential of the new Alcidion has become evident. The combination of our strong product offerings and the technical, commercial and implementation skills of the team now enables us to create a highly differentiated offering in digital health that is being recognized by our customers, that we have something very different to offer than what other some other digital health tech companies are providing. So this growth in revenue was achieved despite the challenges arising from COVID-19 pandemic in the second half, which absolutely has seen health care resources focused on managing the outbreak and the short-term issues. I don't want to labor the challenges of COVID-19 situation because I'm sure you're all well aware that it's having impacted businesses across all businesses. Some positives, but in many cases, negative. And we have seen some short-term challenges arise in the health care sector. Of course, we have -- where they've become focused on immediate issues like treating patients, dealing with the need to create a surge capacity in ICU and simply getting non-frontline staff able to work from home. There are a large number of people that work in hospitals that they were not set up to have them working from home. And they have had to really focus their short-term needs on some really tactical responses. So the immediate impact has been on the in-flight sales and projects that were in-flight, with the main impact being felt in Q4 and somewhat in Q1 of 2021. But -- as this has been sorted out and slowly in different countries and states that we work in, we've seen the health care system get on top of this and the governments. We've seen opportunities emerging that have allowed us to further develop, particularly our out-of-hospital care capabilities. And that's resulted in 2 short-term contracts in New South Wales, which was short-term because they were initially created to deal with a COVID impact. And also, that's really what they could get their mind around right now. But that was really to focus on that out-of-hospital care capability. Overall, the COVID-19 pandemic has shown a light on the need for better technology across all sectors of business, to be honest. But it's really heightened in health care, where we have both a need to treat patients but also keep health care workers safe, whilst we're doing it. So where traditionally, there's been an underinvestment in health care, technology in health care, that is, we're now seeing governments around the world looking to continue the move to digitalization that has emerged through COVID. And our opportunity in this is really predominantly second wave. First wave investment was very much around telehealth, which is just a really important but a simple platform that connects a patient with a doctor at the other end and a booking capability. Certainly, what Alcidion brings to it is a far richer, far deeper response to COVID. So for Alcidion, this pandemic will, in fact, create greater opportunity in the medium to long term. But in the short term, has certainly had an impact on slowing down procurement and deployment, whilst there was an immediate response to the health care crisis. But regardless of that, it has served to underline the important role that our solutions can play in giving health care workers access to a cohesive view of data across what happens to their patients, where are they right now, what's happening to them in the system, what risks there are, which patients are deteriorating, what resources do I have available to even treat patients at any given time. Because we take data and pull it together and give people that wider view of what's going on, our technology is a key component of our customers' transition to full digital health care. During the year, we also took significant steps to ready our organization for anticipated growth in FY '21 and beyond. We established the important reference sites in our 3 markets that I've talked about before. We've bolstered our sales and marketing capabilities across the ANZ market and the U.K. We increased the scale of the business, and we've evolved the product suite. And as we complete the investment phase in FY '21, we expect to see revenue growth accelerate and the cost base stabilize. I've been very proud of the resilience and progress we've shown this year despite the issues that COVID presented in the second half. We have still been able to work with some really exciting customers around innovation and progressing our proposition forward. Turning to give you a little bit further detail about the financial highlights we had. As I mentioned earlier, we had a 10% increase on revenue from FY '19. As referenced before, the second half was impacted by COVID. But it's also important to note that the first half -- in the first half, we had a second headwind, or should I say the first headwind was, in fact, that one of our key markets was very unstable in that first half with the U.K. election being called and the impact that the distraction of Brexit has had. And it effectively shut down the whole U.K. market for the first 6 months of our financial year. And we've certainly seen activity -- once we got through COVID as well in the U.K., we've certainly seen activity being released now with some recent contract signings. And we see this market clearly as very important, given the government's commitment in the U.K. to fund greater -- put greater funds into digital health to modernize the NHS. So against this backdrop, we're very pleased with the overall growth in revenue and especially with a 35% increase in recurring revenue focused on product. We entered FY 2021 in a very strong position with $12.8 million of revenue sold to be recognized, assuming we achieve milestones. So that basically says 2 months into this year, if we sell nothing else, we've started with $12.8 million. Clearly, we've got a very strong, healthy pipeline, and we expect that to grow significantly through this year. We've got a solid cash base -- balance of $15.9 million as of the 30th of June, and this positions us really well to continue to execute on our plans for growth. At the beginning of this financial year, we set out our 3-year growth strategy, which was to position Alcidion and to capitalize on this increasing market opportunity across the global health care sector. Given the enormous market potential and the time frames in which the sector actually needs to move and wants to move, it was vital for our growth strategy that we had the capital in order to support the scale that we wanted to do, the increase in sales and marketing and product implementation. And so we raised $16.2 million during the year back in November 2019, which was to provide the funding required to both scale the existing business but also to investigate potential acquisitions that might align with our strategy. And we have done some of that analysis during this year. Obviously, again, COVID has impacted that. But we still have our minds open to looking at acquisitions that might align strategically with our proposition to our customers. So we've made a number of investments in FY '20 to support the future growth profile, and I'll detail those a little bit later in terms of specifically what they've been. Also over the past year, we've signed several strategically significant contracts in each of the markets that we currently operate. And we've increased the customer base, with 307 hospitals now across U.K., Australia and New Zealand using an Alcidion product. I think I've mentioned before in discussion with investors and on these calls that it's really critical for us to have reference sites in health care, because future customers look to evidence as a sign of success and evidence in one hospital encourages take-up in other hospitals. During this year, we announced an extension to our relationship with Dartford and Gravesham Trust in the U.K., and we added the electronic and prescribing solution that we bring to the market from our European partners. And that means that now we can demonstrate at Dartford a key reference site that has got all of the product -- that aligned Alcidion products that are a -- is an excellent reference site for the alternative to the big integrated electronic medical record solution that you will have heard me refer to before. Here in the Australian market, I'm so proud of the work we've done with Murrumbidgee Local Health District. And today, in the annual report and later on our website, we have released a case study that details the work that we've been doing there and will continue to do. It began with rolling out Miya Precision at Wagga Wagga Base Hospital as a part of eHealth's Innovation Proof of Concept. And it was here at Wagga that Miya Memory, which is our mobile EMR, went live for the first time, and it's received much praise for its ability to deliver meaningful notifications, alerts and critical test results to doctors to their handheld devices. And I know if you read that case study, you'll see some of the feedback from the doctors and the staff of Murrumbidgee. They have since signed an initial 12-month contract, which includes us also extending to implement a dashboard to support COVID-19 monitoring. And I'm going to show you just that very briefly in a little bit. And they've expanded their rollout of Miya Memory. And what this shows and should demonstrate to everybody is how Alcidion is at the forefront of a changing health care industry, and we're working with customers to evolve our product offerings in close partnership with them. And that allows us to meet critical needs that are not being satisfied by the big EMR, electronic medical record vendors, or other available clinical software. As we went on building on the work we have done at Wagga and as part of that New South Wales Proof of Concept, we've been able to partner with Sydney Local Health District to meet an immediate need they had, which was to enhance their rpavirtual hospital so that it could make the challenge of effectively monitoring COVID-19 patients in a central command center, also bringing together data from all their existing clinical systems. So as well as welcoming Sydney LHD as a new customer, it's been really great to work with them to understand how the broader Miya product suite could assist Sydney to achieve their broader strategy in digital health, which to utilize technology to implement and support new models of care and different ways of doing things. Ultimately, obviously, to improve patient outcomes, which is what we're all about. So the work we've been doing with both of those local health districts, the rural setting at Wagga and one of the largest metropolitan LHDs in rpa, will enable us to really effectively position our solutions, hopefully, for more adoption across New South Wales. Both those local health districts are innovators and have been seen as innovators in the use of technology for more than a decade and are often early adopters of new technology for New South Wales. Our services division within Alcidion also continue to do some fantastic work on some key strategic projects. They delivered the Child Health Record, which New South Wales Health was engaged to do on behalf of the Australian Digital Health Authority. This has been extremely profiled -- high profile, but extremely successful project for Alcidion. And what's really important is that what these projects do is they continue to enhance our reputation as a partner in digital health. Having an innovative product technology platform like we have that is supported by a depth of skills and experience makes -- ensures that our products are implemented efficiently and effectively. And that actually puts us in a pretty unique position in terms of a health care technology partner in Australia and in the U.K. Last year, in November, I attended the health conference, HLTH, which is in the U.S., which seems like a very long time ago. And I -- but I attended a really interesting session with the leading venture capital and PE partners in health tech in the U.S. and which you can imagine, they do some very large deals. But the message that I got from them consistently was strong and unequivocal, and they applied a much higher shareholder value to companies that had a service capability alongside their products in health care, in particular. Because in general, health care customers don't have strong IT skills, and they need the assistance of companies like ours to be successful in their rollout. We also, during the year, restructured the U.K. business under the new -- the guidance of our new U.K. General Manager, Lynette Ousby, and this has included adding new sales and marketing capabilities and scaling up the delivery capability. So the U.K. business is now really well placed to deliver on future growth potential. Excitingly, we also evolved the Miya Precision platform by adding the mobile EMR capability for mobile memory, which is now live at Murrumbidgee. We also accelerated the extension of Miya Precision to support the out-of-hospital response to COVID, also live at Murrumbidgee and about to be implemented at Sydney. And we see this as a really growing opportunity for our solution, with this type of technology being able not just to do COVID. The truth is it can support a whole range of chronic conditions in an integrated care environment. And diabetes management is a good example of one, but I just heard Thomas Glanville from Murrumbidgee this morning talking about the fact that before COVID came along, what we were looking to do in this area with them was to implement capabilities for palliative care so that we could monitor patients at home. So there is a huge opportunity beyond the immediate need to support COVID for this type of capability. As the pandemic response subsided, we've seen increased interest in our solution as governments around the world are focusing on the need to modernize. In New South Wales, I'm not sure how many of you know that there was a big injection of funds across government for their COVID stimulus package, with a significant amount of that has actually gone to New South Wales Health, and some of it is going into focus on digital health. The key areas that they're going to invest that money is in virtual care, electronic prescribing and in a single digital patient record, so the beginning of a single patient digital record for New South Wales. And what that does is look to consolidate patient data across New South Wales into a single, what we call, a longitudinal record, which just simply means that you'll be able to see the whole history of a patient across all activity within that state. And so we expect procurement for that to start this year. In the U.K., the Minister, the Return Minister for Health, Matt Hancock, he's renewed his pledge for modernization of the NHS through the deployment of technology. He really wants to focus on innovation, to target areas where immediate assistance for replacement of things like pagers and fax machines. And as we recently announced, we are on the procurement framework for -- to use Smart Page as a replacement for pagers. And the government has recently confirmed its commitment to inject, I think it's $30 billion into the NHS over the next 5 years. Now obviously, that's not going to all go into tech, but some of it will. So we have a growing pipeline of opportunities that sets us up very well for our future growth plans, and we'll see this take shape over the course of FY '21. One of the things I am most proud about is how the Alcidion seamlessly transitioned to remote working during this pandemic and how we've found different ways to connect with our customers, with each other, and to connect with prospects in what is a different operating environment to what we're used to. We quickly responded to support our customers, though, when they immediately needed help in dealing with the pandemic. We built new capabilities into Miya Precision that lends themselves, obviously, to people who already had the platform deployed. And that helped to meet some critical short-term needs. Similarly, we did that for our Patientrack customers. We developed a dashboard solution to support vital signs monitoring. And these capabilities are being used to deliver really high-quality care into Wagga. If you read the case study that came out today, you'll also be able to hear some feedback around how we're helping patients -- an indigenous patient or people with cultural sensitivities who might not want to be treated in hospital would much prefer to be treated at home. So there's a huge number of possibilities. At the beginning, a little bit about the growth and update on where we are in terms of the growth strategy. At the beginning of the financial year, we set out our growth strategy, positioning Alcidion to capitalize on this increasing market opportunity. Our products are exceptionally well positioned to not only participate in but drive the transformation of health care, and we're seeing that in our everyday engagement with customers. We offered the only solution that has both artificial intelligence and clinical decision support systems, as well as the ability to drive that data from our own patient observations and assessments, but we also extend that to our mobile capability and our advanced clinical communication. So we are uniquely positioned in what we do. We raised capital to support the growth opportunity, and we're well down the track of executing on that strategy. We've restructured the U.K. business. We've enhanced the sales and marketing functions. We've hired to scale the capabilities and systems to support the business, which has included adding further capability in the areas of people and culture, which is really important to businesses, obviously, in product development, in information technology to support the growth of the company and ensure that we're operating in a cyber safe environment. We've focused our development efforts on adding new features to Miya Precision platform that is to meet the emerging needs in health care. And as you can see, we are really at the forefront of dealing with the challenges that healthcare are experiencing right now. Earlier this month, we went live with a new version of our website or probably only last week, where we launched our product range consolidated now under the Miya Precision banner, which encompasses Patientrack as 2 discrete modules within Miya Precision. And that makes it easier for our customers to see our offering as a consolidated platform, which they can purchase capability from as and when is needed, so in a layering approach. In terms of geographic expansion, that is definitely still part of our strategy, along with focusing on distribution partners. And this is a 3-year strategic plan. And given the situation with COVID, we've slowed down, obviously, the geographic part at the moment. Still keeping our eye out, still engaged through some of the trading organizations we work with. But we will pick that up when it is the right time. We continue to work with a discrete set of partners though that -- who have capability and reach into other target markets that we're working. You've probably heard me talk about working with Apple and with Microsoft and with some of the key big consulting firms who see our technology as really quite an evolution of where health care needs to go from here. Just a little bit then on the individual markets that we operate in. The U.K. is our largest addressable market, and it presents us, obviously, with a strategically important opportunity. They are an adopter of the best-of-breed solution, as we often refer to it, which means they are open to looking at solutions like ours as an alternative to the big electronic medical record that requires you to rip out all your existing investments and replace them with something new. And so it's in this market, we've got the Dartford exemplified, obviously. But we've also have a strong Patientrack customer base, which will ultimately present us with cross-selling opportunities. And over the past year, we've seen government commit much further funding into this market for digital maturity. The market size for Alcidion products in this market is around $1.1 billion in terms of the opportunity that is there. Sorry about that. I just missed my slide queue. In terms of Australia, our total addressable market here is $450 million. And our value proposition to this market has always been Miya Precision as a platform to sit across the existing investments in electronic medical records. And we're seeing that at Murrumbidgee. We're seeing it at Sydney. We're seeing it at ACT Health. We work with a number of customers in Australia also to implement our Miya Intelligence capability, which is the real-time data warehouse and analytics platform that we've created. We're currently deploying that at Healthscope. We deployed it at Calvary during the year. Previously to that, deployed at the Alfred and Austin in Melbourne. So that's a real natural entry point as well for customers in Australia to the Miya -- to the wider Miya Precision suite. In terms of the New Zealand market, it's obviously a small market by its size, around $75 million, but we have a really strong market penetration with Patientrack into this market within the North and South. But really importantly is we have a very strong reference site in MidCentral District Health Board who's running parts of the Miya Precision platform. Miya Access, Command and Flow are parts of the modules, the 16 modules that we now have within the Miya Precision suite. We've also got Smart Page implemented in a number of sites. And there was recently an all-of-health-care sector review that signaled a need for much greater investment in digital health in New Zealand. And this is going to be focused on data-driven decision making and managing population health, which is exactly where Alcidion is coming from. In terms of where we're going, we are entering FY '21 well capitalized and poised for growth. Whilst we're already seeing many positive initial impacts from the investments we made through FY '20, substantial revenue growth will take time to build as our sales resources and marketing campaigns will extend our reach into the market. And that will leverage positive results evidence not only from having more feet on the ground and more opportunity to actually get our message out, but we'll also see our customers, as we're seeing with Murrumbidgee at the moment, being able to talk about the success that they have had with Alcidion products. The $3.1 million net loss after tax result for this financial year '20 was as expected from the investments we've made to scale the business and the impact that COVID had on some of that revenue in the second half. We will need to sustain investments that are already committed in FY '20 and to deliver some further investment in FY '21, which will complete the process of scaling the business. But we expect to complete this investment phase in 2021, and we'll see the group cost base stabilizing there and hopefully see profitability pick up after that as revenue follows. Whilst we haven't been immune to the COVID-19 impact, we really are going into FY '21 confidently primed for future growth. We've got $29.8 million of already sold revenue, of which $12.8 million is expected. It will definitely be recognized in this year, but we've obviously got more selling to do. And importantly, that is coming from product recurring revenue. We've got a really strong sales pipeline and the newly rebranded Miya product suite really helps to solidify what our message is to our customers. So in concluding, I'd very much like to thank you, the Alcidion shareholders for your support throughout FY '20. The team here at Alcidion and myself, we are passionate about what we do, and we believe that we will make a difference to people's lives through the support our technology provides the health care sector. We are absolutely committed to delivering on that promise to our customers and to our shareholders. I'd really like to thank you for your attendance today, and I'm obviously very happy now to answer any questions if you would put them into the chat, as Sam has suggested. Thanks.

[Operator Instructions] So Kate -- the first question is, so you have talked a little bit about this already. But given FY '20 was a year for Alcidion expanding capability for future growth and with this consequent impacts on FY '20 EBITDA, can you outline for us, from a product perspective, the pathway for Alcidion's profitability?

Right. So maybe I'll just stop sharing my screen so that you can perhaps see me more. So this was around the extra color, yes? Sorry.

Yes.

So really, what we've done is invest in the sales and marketing capability. So I'm pretty happy with where that is at. We've still got evolving work we're doing in product. So our investments, as we go into FY '21, will be continuing to evolve the product. I don't see us increasing the size of the R&D team any more than where it is at the end right now. But obviously, we will carry those costs into FY '21. We also will invest a little more in the IT systems and so forth that support. But we have got most of those planned to be completed in the first half. And then I expect to see our contracts and opportunities in terms of the sales cycle, they're 6, 12, sometimes more than 12 months in terms of from beginning to end. So whilst we've got a number of those in flight, they will more likely fall solidly towards the second half. So we will level off the cost towards the end of the first half and then see revenue pick up, I think, in the second half. Hard to predict it fully at this point.

Thanks, Kate. So the next question is, how has COVID impacted sales cycles and access to hospitals? Any difference between your 3 geographies?

I think the immediate response was very similar. They were just so focused on being able to treat patients and respond to the immediate threat in front of them, that it was difficult to engage with them. And they often -- they had to pull people to home. But even in-flight projects that weren't at the front line were impacted because we had staff moving off to help in any way they could, and that was consistent across the 3 geographies. As we've seen different waves go on, it's changed. And obviously, how we engage in Victoria is also different to New South Wales. One of the impact it did have was short-term -- making short-term decisions, quick short-term decisions around what they can do. So they had access to COVID funding. But they wanted to deal with what was immediately happening at the moment. So that's why you see Sydney LHD and Murrumbidgee signing shorter contracts than we would normally expect because they were funded to do so, but also they were dealing with an immediate situation that's in front of them. We also saw, of course, an inability to engage with customers in new opportunities. All the conferences were stopped. All of the general networking that we would previously have had. The industry has now kind of -- I'd hate to use a very overused word, but pivoted in terms of creating online virtual conferences, webinars, and we're now making use of those as ways of engaging with our customers. And I'm seeing quite a lot of positive success about that. But the truth is, we are now out visiting customers in certain states. Certainly having face-to-face meetings and demonstrations in the U.K. now. Victoria is probably the only place where we're not actually in rooms with customers.

Thanks, Kate. The next question is can you expand on the benefits of being appointed to the U.K. NHS procurement framework?

Yes, absolutely. And there are a number of NHS procurement frameworks. So this is one of our priorities for this year is to get on to those frameworks where it's relevant for our customer solution set. They -- basically, they go through kind of a mini tender, a mini procurement process, you respond to it. They choose a number of solutions off that and put them on the framework. The framework usually has funding from the government. So then any customer can just go to the framework, they can look at the 10, 15 or so companies that are on there, talk to them about their products, make a decision, apply for the funding and then buy it. So they don't need to go through a tender. They don't need to go through a procurement. They basically have got assurances from NHSX, as it is in the U.K., that, that has all been done. That work has been done for them. So it's very -- it's hugely advantageous. It also helps that your name starts with A, so you get to be at the top of the list of companies when people look at the list.

Okay. So the next question is, are you committed to growing organically versus via acquisition?

Yes. I mean, organic is absolutely our #1 priority. We have a very, very strong solution that I know is going to be in demand. And that is -- we're very confident in our ability to grow organically. The acquisition will be less around looking for accretive growth than it will be about strategic alignment with what we're doing. Are there other capabilities we -- that could feed the platform or enhance the proposition to our customers? And that will be the sort of things that we would be looking for.

Thank you, Kate. So we've got a few more questions. The next one is, are you able to advise how many live RFPs Alcidion is currently involved in and the average value?

I don't really -- I can't -- off the top of my head, I don't know the actual total number. What I can say is the pipeline is quite a lot larger, quite a lot wider and varied than it was a year ago or at any other time since I've been involved with Alcidion or MKM. That is definitely a feature of us having consolidated who we are from Alcidion's perspective to the market, so they understand our proposition. It's a result of our sales team now engaging far more widely and having a larger sales team with a greater set of relationships to call on. So it is -- and the average value of an RFP is hard to call because we do so much at Alcidion right from the Smart Page implementation, which could be a TCV of $500,000 to all of -- an all of LHD or all their trust implementation of the full Miya Precision suite which could be $7 million or $8 million over 3 to 5 years. So there's no average value. It's very much around what are we propositioning to the customer at that time.

Yes. Thank you very much, Kate. So we've -- we're getting quite close to our set finish time, but we'll squeeze in a couple.

Yes. Squeeze in a couple more.

Yes. So the next one is cybersecurity is an emerging large issue. Can you give us a feel for any potential impact on Alcidion, either in the terms of access to patient information for your products or in ongoing compliance costs?

I think, firstly, in terms of our patients and our customers and their patients, obviously, that is an important part that when we put our products out into our customer environment, that they've had the right penetration testing. And that is a part of everything, every engagement we do with the customer. So I'm pretty confident that between ourselves and the customer, we are very focused on that, and that's always been a part of it. So that -- we factor that into our development cycle. We need to do penetration testing. We need to have external people look at how -- review how we do that. So that is already done and not an additional cost. In terms of what we're doing ourselves with cybersecurity, it's just making sure always that we're reviewing what we're doing. We will probably look to ISO accreditation this year, so that our customers who are more -- obviously, the health care industry is quite focused on this because they've had their own issues in terms of incidents. So we are looking at -- constantly looking at having what we're doing reviewed and ensuring that we're up to speed with exactly what we use. Thankfully, we use very modern technology in terms of our development. We use Office 365 and Microsoft products through everything that we do. We are constantly reviewing the next levels and layers of cyber that we need to incorporate. We appointed a head of IT in this year to focus on that. So we will make some additional investments in that area in the next 3 to 4 months, which will be about making sure that we've got the right -- all the technology that's needed to surveil our environment. But I'm confident that we are very aware of it. And whilst there will be some additional expense, I expect it to level out during this first half.

Thanks, Kate. So we're going to have 2 more questions. So the first one is why is gross profit down? Now that recurring revenue is growing, can we expect margins to increase? What are the gross margins on recurring revenue?

Colin, do you want to -- give you a chance.

Yes, sure. I guess, there's a few different dimensions to this. Part of it is to do -- the reason it's gone down just in the short term this year is really related to the investments for growth. We've taken a quite conservative view as to what we include in cost of sales. So we do include the total cost of our sales function. And therefore, that has seen substantial investment this year to scale it up, to generate the revenue not just for this year but years to come. That cost has substantially increased and would probably be the largest increase in cost and cost of sales. And obviously, with the lead time for having that capability to when it generates the revenue that Kate's alluded to, we don't immediately see the return at the revenue level to compensate for that increased cost. So that's the main reason, I guess, if you wanted to pick one main reason why the gross profit has gone down. Now that's something we're aware of, and we have spent some time looking in -- across the industry in terms of what people do typically include in their cost of sale in order to work out the margin. And for FY '21, we'll probably make some adjustments to that. So for example, we take that sales capability out of direct cost of sales, and we deal with it below gross profit because there is really that longer-term return on that expenditure. So we will be open and declare the basis on which we changed the calculation of that, but you can expect to see the gross margin will be restated at a higher level for FY '21, as well as that it will naturally increase as revenue increases. In terms of average margins, it is very hard because there are a number of recurring revenue streams, which have inherently different margins to them. So the overall margin would be impacted by how much revenue is coming through each of those revenue streams. So there's not a single sensible figure I could mention on that, that would actually give you any real basis on which to evaluate future profitability.

Thanks, Colin.

Thanks, Colin. Yes. So the next question is, do you think remote health will become an increasing feature of the health care landscape? Or -- and are you well positioned to service this?

Good one to finish on. Without a doubt is the answer. There's very -- I think there's been a desire for remote health or hospital in the home. Treating people outside of the four walls of the hospital has been a priority for hospital and health services for a very long time. And I can't tell you many times I've had conversations with people about how they want governments -- with how they want to move patients out of the hospital environment. The impetus to do it was there. The technology maybe, it wasn't there. What we've seen now through COVID is a -- an immediate need to shift to that really quickly, and I doubt we're going back. So there was always a need. We've got patients with diabetes. We've got increasing chronic conditions that need to be treated outside of the hospital. Our solution, I think, is incredibly well positioned to do it. We've got now our live demonstration of that at Wagga, and we'll shortly have it at RPA. But the important differentiator about what we are doing is that we are integrating all the other known data about the patient from all the other digital health sources into a single platform. There's a lot of companies out there at the moment saying that they've got a remote health solution or a telehealth solution. And really, what they're doing is connecting the patient to a doctor via some form of a platform. What we are doing is actually using that data to assist in the treatment of patients in the home rather than just creating a communication mechanism. So I think where we're heading is absolutely more remote care. And Alcidion is really well placed to support that.

Great. Thank you, Kate, and we'll finish up the Q&A there. And if your question wasn't answered, please note that we do have it. So we will follow-up with you. I'd now like to hand back to Kate for -- who will close today's session.

I've probably said more than enough today. I'm, again, very grateful for your support. I am also very grateful for your interest in our company that you are prepared to join webinars like this and to listen to what we have to say and how we're positioning ourselves. And I thank you for your ongoing support. I look forward to keeping you up-to-date with our progress through FY '21. Thank you.