Alcidion Group Limited (ALC) Earnings Call Transcript & Summary

Good afternoon, everybody, and a very warm welcome to this morning's presentation -- afternoon's presentation of Alcidion's financial results for the financial year ended 30 June 2022, which were released on the ASX this morning. My name is Kerstin Wahlqvist and I am the Investor Relations Manager at Alcidion. I'd like to begin by acknowledging the traditional owners and custodians of the various lands on which we work and meet today and to pay my respects to their elders, past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples who have joined us on the call today. Today's webcast will feature a short presentation by our Alcidion Managing Director, Kate Quirke; and Alcidion CFO, Matt Gepp, who will take you through the numbers and an accompanying business update. This will be followed by some time for Q&A, where we'll be joined by our Chair, Rebecca Wilson. [Operator Instructions]. Please note that we have received a number of questions in led up to today's session, and we will hold all of these questions until the end of the presentation. With that, over to you, Kate.

Thanks, Kerstin. Thank you for everyone for joining us this afternoon and for your continued support for Alcidion. The past 12 months have been significant for Alcidion. As highlighted in the last call, I did around the 4C, we've achieved record new sales for FY '22. We also had the completion of several really important strategic pivotal agreements and contracts and that have enabled us to progress towards our ambition to become a global organization at the forefront of digital health care. Certainly this afternoon on this brief update, I'm going to just give you a very brief lead-in and the majority of the call, I'm going to turn over to Matt, being the full year financial results, it is his opportunity to share that information with you. He'll take you through some summary and some detailed information from the annual report and the Appendix 4E, which were released earlier today. And we'll obviously have time all of this, as I said, for questions afterwards. We're happy to take those. We've given you a very -- quite a detailed update, I think, about the full year progress in terms of contracts and I will touch on those later. But that call, we did cover off a lot around new sales business activity. So as I said, we're going to focus this call on the financial metrics, and Matt will take you through those. I think it is important to note, though, Alcidion as a business has grown across all metrics. We've had a record year of terms of new sales and increasing market presence in all the geographies that we currently exist in. It's fair to say the health care industry continues to need access to smart innovative technology like Alcidion is providing. And there are significant challenges in current health care delivery and anyone who reads newspaper or watches news will be well aware of those. And for us, we are well positioned to provide technology as one means of addressing some of those very significant challenges, I touched on in the 4C, how we're doing that with the Miya Precision platform. I think before I hand over to Matt, just to reiterate how pleased we are with the engagement and the pipeline growth that we're seeing and the continued sales we're seeing across Australia and New Zealand and the U.K. You will see in the numbers in the annual report that we've continued to grow the U.K. business as a proportion of how much is coming into the business from a revenue perspective. And we'll continue to see that grow and it has increased on the prior calendar period. And that, as I said, that's a trend we expect to see continue. And it's absolutely in line with our business strategy in terms of the size of that market, the acquisitions that we have taken on in that market. And the focus that we're putting on the Miya Precision platform being able to provide a modern modular EPO in that market, and we've outlined in the annual report today, the manner and the way in which our modern modular EPR proposition differentiates us into that market. So I'm going to hand over now to Matt, our CFO, and let him talk you through the financials in more detail. Thanks. Over to you, Matt.

Thank you, Kate, and good afternoon to all the shareholders who have joined us. We appreciate you taking the time out to hear about our results. So we're on the financial highlights slide. Financially, Alcidion has had its strongest year-to-date. We delivered record revenue of $34.4 million, marginally higher than what we guided in the 4C release in July, and 33% up on the prior year. It was pleasing to see the recurring revenue growth outpaced the total revenue growth with recurring revenue up 42% to $23.3 million. I'll talk more to that number on the next slide. As guided in July, we delivered positive underlying EBITDA of $0.9 million, which is 80% up on the previous year. Our gross profit at 86% was marginally down on the prior year GP of 88%, and that's reflective of our product mix. We've talked about this in previous presentations in order for us to provide our customers with a broader product solution. Alcidion partners with and sells third-party solutions such as ProVation's, iCloud-based iPro Anaesthesia Information Management System or the Better Meds' medicine system. And while the margin on those resold products is lower typically than what we see when we sell our own products, which typically run at about 90% plus. The resale of those products does contribute meaningful incremental margin to the business. We delivered operating cash flow -- positive operating cash flow, sorry, for the second year running of $1 million in FY '22. And if we exclude the $3.1 million of M&A costs that we incurred -- sorry, $2.1 million, however, the costs that we incurred, the normalized operating cash flow for the year would have been around $3.1 million. As we mentioned in the last quarterly, all of this comes off the back of our strongest year of new sales with FY '22 total contract value sales of $57.7 million. It's almost double what we delivered in the prior year. These contract wins are indicative of our customers' long-term satisfaction with Miya Precision and a strong validation of Alcidion's modular strategy. We end the year with no debt, and cash of $17.3 million, noting, of course, that we did fund part of the Silverlink acquisition from our cash reserves. Kate will touch on the $28.3 million sold revenue later in the deck, and we'll move on to revenue, which we already have. Okay. So as we touched on full year revenue, $34.4 million, up 33%. As you can see in the half-on-half graph, at the top left, we delivered exceptionally strong second half, reporting $21.5 million revenue in H2, that was driven by a combination of organic growth, coupled with acquisitive growth from Silverlink, which contributed $4 million to the revenue in H2, 4.3% for the year, 0.3%, that was in H1. Moving to the bottom left, we're looking at the recurring -- nonrecurring revenue here. Our commercial fundamentals have strengthened in line with our strategic objectives. We continue to see a steady shift in our revenue mix in favor of products. We ended FY '22 with $23.3 million of recurring revenue. Recurring revenue now makes up just shy of 68% of our total revenue. This is an important financial pillar of our future success with product revenue more easily replicable and scalable. As you know, this has been a strategic focus for the company over the past few years, and we only have to look back to 2019, where less than half of our revenue is coming from product or associated services. Moving to the top right. This graph demonstrates the importance of the U.K. market to Alcidion, giving the total -- given the size of the total addressable market there. But this has been a strong year for both regions, with the revenue in the U.K. business increasing 43% to $16.3 million and the revenue in the ANZ business increasing 25% to $18.1 million, following a fairly flat FY '21. The U.K. contribution now sits at 47% of total revenue. The U.K. revenue mostly benefited from acquisitive growth this year, but the impressive ANZ revenue increase came all from organic growth. We've already talked to revenue quite a bit, so I'll skip over that. Importantly, and in line with what we've been guiding in previous presentations, we reported positive underlying EBITDA in FY '22 of $0.9 million, 80% higher than the $0.5 million we reported in FY '21. It's important because the business has now delivered positive underlying EBITDA 2 years running. The gross profit contribution increased $6.6 million on the prior year off the back of the 33% increase in revenue. That was offset by an increase in OpEx of $6 million. In the OpEx, staff costs are a 27% year-on-year increase, keeping in mind that, that number includes 6.5 months of staff costs from the Silverlink acquisition. The increase in staff costs was not unexpected with the full year impact of new hires from Q4 last year, now being carried for the full year in FY '22. Marketing and professional fees were largely unchanged from the previous year, with other OpEx increasing by a larger percentage, but a dollar increase of only $0.8 million. That's largely reflective of us having more staff and generally more activity in the year with COVID, not restricting us as much this year. We incurred $2.1 million of costs in relation to the Silverlink acquisition, that's a one-off expense and is consistent with the size and complexity of the Silverlink acquisition. Finally, on the P&L, now that we've finalized the acquisition accounting for both ExtraMed and Silverlink. The business is amortizing those intangibles such as software and customer contracts that were required to be amortized in accordance with the accounting standards, have added $1.2 million to the D&A line in FY '22. On to the balance sheet. Okay. The balance sheet has changed quite a lot since the previous year. As we've already touched on, we ended the year with $17.3 million in cash. And the reason that's down is because we funded the Silverlink acquisition partly from our reserves, notably the intangible assets increased substantially in FY '22. Again, Silverlink [ theme in his ] presentation. This is due to the Silverlink acquisition. You can find details of that accounting in Note 12 of the financial statements. You'll also note that we're carrying $12.9 million in deferred revenue at the end of the year, that's quite a bit higher than June '21, but it is broadly consistent with the $11 million we reported in the half year accounts. It's partly due to the higher-than-usual trade receivables of $7.3 million. It's partly due to the Silverlink deferred revenue coming into the books as well. Finishing up on the balance sheet, I'd just like to highlight that we are still carrying $2.6 million in deferred consideration, being the second tranche payable on the Silverlink acquisition. That may be paid as early as Q4 of FY '23. And as we talked about in the 4C presentation, we did settle the first tranche of the third consideration that was carried in the half year accounts. The cash flow. This is the second year running that the business has reported operating cash flow -- positive operating cash flow, sorry. We've now reported 4 operating cash flow positive quarters out of the last 8. Excluding the $2.1 million acquisition costs, operating cash flow would otherwise have been around $3.1 million. Our cash receipts are a record, up 29% to $41.4 million. It's important to remember here in the cash flow, the cash receipts includes GST or VAT, which in the U.K. is 20%, and that explains much of the difference between our reported revenue and the receipts we report on the cash flow. We've talked a lot about Silverlink already, but here you can see the $59.5 million we've paid to date to the Silverlink vendors. We can also see the $55 million we raised in December to fund most of that acquisition, which raised $51.9 million net of costs. Finally, on the cash flow. As with previous years, Alcidion is not a capital-intensive business, and payments for PP&E were flat at around $300,000 for the year. That is the financials summarized, I'll hand over to Kate to finish the presentation before we take questions.

Thanks, Matt. I thought it was worthwhile just reiterating a couple of the -- sort of the corporate activities and things that reported during the year, most of which are detailed quite a lot more in the annual report, which I suggest you all take the opportunity to read. I think there's some very good information in there around the focus for Alcidion. But FY '22 was very significant. As I said in the beginning, we signed a lot of pivotal contracts that really indicate a step change in our ambition towards becoming a global leader in digital health care. Really also very important and transformative step we took during the year was the acquisition of Silverlink, which at the time, as I highlighted as 1 of the last remaining independent patient administration systems in the U.K. We did a $55 million capital raise to fund it -- [ each ] what is a strategically important acquisition for us. And I have talked about this on many calls. But just to reiterate, in line with our Electronic Patient Record or EPR strategy as they call it, in the U.K. and increasingly of interest in New Zealand, this acquisition has provided Alcidion with that core patient administration capability that now enables us to expand our product offering beyond the platform that historically we had been sitting on top of an EPR. It allows us to be active and competitive in that electronic patient record market with a modern modular electronic patient record that ultimately is going to be cloud-native. And I think it's a true differentiator for us. And it does truly rival some of the incumbents that are available that also actually sets us up with quite a very different proposition in respect of EPRs to this market, and positions us well to expand our U.K. presence through the current front-line digitization program that the NHS is running, which is to modernize the NHS from a technology standpoint, indicating that by the end of 2023, 90% of the trust are to have a Electronic Patient Record selected with 100% of them deployed by the end of 2025. And so the acquisition of Silverlink has given us the opportunity to champion our modular strategy, and which would not have been possible without the acquisition of the Silverlink PCS solution. And we are very much looking forward to partnering with the NHS Trust and their integrated care systems to achieve their vision of a digitally enabled health and care system. Moving to the wider business opportunities. Despite continued uncertainty, and as I said at the beginning of the call, there's a lot happening in the health care market, let alone what's happening in the wider, broader macroeconomic environment. We signed several new contracts in the Australian and U.K. markets, some of which were contracts with existing long-term customers who have committed for another 5 years to upgrade to the latest version of Miya Precision and to continue that long-term relationship with, which is really demonstrative proof point of the benefits that our solutions bring. During the year, we announced our role as part of the global consortium to build the new $299 million or $300 million Health Knowledge Management system for the Australian Defence Force. The HKM system is known as a critical project for the ADF. That will improve the care delivered to current and past military personnel. And our Miya Precision platform is going to consolidate all the data from multiple partner systems, many of which are Australian companies to provide all trading clinicians with access to what we refer to as the longitudinal health record, a record of all of the activity during an individual service with the ADF on all of the things that have happened in the respect of the health care services. And we are extremely proud of the leading contribution we're making to this deployment at the HKM. Working closely, as I said, with a lot of other Australian companies under the guidance of this large system integrated international systems integrator light-off. And for us, this project really has demonstrated that Alcidion solutions are increasingly scalable and able to play essential role in enabling that integration across multiple and diverse health care settings beyond the 4 walls of the hospital. During the year, we continue -- Matt touched on this a little bit. We continue to invest in our people, adding key growth-focused roles during the year. We appointed a Director of Business -- Strategy and Business Development, Florian Stroehle. We appointed a U.K. Chief Medical Officer called Dr. Paul Deffley. We appointed the U.K. Head of Strategic Markets in Steve Leggett, who's had many years' experience with Cerner in that EMR market who's got -- he's leading the drive for positioning Alcidion into that EPR market opportunity. At the Board level, we're really pleased to have announced and appointed 2 new nonexecutive directors in Victoria Weekes and Danny or Daniel Sharp. Victoria brings a deep understanding from health care sector, many years on the Sydney LHD Board; and Danny, a career in investment banking and corporate finance has really added to the strength and capacity of the Board led by Rebecca. And we also -- 1 of those appointments was actually replacing Nick Dignam, who resigns from the Board in November 2020 -- 2021 after almost 5 years with us. We thank Nick for his contribution and service. As I touched on earlier and in detail in the last quarterly, we signed several strategic contracts, both new and renewal, which contributed to the record sales for the year of $57.7 million. Well, I think I pointed out in the quarterly and have done so in subsequent discussions with people, not every contract of those contracts was announced to the market for commercial and materiality reasons. And that's going to be an important step going forward. But collectively, they really help position Alcidion's market presentation from market penetration, the referenceability we have for our prospective customers and obviously, an impact on that recurring revenue number, which we're seeing continue to grow as we add more and more of these contracts into our backlog and our forward booked revenue. In FY '23, we will announce contracts that are over TCV of $3 million as per ASX guidance, or where they're considered strategic enough that they'd impact investor decisions in a significant manner. In terms of our U.K. market presence, we ended our FY '22 with at least 1 product in 39 NHS Trust or about 27% of all acute trusts in the NHS. We also penetrated our first mental health and community trust with Miya Flow and Miya assessments and observations at Herefordshire and Worcestershire. We also have at least 1 product in almost 50% of the integrated care systems across the U.K. An integrated care system is a consolidation of a number of trust into a regional grouping. And these touch points -- this basically provides us it with several touch points to leverage potential future ICS partnerships. And so it's from this very strong position and the integration of Silverlink into our product suite that we're well positioned to expand our U.K. presence through that digital -- through that frontline digitalization program that I mentioned earlier. And I think meanwhile, our modular approach to implanting Miya is continuing to resonate with customers as we saw through the year, where we had a number of sales into new customers with some modules as the beginning of the Miya Precision platform or where we took upgraded or added additional modules in where we already had an initial presence. I won't talk in detail about all of the contract wins on this call because I did so in the last quarterly update. But -- just to point out that the range and breadth of these contracts that Alcidion is now winning that they involve new customers, new market segments, they involve upsell to existing sites with new modules, summer renewals and some contract extensions, including the upgrades of my precision that I touched on before. By every measure, Alcidion has demonstrated delivery on the strategic pillars that we have outlined and within the time frame that we have outlined. We begin in '23, FY '23, an extremely strong position, with $28.3 million of contracted revenue able to be recognized in FY '23, which is up 87% on the prior calendar period. So we start this year in a very, very strong position. And then with a further $2.9 million of scheduled revenue expected to be converted to contracted revenue in FY '23, that positions us with a 92% of the contracted revenue that we did for FY '22, already contracted for and able to be recognized and delivered as the year progresses. So a very, very strong position from which to start the new financial year, whilst at the same time, having this increasingly significant opportunity in the U.K. that is funded through the online digitization program. So as we move into FY '23, our focus will remain on the 3 growth drivers that we have been discussing throughout FY '22, new contract wins, which build on our long-term TCV, but also add and validate our product offering into new customers. Upselling additional modules to existing customers who have bought into the Miya Precision solution and also renewal of contracts that continue to add to our recurring revenue streams. The pipeline continues to expand and mature, particularly in the U.K. as Alcidion's modular product approach starts to attract increasing interest from the -- from within the sites in the U.K. and increasing understanding about our proposition [ with -- that ] is now live with the better medication management in conjunction with Miya. We have a reference site that can demonstrate the value that we bring, the speed to which we can also bring that value, comparative to some of our competitors in that market. So we have an exciting proposition for -- as we launch into -- or we're 2 months into the new financial year, which is half, I believe, to be honest. We very much like to open up to questions now. Thank you for your attention. And I think there have been some questions already put forward. So I'll hand over to Kerstin to moderate the questions.

Great. Thanks, Kate, and Matt. So yes, moving into Q&A now where, as I mentioned earlier, we had to be joined by our Chair, Rebecca Wilson. [Operator Instructions] Kicking off with the first question. Could you please explain your near-term pipeline growth? And what chance that is, that will tend into real contracts and in what time frame in size? And if I could just add a part based that question, with the current pipeline of contracts, what proportion of new potential contracts include Silverlink as part of the tender?

So the pipeline continues to grow and mature with a range of opportunities at different stages and maturity. And I think it's -- we often talk a lot about Miya Precision and Miya EPR, but there are modules within that or subset as demonstrated by a lot of the contracts we signed in the Q4. And they're all different sizes in value. And so their speed to move through the pipeline and mature through that pipeline often depends on the size. The larger ones, the very nature have more procurement hurdles to go through, so take a longer time to move through it. So there is always opportunities at different points. The pipeline is definitely continuing to grow as we've announced new contracts after we have done acquisitions. Of course, we have the increasing impact of the Electronic Patient Record requirements of the NHS frontline digitization program to see 90% procuring an EPR or a version thereof by 2023 and 2025. So that's having an impact, of course, on our pipeline and added opportunities into that. And a lot of those opportunities, not all, but a lot of them have come about as a result of our existing presence through the Silverlink acquisition or through the message and proposition that we now have. So there are a number of pipeline opportunities that we've been able to respond to that. We would not have been able to respond to had we not done the acquisition and added the PCS solution from Silverlink into our total proposition to the market. So I think the way -- of course, I expect these to turn into real contracts during how many of those will depend on a number of factors. It is a competitive environment from the EPR perspective. We still have opportunities where we can sell off into existing contracts. So maybe 1 of the ways in which I might be answering a couple of questions here is just to explain the way in which these procurements are being done. In the U.K., the NHS has said, first of all, we'll match your funding. They're not necessarily funding all of these EPR programs. They're adding, they're providing some funding, but not 100% of the funding. So the trust needs to be able to find some of that funding. They then fall into the categories of trusts that have got nothing much in the respective an EPR. They maybe just got a patient administration system. There's a smaller number of those, maybe 10 or so that would be coming from a sort of a base start. And there are some of those that we will definitely be competitive in. But there are also around, I don't know the exact numbers because I haven't got -- detail in front of me, but say 60 to 70 trusts that fall into the category of have bought some components of a modular EPR. They may have some of Alcidion's product. They may have other, what we call best-of-breed solutions. And those are the ones that are a great interest to us, because the Alcidion proposition allows us to sit across, consolidate all the existing investments they've made into those best-of-breed solutions, but then also add our modules in to create the true modular EPR. And those are the ones that we are very focused on going after at this point in time. Some of those are Silverlink existing Silverlink sites. All of the existing Silverlink sites with the exception of the London Trust, which is already going down a Cerner path are opportunities for us to have conversations about the upsell of Silverlink into a full EPR. Long answer, but probably answered a few questions.

Next question. How do you plan to achieve sustainable NPAT and growth together?

Is that me or Matt? I mean I can do that. I mean we've invested in the last couple of years in scaling the business, establishing in-house PPC, full-time general counsel, expanding the sales and marketing team, building a managed service and support team. And there necessary investments for scaling the company to manage growth as we move forward. I think it's fair to say, as I've indicated that we've done a lot of those, what I consider baseline scaling investments, not saying that there won't be additional leverage that is needed at times, but it won't be in a linear fashion. So I think we've got a very well established base from which to grow for. And I think the fixed nature of the business will be there and we should start to see more leverage from the revenue as we move forward.

Thanks, Kate. Next question. Is there any plan for selling Alcidion products to private hospitals like Ramsay, [ Meta Healthcare ] et cetera?

No, I guess, the private sector is very much part of our total addressable market, and we've already have some demonstrated engagements and contracts with a number of private hospitals, particularly in the data and analytics space, work we've done with Healthscope and Calgary, and we continue to target them as an opportunity.

Great. A couple of questions around geographic expansion. How is the progress in India? Any plans for other countries? Or did any other territories outside the U.K. and ANZ. And any timing on further international expansion?

Look, we continue to explore India and other markets for opportunities to expand. But as you'll appreciate, this doesn't happen in a matter of months. It takes time to analyze the market what are the important segments of the market? How are you going to enter that market? India is of interest to us, but it's a maturing market. So we will continue to engage with the assistance -- definitely the assistance of Allstate, who are very supportive of Australian companies like ourselves in that market. But it is a market where the middle class is becoming increasingly interested in what they're getting out of their health care and their health care spend. And so India is -- will continue to be a market, but it's not going to necessarily happen overnight, but we are continuing to focus on that and starting now to look at other markets. We have, in the past considered Canada, and that has a potential in turn to the United States and North America, that continues to be of interest to us. It's a market that requires us to investigate the right way to enter. I think there's also a question around consolidation of the market and how one of our possible opportunities to enter certainly Canada and -- or the United States is to partner with some of the larger electronic medical record vendors. And that is still very much a possibility. We are and continue to have those conversations. And I think -- there is no doubt what we do is applicable to the North American and Canadian market, in particular, Canada being a very similar health care system to us. And I would see over the next 12 to 18 months, we hope to have done more work in respect of the best way to enter some of those new geographies.

Thanks, Kate. I think next question will be Matt. Can you give us an idea of what made up the $3.3 million in other expenses and why it increased?

Absolutely. Thanks, Kerstin. So look, it's a good question. I know everybody likes to get as much detail as possible. So this falls into the nonstaff OpEx category for me. So professional fees, marketing are pulled out individually because of their material nature. The rest of the other OpEx is typically IT-related costs, hosting our debt environment and improving our general IT security posture, insurance, travel, recruitment, training, all those types of items fall into that. And I have to say, insurance is up, recruitment costs are up this year. Travel, we saw an uptick in travel in H2, particularly Q4 as restrictions lifted. So that's not unexpected. We also inherited some costs from Silverlink and that's not unusual when you buy a company. So all of those kind of double up costs are slowly being unwound. We are pretty much done that by June. So maybe a little bit of a bump there because of Silverlink, and hopefully, that will settle down a bit. But travel has opened up again, and we do need to start engaging with the world. And so we might see a little bit more cost there moving forward. But I always focus on how much of our revenue is absorbed by non-staff OpEx and that's around 15%. It was 15.3% last year, 14.8% this year. So the important thing for me is keeping that metric moving down, which goes to our efficiency. Long answer, I know.

Thanks, Matt. I'm going to throw to you again for the next question, [ if all right ]. Is the company still on track to reach net profit breakeven in FY '23? And if not, when do you think that will happen?