Alcidion Group Limited (ALC) Earnings Call Transcript & Summary

Good morning, everybody. And welcome to Alcidion's results presentation for the 6 months ended 31st of December 2022. My name is Hannah Howlett, and I will be hosting the webinar today, checking in for Kerstin Wahlqvist, our former Investor Relations Manager, who unfortunately had to leave Alcidion due to personal reasons. Before we begin, I'd like to acknowledge 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, present and emerging. I extend that respect to Aboriginal and Torres Strait Islander people who have joined us on the call today. In terms of format, Alcidion Managing Director, Kate Quirke, will talk through a short presentation, which will be followed by a Q&A at the end. Also joining us on the call is Matt Gepp, Alcidion CFO, who will cover off some of the financial results, along with our U.K. Managing Director, Lynette Ousby, who is joining us today in Australia as she's here this week for planning. The Alcidion Chairman, Rebecca Wilson, is also with us. [Operator Instructions] So with that, I'll hand over to you, Kate. And thanks very much.

Thanks, Hannah, and welcome, everyone, to the call. As Hannah mentioned, I'll walk through a summary version of the investor presentation that was lodged this morning, covering the Appendix 4D results along with an update on activities and outlook. Given our requirement to lodge 4C, I'm aware that some of what we'll cover today will have already been provided to you a few weeks ago, but we have the added advantage of having Lynette joining us on the call today, and she will speak directly to the opportunities that we are pursuing in the U.K. market. So Matt will take you through some of the financials in more detail later in the presentation. I don't want to steal all his thunder. But at a high level, H1 '23 was a very positive one for us again and continued the momentum we've obviously been building in the last few years. First half revenue was $19 million, up 48% on the same period last year. If you exclude the impact of the Silverlink acquisition, which we did in late December 2021, revenue was up 22% organically, which is a strong result for the business. Our recurring revenue grew 58% compared with 25% for nonrecurring revenue, with the larger recurring growth being supported again by that Silverlink acquisition, which generates highly stable and repetitive recurring license fees. The gross profit margin remained stable at around 86% which, as many of you be aware, our gross margins are made up of a very strong 90%-plus margin we make on our own business, alongside some of the margin which will be lower for a third-party provider where we're providing the medications management solution, for example, for Better. Underlying EBITDA was a loss of $1.1 million for the half, a significant improvement compared to the $3.2 million loss we incurred in the first half of 2022 -- FY 2022. And although we've still got some work to do, obviously, around EBITDA improvement as we move into positive EBITDA and positive cash flow, this is demonstrating our shift towards not only being EBITDA positive but also our ability to start demonstrating that operating leverage. And we retain a strong cash balance with $11.9 million and no debt at the end. I thought before we got into the depth of the financial highlights, I'll just call out some of the operational highlights for the half as we continue to execute on our modular strategy, which both myself and Lynette will talk about in a little bit more detail as we go through the presentation. In the first half, we delivered new sales with a total contract value of $18.6 million, of which we expect to recognize around $5.5 million of that in this financial year. Driving those new sales was $8.4 million contract extension we signed with Leidos for the delivery of the health knowledge management system to the Australian Defense Force. So that was additional modular upsell and additional expansion of the use of our solution in more settings. If you combine that with the initial contract, the total TCV now of that is $31.7 million over 5.5 years. It's a really strong validation of the value we are bringing to that overall project, but also keeping in mind that that's just the first 5.5 years. We certainly would be very strongly confident that, that program will be successful and continue to be used well beyond that. So there's extensions to renew that right up to another further 15 years. In the U.K., we signed an initial 3-year deal with University Hospital Southampton for nearly $3 million to implement Miya Precision as the foundation for a broader EPR platform. And although the initial TCV value is below our materiality threshold from an announcement perspective, it is a very strategic contract for us. And we're very excited about it because it provides further validation around the strategy we are deploying into the U.K. and it demonstrates that the Silverlink acquisition is actually allowing us to be competitive and actually play in that EPR market, which is what was a requirement of having that patient administration capability. Further to UHS, during the first half, we signed several other contracts for additional Miya Precision modules, notably our flow module at both Bolton and Derby. Given the challenges facing hospital wait times, which I'm sure you've all heard about, overcrowding, inability to move people out of the hospital setting into other lower acuity settings, the modules from Miya Precision around Flow, Access and Command are really a very strong part of our go-to-market strategy at this point in health care's evolution. And we now firmly consider ourselves to be the leading provider of this functionality in the U.K. And this was one of the key reasons that we originally liked that ExtraMed flow solution. And we now have 3 customers who have upgraded from the ExtraMed flow product, and that was all that product deep into Miya Precision, giving us that base from which we will hopefully be able to upsell more modules to build out the EPR opportunity. So during the period, we also renewed another Silverlink contract for 3 years, demonstrating sort of the speediness of that acquisition. Whilst we often talk about new contract wins, and I know that that's a very important part of what we do, I think it's really important to actually really focus on the successful deployments and implementations that we've had and the value and the benefits that, that is actually demonstrating to our customers because, at the end of the day, health care likes to buy proven solutions, solutions that they can talk to other customers about the value that's being delivered from those. So being able to work alongside customers and assist them to implement the products in an effective, efficient way and, importantly, a collaborative way is really helping us to build on long-term relationships where that modular upsell becomes more and more possible as those relationships are strengthened through us actually, delivering what we say we will do. In Australia, Alfred, a group of hospitals, have recently gone live with Miya Precision using Flow, Access and Command. And that was one as a competitive tender, with the Alfred being one of the larger teaching hospitals in Victoria. That makes them a really key reference site for us. And importantly, it demonstrates that we are really deeply integrated and the information that we are bringing from the Cerner electronic medical record and the Victorian state patient administration system. It's a valuable reference site to show what can be done in this state. The project with Leidos continues to roll out on schedule, and we've made several milestone -- completed and addressed and delivered on time several milestones with that project. Excitingly, for us, we're actually learning a lot and creating new opportunities out of the additional software capabilities that are being developed. And I've just had the sales and marketing team across the whole business together this week, and they're really excited, certainly about the new capabilities that are coming out of that program of work. I'm going to hand over to Lynette now to talk a little bit more about the U.K. deployments and the benefits we're doing from there.

Thanks, Kate. I'll go as slowly as I can because I am getting regularly feedback about my very Northern English accent can sometimes be hard to follow. I'm very aware of it. So good morning, everybody. So as Kate said, we've had -- run a very successful go-lives in the last 6 months in the U.K. These have been really important to our strategy because we needed the referenceability as the frontline digitization program picks up pace. So focusing on South Tees first, we've now got our EPR referenceability in the U.K., as I said, extremely critical. And South Tees are now our main U.K. reference sites, and we'll be hosting a number of our prospects, customers over the next few weeks as part of that frontline digitization. What we have also done with South Tees is benchmarking, so understanding the impact that our software is having on clinicians and the information coming out of that trust is now starting to emerge. For example, very recently, they have feedback that the capture in [indiscernible] at the point of care is increasing, 56% to 100% compliance, giving the clinicians the information that will make the treatment faster and safer for the patients that they're looking after. At East Lancashire, we have successfully deployed Miya Precision with our flow and observation software alongside Cerner, which is the first deployment of its kind here in the U.K., therefore, unlocking a new market for us here in the U.K. where we can complement an existing monolithic EPR to level up the digital maturity of that trust to achieve higher [ PMS ] levels. Back to you, Kate.

Thanks, Lynette. I'm actually going to hand over to Matt now so that he can take us through in a little more detail of the financial results in the first half.

Thanks, Kate. Thanks, Lynette. Welcome back to Australia. And thanks to everyone who's joined us today for Alcidion's half year results presentation. We were pleased with the result that the business delivered in H1, and that is we're in line with our expectation. We delivered new TCV sales of $18.6 million in the first half. That was a solid result. $16.8 million of those sales coming in H2. Nearly 1/3 of that is able to be recognized in the current financial year. We saw a significant improvement in the profitability of the business. Having delivered $3.2 million underlying EBITDA loss in the prior year, we saw a $2.1 million turnaround to deliver a $1.1 million EBITDA loss in this current half. The improved EBITDA, very simply, is a result of revenue growth outpacing the growth in our cost base with half-on-half revenue increasing 48% and the cost base increasing by 24%. We're beginning to see real improvements in operating leverage, and that's demonstrated in the numbers with staff costs in the current half, representing 76% of revenue compared to 91% in the prior year, and non-staff OpEx, which came in at 15% of revenue compared to 18% in the prior year. It's worth noting that staff costs were up 23% but, excluding the additional costs from the Silverlink cohort of about 12 staff, the organic increase in staff costs was around 14% to 15%. Importantly, that's under the rate of our organic revenue growth of 22%. Other OpEx was 54% higher than the prior year. It's a large percentage increase, but that's off a fairly low base. It's a $700,000 increase on the previous half. We've seen general inflationary pressure here. But much of that increase is attributable to increased travel activity in H1 versus the prior year as our teams start to attend more local and international conferences again as seen by the 38% increase in our marketing costs. Moving on to the revenue dashboard. So on the top left here, we can see the half-on-half revenue for the last 5 years. This is the strongest first half growth in revenue the business has seen. With the exception of FY '21, we typically see H1 revenues slightly behind the previous year's H2 revenue. And as you can see, our H2 revenue has consistently outperformed H1 revenue for the last 4 years, and that's largely due to the sales momentum from the first half compounding with H2 new sales. Moving to the bottom left, there's been a marked increase in recurring revenue in this half, which now makes up nearly 3/4 of our revenue. Kate mentioned earlier, this is driven by the inclusion of a full 6 months of the Silverlink PAS revenue, which is made up of very stable recurring license fees. On the right, we can see the geographic split of our H1 revenue. The U.K. contributed 46% of the group's revenue in H1, quite an improvement on the 34% it contributed in the prior year first half but also, importantly, both regions saw solid growth versus the prior year, with the U.K. growing just over 100% half-on-half and the ANZ business growing 20% half-on-half. Moving to the balance sheet. We ended the period with $11.9 million in cash in the bank. Receipts were a bit slower than we anticipated at the end of December, as we talked about in the quarterly 4C webinar. That was due to timing of the period end, and a lot of that was caught up early in January. But we are comfortable with the debtors and the working capital in the business at this stage. The most notable movement in the balance sheet was the decrease in the deferred revenue or the unearned revenue, that dropped from $12.9 million to $9.1 million. That's a result of the huge amount of implementation work that the team did during the half, and it was not unexpected at all. That's it from me on the balance sheet. So I'll pass back over to you, Kate.

Thank you very much, Matt. We've talked a lot about our modular strategy. I think I've touched on it a bit today, but I've certainly talked about it on other calls. But I wanted to spend a few moments on the presentation today while we've got Lynette here, to give you our big picture view of where we're looking to take the business over the next several years, particularly in relation to the opportunity we currently have in the U.K. Thanks, Lynette.

Thanks, Kate. So this illustration should not be used as fact. The numbers that you see on here are for illustrative purposes only but all thereabouts. We have been very keen in the U.K. over the last 2 years to ensure that the market that we're creating for ourself is not in one lane. So we call it keep multiple lanes and not staying in our lanes. So we've ensured that with the frontline digitalization program and the money that's been invested in EPRs, absolutely, we can now play there because of Silverlink. But what we also focus on is other routes to market alongside that EPR funding as well. So this is a demonstration of a very normal deal here in the U.K. So moving from left to right, we will have a module in an ICS. An ICS is an integrated care system of all care settings. So we could have an observation model in there. We could even just have a Smartpage. But what is happening in the ICS is a convergence strategy where they are being encouraged to use incumbent solutions as you spread through the ICS rather than bring new products into that ICS. So we've got very good coverage across our ICS. So to use this as an example, trust 1 has a module, then trust 2 takes the module, and trust 3 then takes the module. And ultimately, we have the holy grail, which is ICS orchestration layer, which is also a new play for us because of the way that we have positioned ourselves. So as I said, this is a very normal route to market, but not our only route to market, which is quite unique in the U.K. On to the next slide, please, Kate. So again, just focusing on that modular strategy and why it puts us above our competition, in my opinion, is this is a deal that is not contained in the U.K. quite a few times now. So as Kate talked about, we have a challenge in NHS. It's very similar to the challenges you face here in Australia around flow and ensuring that you can move patients out to the right -- to the correct setting. We've got a bed blocking issue. So we have partnered with a number of customers who have specific funding to resolve flow or an emergency department challenge, and we were able to work with that customer to help them solve that challenge with a number of our modules, which you can see on the left-hand side. What we then do is take the opportunity to contract quite differently with that customer, so that as they move through their challenges or their evolution in their digital strategy, we have a rapid contracting vehicle to help them and work with them. So what you then seen in Phase II is that we will layer on because Miya Precision is already in there. There's a lot of effort already expended at the trust in terms of the deployment. We can then turn on the modules depending on what challenges they're trying to solve. Ultimately, Phase III completes their EPR, with a patient administration system potentially going in last, if that's what they want. So a PAS last strategy to complete the EPR is, again, really positive in the U.K. market because Miya Precision is building up all the intelligence around the patients as the deployment moves forward. So the PAS switch does not feel as dramatic as it would if we'd have gone with the PAS first. Again, a very unique approach to a modular deployment. Kate is just trying to really set me off-course. So this is the mirror image of a number of deals we've done in the U.K. So again, back to not staying our lane. We can do new modules into new sites. We can do full EPRs. We can do PAS. We've got a lot of flexibility. What that also enables us, because we don't provide all of the modules, we've created a whole army of partners that support our strategy as well. So partners that would normally get ripped out in maybe a large monolith. They're backhoes in this model as well. So we have really successful integrations with other partner products as well. Thanks, Kate.

That's a good point. Thank you, Lynette. So if we look forward, and I'll give you an opportunity to ask Lynette some questions at the end. But if we look forward, we start the second half with contracted revenue of $32.9 million. That is able to be recognized in this financial year, plus a further $1.1 million of scheduled renewals. So $34 million without -- if there are no further sales. So obviously, we would expect to see those. So we're not seeing any shortage in the number of opportunities. And as we've mentioned several times on the call, we believe that the modular strategy is one that positions us really well to maintain a strong sales momentum and not rely solely on our opportunities coming from one particular segment of the market. In saying that, though, I think we have to recognize and acknowledge the pressure on the U.K. NHS system at the moment, along with all of health care. But in particular, not only that, they've had some bit of political turmoil towards the end of last year. So we are watching closely how fast these procurements go. They are a little behind where their stated plan had been, but we are now seeing those procurement start to roll out. And we also have a situation where the modular opportunities in play as we have -- they have funds available to expand to address flow and so forth. So we're keeping a watchful eye on it, but I feel quite optimistic about how things are progressing now. As we've previously advised shareholders, we are looking to be underlying EBITDA and cash flow positive for FY '23, having stated ahead that certain procurement guidelines need to meet our expectations. The quantum of that profit may be impacted by the additional travel and inflationary components that Matt alluded to. But again, that will depend on how much revenue we can book in terms of new deals in this half. So that concludes our presentation for today. Thank you for your attendance, and I'm very happy to take on questions. Hannah is going to moderate those for us.

Thanks, Kate. Thanks, everyone. We do have a few that have come in. [Operator Instructions] So one here is, you've previously mentioned that you're looking at expanding into other geographies, perhaps India or North America. Is there any progress on this? And what is the current view?

I think as I probably stated on the quarterly a month or so ago, we are in what I call the research phase. So we are -- we certainly have been to India. We were at Arab Health. We were at the U.S. health conference at the end of last year. Looking at the strategy for entering some of those markets, and there are many different ways in which you may choose to enter a new geography, and I probably talked about them all at some point or other in terms of could be partnering, could be direct entry, in some cases, that may be acquisition, I would say we're still in the research phase. I do not expect that we'll be entering any new geography in any significant way in this financial year, but we certainly continue to have aspirations to do so at the right time.

All right. Thanks, Kate. There's one here, but actually that's for Lynette. And he says, Lynette mentioned in one of her slides about rapid contract vehicle. Can she explain what this means and if it is similar to the contract signed with the University Hospital Southampton where the initial total contract value was $2.8 million over 3 years?

Very sharp that you noticed that, Peter, and yes, that is an exact example of what has happened with UHS, Derby and other customers that we have. So generally, what we now do on a module contract is always offer the options to take other modules from us as their digital strategy evolves. So yes, that's how we have contracted with the UHS. And the value that you see is, yes, if they exercise all of those options to the time that we think they would exercise those options, that would be the value, yes.

All right. Thanks, Lynette. And there's one other here. You mentioned before about the current challenges that the NHS is facing. So -- and you mentioned procurement. So what is, if any, changes to the lead time in securing sales now in the NHS? And do you find that things are speeding up or slowing down because of the disappointment that has been seen with the digitization process?

Yes. So we did hit a bomb when we got to our third Health Care Secretary in a month, just towards the end of last calendar year. So the frontline digitization program, I'll talk about it first, which is the GBP 3.6 billion investment in the frontline digitization. So you've probably seen a report very recently that talks about the NHS not digitizing enough. And this is the biggest digital investment the NHS has ever made. So we did hit a 3-month delay from when we thought the procurements were going to start because the funding had to go back to the new Health Secretary for approval. That's all in the public domain. But what the NHS England have done to compensate for that is come out with some clearer procurement rules for those EPRs that actually shortens that cycle back to where it would be. So we eventually will pick back up. So as Kate said, the procurements have now started to come out, periods were probably expected in December and now coming out. So we felt the 3-month delay. With modules, we're not seeing that delay the same. Who we deal with is changing, so we don't necessarily deal with the CIO at trust anymore. We might have to transact at an ICS level, which is good for us, because we're trying to converge. So that has changed. So that has caused some delays because that is an emerging structure at the ICS, but that's starting to settle down now. I think if we were just in the EPR space, we'd be experiencing some significant lags as those procurements go through. But because we have the modular offering, we can go in and fix different problems. So as Kate said, flow is a huge focus in the U.K. at the moment. So we're able to -- I'm assuming that, that product's got referenceability. We can deploy it quickly. I believe we have the -- we are the market leader for flow in the U.K. So as the news evolves around how they want to fix flow before our winter pressures again, and we watch that with a very keen eye.

All right. Thank you very much, Lynette. There's one here, Republic of Ireland, is that considered part of the U.K. per Alcidion's operations? Or is it not serviced by Alcidion at all?

Sorry, you just cut up. Did you say Ireland?

The Republic of Ireland. Yes.

Yes, we don't service Ireland at all because they've just done a quite significant Epic deployment. So it might be as their digital strategies evolve, we will, and we see how we can complement the Epic offering, but no, not at this time.

All right. Thank you. Another one is, are we participating in the South Australian RFP for their health digital program? And if not, are there any other RFPs that we are participating in?

Well, we're actually participating in a lot of RFPs. And for obvious sort of competitive reasons, I wouldn't like to announce which RFPs we are going for. Suffice to say, we are on all tender notifications and our sales team look at every RFP that is put out in health care and look at how Miya Precision may address the requirements of that RFP.

All right. Thanks, Kate. One other here -- there's actually a few that are quite similar, so I'm going to bundle them together, and it is what is the revenue contribution expected to be for Leidos going forward? Is it expected to grow at the same level?

That's in H2, I think.

Yes.

There's a very specific question, I think, Matt, around what's the revenue contribution from Leidos in H2, if you know that at the moment. I know you'll know it if you looked into your numbers somewhere.

Well, look, I know what we think, and there's a lot of dependencies there in terms of the implementation time line. So I don't really want to get into forecasting H2. Leidos revenue did contribute $4 million in H1, and it will definitely be a material contributor to our revenue in H2. Probably not as high as $4 million, to be honest, because there were license fees in H1, but I'd rather not give a specific number right now on that one.

Well, I could say we count that revenue in the contracted revenue figure we've already given as the total revenue figure on the assumption that we're going to deliver on all of the milestones.

All right. Thanks, Kate. And then there's one final question for now, and it's on staffing costs. So we saw that staffing costs increased 23%. Is this expected to continue? Or are we now in a good place?

Matt?

Do you want me to answer that?

Yes.

Look, I touched on this when I was talking about the P&L. We did have quite a big increase in H1 versus the prior year, and that was partly due to the Silverlink staff coming onboard and being in for the full 6 months. We do have hires still that we'd like to make in the half, and we'll weigh out those hires with our revenue flow or our sales flow is going during the half. So yes, look, we're always looking to hire new staff. I probably it won't be at the same pace as it has been previously. But we just have to weigh it out with our sales pipeline.

I'll just confirm that it definitely won't be at the same pace. I think it's fair to say that a lot of the -- there's the Silverlink contribution to the increased staff costs. But I had said in all my previous calls that we still had roles we hadn't filled because there was some difficulty in filling some roles, particularly as IT resources became very challenging to find. And we are getting close to having filled all of those roles now that it's increasingly more easy to attract talent in the tech market. So I certainly will see -- I know we will see that increase in staff leveling off now as we've scaled the business and continue to see greater operating leverage as we go forward.

All right. Thank you. We do have one more as it happens. South Tees was one of the first reference sites to procure the full suite of Miya Precision platform. Is anyone able to provide an update on how things are tracking along, including maybe some customer feedback or challenges that you've seen?

Well, I'd take that, Kate. Okay. So I did touch on the implementation in the slides, but I'll go into a little bit more detail. So South Tees is going very well. We have really embedded ourselves as a partner with South Tees. They perceived us as a partner. We perceived ourself as a partner. And we've entrenched with the clinical and operations teams there. So Miya is now live. It has been for some months. ePMA is fully rolled out across 3 hospitals. Now as I said, they are a reference that they're hosting a large cohort of our potential customers or customers over the next few weeks. And what we also have an advantage of with South Tees is that the leadership team there often come from other trusts, have used all their EPRs. So they're able to give our potential customers some real insight into why we are better than the ones that they've had experience on before. And that's not just from a product perspective. We talk very highly of how responsive we are as an organization. So we've -- they've hit some challenges recently, and we needed to pivot in terms of the deployment program to support them on those challenges. So they do talk very highly of our responsiveness. So I did touch on the allergies, the impact that, that has had. So we're getting that kind of feedback with benchmarked VTE assessments, which they have to be 100% compliant on, which they now are because of Miya. We are slowly gathering the data in our medication errors and the impact that we're having there, and feedback that we're getting from a trust that is supporting the Smartpage rollout at South Tees. And I'll just touch on that because they're helping with South Tees rollout as well, is that the Smartpage implementation by Alcidion has served 2 hours per clinician per shift and an NHS that is striking that has got a resource issue. That impact is going to be significant at all of our trust now that we are rolling out Smartpage. So what we'll start to share is the statements coming out of our customers, in particular, South Tees, the impact that went there. But it's a very positive deployment, very positive relationship, and they are very happy to host our pipeline customers as references.

Thank you very much, Lynette. All right. So that concludes the Q&A portion of this webinar this morning. If we were unable to answer your question, please do e-mail me directly. My email just can be found on the bottom of the announcement, and I will come back to you as quickly as possible. Kate, do you have any closing remarks before we go?

Firstly, I'd just like to say that the sorts of things that Lynette just said about 2 hours per clinician per shift is the reason Alcidion and the team at Alcidion do what they do. It is really about making a positive impact on the lives of patients. And we've just spent time together sharing some of those stories and reiterating that. And I hope that you, as shareholders, feel that same pleasure in being part of something that is making such an impact and a very purposeful impact on -- in a market in our lives, and all of us at some point or our families will have to interact with. So I want to thank you for your ongoing support and the support that you're providing to Alcidion and your interest, and I look forward to keeping you updated on our progress. Thank you.

Thank you, Kate, and thank you, everybody, for joining us this morning. Goodbye.