Alcidion Group Limited (ALC) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Alcidion's Third Quarter FY '25 Appendix 4C and Business Update presentation for the 3 months ended 31st of March 2025. I'd like to start by acknowledging the Traditional Owners of the land from which I'm presenting today, the Wurundjeri people of the Kulin Nation and the lands from which all of you are joining me as well, and I pay my respects to their Elders past and present and extend that respect to any indigenous persons who are joining us on the call today. I'm also joined on the call by our Chief Financial Officer, Matt Gepp. Welcome, Matt. The plan is I'll take you through a brief presentation covering the key commercial and financial highlights of the quarter. And as is our usual practice, we will then follow that with Q&A. All attendees will have an opportunity to ask questions at the conclusion of the presentation. If you would like to ask a question, if you could please use the Q&A facility that's at the bottom of your screen or the top and will aim to answer as many as possible. We have had a couple come in ahead of the webinar, so we will also look to address those. Any questions that are similar in nature or that I've already covered during the body of the presentation, we won't do again in order to avoid repetition. But if we do run out of time and there's any questions I've been unable to answer, please send it through to [email protected], and we'll seek to answer that as soon as possible. Just as a reminder to everyone, the webcast is being recorded and it will be available later on today on our website for those who are keen to see a recording. Into the body of the presentation. As you will have seen from the release this morning, the Q3 has continued to build on the momentum that we've established over the last few quarters. Of particular note and particularly to those on the call who have followed us for some time was the announcement that we signed in North Cumbria deal to deploy Miya Precision as their integrated -- sorry, as their enterprise Electronic Patient Record platform. And I'll touch on the details of that a little bit further in a moment for those who are not across those details. But really, North Cumbria is a significant validation for Alcidion and a well-deserved reward, I must say, for the hard work that's been put in by the Alcidion team across all areas of business in both delivering on other customer deployments to ensure that we had key referenceability that allows us to win very, very significant deals of this nature that are highly competitive in terms of the tender process we go through. Also during the quarter, we were able to secure our first contract in Wales with Hywel Dda Health Board. And we see this -- we see the opportunity for several other -- there are several other opportunities we see potential for in Wales of a significant size and of a similar size is what I meant, sorry, in respect of the opportunities that Wales presents as a new country for us. And that will happen, hopefully, over the course of the next 12 to 18 months. During the quarter, we delivered strong operating cash flow and see ourselves very well positioned heading into the fourth quarter, which is historically our strongest period for cash collections. Following the continued strong trading that we have had in respect of new opportunities and the size of those opportunities, we have upgraded our EBITDA guidance for FY '25 and expect to deliver EBITDA in excess of $3 million, which is a record result for the business. I'll just unpack the financial highlights in a little bit more detail for you. During the quarter, we signed new sales with a combined total contract value of $48.8 million for the quarter, which -- with approximately $11.5 million of that able to be recognized as revenue in FY '25 and the rest being recognized in subsequent years as recurring revenue. This represents our largest quarter for new TCV sales ever and further builds upon the $13.1 million of new TCV that we signed in the second quarter. Approximately 91% of those new contracted sales in Q3 relate to recurring product revenue with the balance related to services, almost entirely product implementation services. At the end of Q3, we had about $40.2 million of contracted revenue able to be recognized through the end of the financial year. Q3 cash receipts for customers were $13.1 million for the quarter, reflecting our strongest Q3 for cash receipts. Important to note that, that does not include any contribution from North Cumbria, which we expect to come in as cash receipts in the fourth quarter. We delivered a positive operating cash flow for the quarter of $2.5 million, a material improvement on the same period last year, which was negative $1.4 million. At the 31st of March, we have $10.2 million of cash and no debt. We've already covered a lot of this information in the highlights on the prior slide, but it's worthwhile just pointing out a couple of key areas. On the left-hand side graph, which is quarterly new sales, you can see a significant increase in new sales during the quarter, predominantly driven by the signing of the North Cumbria contract as reflected in that bar. And then on the right-hand side, the clear seasonality in our cash receipts and the material uplift we typically see in the second half of the year. We expect this trend to continue as we enter into the fourth quarter, particularly as we ended Q3 with a very strong debtor's ledger of $17.7 million. And typically, we would collect the majority of that in a quarter. Just a few of the key business highlights for the quarter, I'd like to detail in a little bit more. We mentioned -- I mentioned at the start that we signed a couple of very key contracts, but we also signed and renewed several existing PCS PAS customers throughout this quarter as well. In February, we announced our first customer in Wales, which was Hywel Dda University Health Board and they'll be using Flow, Observations and the Smartpage modules from the Miya Precision Suite. The contract was awarded after a competitive tender process. And again, this provides that market validation of our Patient Flow solution, a product which we believe to be a clear leader across the U.K. and ANZ in respect of managing patient flow, which, as I've talked about before, is -- continues to be a very, very challenging problem for customers, really the world over in respect of that challenge around more demand for our health care services and beds than we have capacity to deliver. Wales itself presents an attractive market opportunity for contracts of similar size being in that $4.5 million to $5 million to $6 million range over 5 years. And as we deepen our referenceability in this new landscape in Wales, we hope to see more interest in the Miya Precision platform in the months and years ahead. Shortly after Hywel Dda, we signed the very significant contract for North Cumbria, just to reiterate and remind everybody, $37.5 million over 10 years with opportunity to extend further modules into that customer. So they bought the majority of our modules, but have opportunities, for example, to take Smartpage and also have opportunities to take some of our partner modules, which we hope to see happening through into the next financial year. Following the contract signing, the implementation process at North Cumbria has already started. And given the modular nature of the way in which we roll it out, which is a key feature of the Miya offering, we will expect North Cumbria to start to see tangible benefits quickly, and we'll be able to report on those as we have been able to report during the last quarter on some of the very significant benefits that South Tees is seeing and I hope everyone's had the opportunity to read some of the exciting feedback we're getting from South Tees as they continue to roll out the Miya Precision platform more deeply across all their clinical areas. As I touched on, we also renewed several of our PCS PAS customers in the U.K. Again, it continues just to reiterate the importance and the value of that recurring revenue, the long-term nature of the contracts and the continued renewal of those contracts that we see year-on-year. As many of you will have seen last week, we announced the appointment of Professor Andrew Way as a Non-Executive Director. He will be replacing Victoria Weekes, who will step down around the midyear. And I thank Victoria very much for her service. She will still be with us for a few months. But as the Chair of the Audit and Risk Committee, Victoria has overseen continued depth and quality in the governance activities across Alcidion and we are very grateful for the input that she has had over the last 3 years. Andrew is a highly accomplished Chief Executive, most recently as the CEO of Alfred Health, which was a position he held for 15 years. And during that time, he saw incredible depth of deployment of digital capabilities into the Alfred, including the Miya Precision platform. So it's fabulous to have him on board with firsthand knowledge and experience of the day-to-day impact that our solutions can have on productivity. Prior to moving to Australia, Andrew also worked in the U.K., where he had an extensive career in the NHS, most recently before he came to Australia as the CEO of Royal Free NHS Trust. So as we continue to work in that market, it's going to be fantastic to have Andrew's experience on the Board across not only Australia, but also his experience in the U.K. Just turning now to outlook. As I said, at the end of Q3, we have approximately $40.2 million in contracted and scheduled renewal revenue able to be recognized in FY '25. Historically, Q4 is our highest quarter for customer receipts, as I said at the outside, and we'd expect that trend to continue. It's underpinned by a debtor ledger at the end of Q3 of $17.7 million, and that includes -- that does include the invoicing for North Cumbria, which we'd expect to come through in the fourth quarter. That's for the Phase 1 deployment and payment. Following some of these strong contract wins we've had through Q2 and Q3, we've upgraded our guidance from expecting to be EBITDA positive to expecting that to be at least $3 million and a full year cash flow positive result as well. We're pleased with the continued interest in our solution across all of our markets and we continue to see building -- the pipeline building as opportunities in those markets enter into procurement phases or they enter into engagement with us. Many of you will know that the NHS has seen a lot of political activity in the last month and we're continuing to keep an eye on that. But we -- even despite that decision for NHS England to be disbanded, which is going to take a couple of years, it's by 2027 and keeping in mind that most of the staff from NHS England will actually transition over to the Department of Health and Social Care. Despite all of that activity, we are continuing to see opportunities come to market in England, particularly around that Electronic Patient Record or EPR program, which still has a number of trusts to go to market. So that is still happening. So I remain optimistic about the opportunity for Alcidion in that market, both for those EPR opportunities, but also, I think, importantly, turning our mind to the opportunity for optimization and enhancing the value of digital investments that they've made in England. It is a world where reduced staff in England and increased expectations on productivity are going to require further deployment of digital solutions to actually transition that from a resource staff heavy environment into one that is producing greater productivity for less people. So I see the opportunity increasing. However, we are waiting to see what the 10-year plan indicates in terms of where those priority areas are. Alcidion with a platform -- digital health platform that is really focused on the use of data to support increasing efficiency in health care is really well positioned as we look to those new opportunities that will be outlined for England from that 10-year plan in the coming months. Before I open up to questions, I also just wanted to sort of touch on the current wider macro environment. One of the interesting areas that's highlighted as a result of sort of recent economic and tariff policies in the U.S. is that a large number of those health tech contracts that we see awarded are actually large U.S. health tech companies, particularly in the U.K. market and some of the other markets that we're interested in looking at. And we are hearing from several customers an increasing willingness to look at solutions outside of the U.S. health tech market. And it may be that Alcidion could be a benefactor of that shift in sentiment over time. Obviously, this will take some time to play out and unlikely to change existing procurements that are in play, but it could be a tailwind for Alcidion as we look to the future opportunities. I'm going to stop there and provide an opportunity for questions. Matt is going to join us and let us know if we have received any questions to date.

Thank you, Kate. Yes, we have received some questions, a couple before the call and a couple during the call. We've had a number of questions on the impact of NHS England, which I believe Kate has answered in the call. So I'll move on to the next question we got before the meeting or before the call, sorry. So we would like -- could you provide clarification for cash receipts expectations in Q4? Will this exceed FY '23 and FY '24? So I think I will take this question, Kate. So Q4 has always been our strongest quarter for receipts. Receipts were $18.6 million in Q4 last year. And as Kate touched on just earlier, we ended the March quarter with $17.7 million on the debt ledger. So with that in mind, we expect Q4 will be as strong or stronger in the current year. So some questions that have come in and there's a few that are very similar. So the first one is, in Q3 FY '24, you noted bids on $200-plus million in EPR tenders, including NCIC, with preferred vendors to be named by end of '24. Have preferred vendors being named now? Can you provide an update on these bids?

I am not sure that I indicated that will be announced by the end of 2024, although I stand corrected if I did. They certainly -- we had -- as I've talked about on these calls before, many of those tenders for EPR bids had been delayed, but are moving now. Obviously, we won North Cumbria. There are other bids still going through their process. So I'm comfortable with where we're at the moment. All bids once they're decided -- sorry, are actually notified to the market in the U.K. And I have pretty well kept people up to date on these calls as to how we've been progressing with those.

Thank you, Kate. The next question is, for new TCV sales of $48.8 million, North Cumbria was $37.5 million, Hywel Dda was $5.5 million and the balance was $5.8 million. What did the balance of $5.8 million comprise of? Were they all Silverlink renewals? Or were there other contracts as well?

There would have been other contract renewals, other smaller contracts, other contracts that are not of a size that get announced to the market. So I can't tell you off the top of my head how many total individual contracts made that up. PCS made up a large part of it, but there were also patient track contract renewals, Smartpage contract renewals. This is a pretty heavy time of year for renewals in the U.K. in particular.

Thank you, Kate. The next question, is the uplift in contracted revenue, so to the $40.2 million versus what was reported at the H1 results attributable to more North Cumbria revenue recognition or other new contracts?

Mostly other new contracts that have come through during that time. I think we're still pretty well in line with what we expected to recognize from North Cumbria.

Thank you, Kate. Another question. Congratulations on this result. I appreciate if you could discuss the following recurring organic revenue growth projections, i.e., patient number growth or CPI-linked fees. And the second part of that question is around the pipeline. I'll ask that separately.

I think that question is saying, what is it that drives any increase in the contracted recurring revenue. And for us, that -- the majority of that is CPI. So there's generally annual CPI increases across our recurring contracts generally built into the contract. However, if the customer increases the scope, so they might want to buy additional modules or they may extend the beds that are covered by those modules and that is also a trigger for increasing the recurring revenue.

Thank you, Kate. There's a question here, which I think I'll probably take. Can you comment on the FX benefit on revenue and balance sheet items and its contribution to the FY '25 earnings upgrade? So we operate a business out of the U.K. We have sterling bank accounts in the U.K., of course, and we receive and remit money in the U.K. in sterling. So like while we do have an exposure, the upside on the revenue is offset by the downside on the costs largely. Similarly, in the balance sheet, it's kind of naturally hedged with your debtors and creditors offsetting each other. So in terms of the question, how much has that contributed to the upgrade, it's very little is the answer. So most of the other questions are around our pipeline. I'll ask this one first quickly, though. It's a short one. When do we expect Hywel Dda to go live?

I think it is around August, September.

Yes, definitely before Christmas, isn't it?

Yes, definitely.

Being an Australian company, do you think this helps secure Australian contracts?

Unfortunately, no, I do not. It is very competitive and there is nothing factored in at the moment. However, I am starting to see quite a change post the tariff situation on the -- at a macro level around sentiment on this -- in this particular area. So we may see some impact of it going forward, but historically, no, I have not.

And before I get to the pipeline question, has there been any churn contract losses in the last quarter? And what have you learned from those losses?

Look, typically, we had very low churn from our customers' perspective. Although I think if not last quarter, then it must -- it was fairly recent that Derby and Burton, people will know, chose an EPR provider that wasn't us and they were using our patient track solution. So they have -- they will be moving to the new EPR providers patient track equivalent type module. And I think if they haven't done it already, they're going to be doing that in the next couple of months. It's a small amount overall. And so there is -- that will happen in a very -- rarely happens, but it's worth pointing out that it does. It's not never, but it's fairly rare.

Thank you, Kate. So we have 3 more questions that are open. They're all largely related to the sales pipeline, but I'll just throw this one in there. So if you could kind of comment on the pipeline and where we're at with that. And are you more excited about Australian or U.K. opportunities at this stage?

Well, I mean, I'm excited about them all, to be fairly honest. I don't probably favor any one over the other. But we are really well placed. We have got some incredibly strong validation out of our deployments in the U.K. and in Australia that our customers are happy to go into print about. So that helps us as we continue to build the Alcidion presence, the value of our software and demonstrate that we can do that quickly because we do it in this modular manner. So the pipeline, what I can say to you, because I report on this fairly regularly, the pipeline is larger today than it was the last time I stood in front of you. The pipeline is made up of a range of opportunities, including EPR opportunities, Flow opportunities, Virtual Care opportunities, Smartpage opportunities, opportunities that come from existing customers and from new market -- new customers. They -- that pipeline that I'm referring to all refers pretty well to Australia, New Zealand and the U.K. We will continue to look at opportunities potentially to move into new markets. And certainly, I think that will be a feature of FY '26 to focus on some new markets. But right now, the pipeline is healthy. The opportunity that is presented to us is there and we're looking forward to prosecuting that in the next 6 to 12 months.

Thank you, Kate.

That looks like all the questions that we have for today. Thank you very much, everyone, for your time. I'd like to thank the Board and the staff of Alcidion for their continued work and of course, to thank you as shareholders for your continued support. Look forward to keeping you updated on a regular basis on our progress. Thanks.