Beamtree Holdings Limited (BMT) Earnings Call Transcript & Summary

Good morning and thank you for joining us today for the Pacific Knowledge Systems Investor Webinar. I'm Jane Morgan, and today I'm joined by our Chief Executive Officer, Ron Van Der Pluijm; and our Chief Operating Officer, Doug Henry. PKS is a health care technology business that provides proprietary subscription-based and advisory business focused solutions for better health outcomes through its suite of products and services. I will now hand over to Ron to commence the results presentation.

Thank you, Jane. And good morning, everybody, and welcome to the presentation. I'm Ron Van Der Pluijm. I'm here together with Doug Henry, the Chief Operating Officer. And what I would like to do is give a brief introduction of myself followed by Doug, who'll introduce himself. I'll take you through the first part of the presentation about overview of the company and the highlights, and then Doug will actually talk more in detail about the products and the opportunities. And the last part of the presentation will be covered by the 2020 financials. So my name is Ron Van Der Pluijm. I've been a health care executive for the last 25 years in the Asia Pacific region. And I worked for a number of smaller companies, large multinational companies like Novartis, Allergan as well as 3M Pharmaceuticals and many some listed companies as well. One of them you might be familiar with of Viralytics, which was sold to Merck Sharpe and Dohme about 1.5 years ago. I've always been in the executive roles, of CEO roles, but always very much focused on commercialization and in particular in partnerships.

My name is Doug Henry. I'm the Chief Operating Officer at Pacific Knowledge Systems. I've come across from the Pavilion Health acquisition recently, where I was the Managing Director and Co-Founder. I've been in the health industry for the last 15 to 20 years, consulting with an IT background for large companies, such as IBM, DST Systems, Computer Sciences Corporation and have had the honor of working throughout Europe, North America, Asia and now Australasia.

Excellent. Thanks. What I would like to do now is share my screen to show the presentation. PKS is a health care technology business, and we provide proprietary subscription-based products as well as advisory services. And we've got a very well established and proven product suite of products. And if I look at the pro forma business, so basically what I've done here is to combine the recent acquisition of Pavilion Health together with the PKS business. We had a turnover of around $7.5 million last year. And very good to see that the majority of the turnover is actually recurring revenue. Up to 75% was recurring revenue. And we produced an operational EBITDA of $3 million, which is around 40% of op revenue, and generated a positive operating cash flow of over $1 million. And that's, I think, especially this time -- today's challenging times, it's very important to have operating cash flow -- positive operating cash flow as well as our cash balance, which is $4.2 million and no debt. So that puts you in a very good position to take the company forward. We are a global company. We've got around 170 customers worldwide. And we have to -- through our direct business, we actually sell direct our products, but we're also working with 2 major multinationals being Abbott and Philips, who are reselling our products as part of their offering. As we recently completed the acquisition of Pavilion Health, which was in June this year, we thought it was prudent to actually give an outlook of what we expect for the 2021 financial year. So our target revenue growth will be in excess of 20%. We're also looking to make significant enhancement to our product portfolio, in particular how we can develop new use cases for our products. And we're looking at how we can best cross-sell and upsell between PKS and Pavilion. Legacy PKS was always very much focused on pathology labs, while Pavilion Health was always much more focused on hospitals. And so what we want to do is use those connections to see how we can best cross-sell our own products. We will continue to focus on recurring revenue with a minimum of 70% and maintain our operational EBITDA margin at around 40%. I mentioned before, we're maintaining our positive operational cash flow generation. And we are always on the lookout to see what we can do with any synergistic acquisitions. PKS works with health care organizations around the world to better capture, manage and leverage clinical expertise. We also monitor and measure and analyze patient activity, and it is all to actually improve the performance of the health care organizations. And we try to enhance the quality of the patient care. So we're actually really looking at how we can get better health outcomes. If we're looking at what pressures there actually are in the health care organization, there's many. Like patient volumes are growing fast under the budget. So normally, that leads to a lot of financial pressures in the health care organizations. Patients are also expecting better outcomes. And there's always a risk of succession. There is -- the medical information grows exponentially, and that is normally concentrated in the specialists that are actually working in a health care organization. And if one of those people would actually move on, you would actually lose that knowledge. And so PKS as a company has developed a range of products that actually overcome those issues. We provide clinical decision support, and it will actually enable better decision-making and lead to an improved patient outcome. We also improved the accuracy and timeliness of health data, and that actually enables to track and enhance the quality of patient care. And again, that should lead to better health outcomes and importantly as well, it would secure funding. We do bespoke analytics and basically have specialist insight and benchmarking to enable health care organizations to improve the quality again of patient care. I mentioned before, we closed the acquisition of Pavilion Health in June this year. And it was -- for us, it was a very strategic acquisition. And some of the benefits that actually -- the significant benefits that actually come from this acquisition is that we can combine the products to provide a broader offering to our customers. So we -- basically, we have got many more solutions to offer to our existing customers. We can also see how we can best expand in that way. So we can actually use the PKS products to see how we connect to legacy PKS product called RippleDown and how we can actually use that into the hospital setting. Those processes have already started. And we've now all the connections that are coming from the Pavilion Health acquisition, it should be a much easier rollout for us to enter the hospital segment. On the other side, about 70% of all health care decisions are actually made based on pathology data. And so if we can actually add pathology data to the data and the data analytics that was done on the Pavilion side, it would make that part of the business much better as well. We're looking at how we can best combine the technology. And we believe by combining the technologies, we can create new use cases around data analytics, but in particular as well around the billing or coding side in hospitals. The billing side in hospitals is mainly manual process at the moment. And by combining the RippleDown rule engine together with the coding programs that Pavilion has, we believe that we can automate a large part of that process. It will lead to incredible amount of efficiencies within the hospital settings. PKS has been always strong in direct business in Australia, New Zealand and South Africa, whilst Pavilion has been strong in Australia and New Zealand, but also in Singapore, the Middle East and Ireland. So this will -- gives us opportunities as well to directly focus on new markets where we can actually sell our products. And of course, by combining the 2 companies, we virtually doubled our turnover. So the skill of the business is important, but it also added a lot of technical capabilities and a lot of experience in both teams. When PKS listed in June 2019, we set out a strategy basically how we could grow the company. And despite all the challenges this year, I'm very pleased to see that many of those objectives have been met. The objectives were really around renewal of some of the major contracts what we had. And from both sides, we renegotiated agreements from like, for instance, with ACT Pathology, ACL, Healthscope as well as with the Victorian government. And we also, and very important one, we renegotiated the agreement with Abbott Laboratories. Abbott sells our product RippleDown under their own name called AlinIQ CDS, and they white label it. And what we've done is renegotiated it -- extended the agreement and renegotiated it where we see how we can better work together to convert potential customers into commercial operations. And if we can work to get it that way, it will be on a revenue-share basis. And so I think that is a big step forward in the agreement between the 2 companies as well as that the original agreement had a flat license fee per customer, and we renegotiated it. When the customers are bigger, we'd actually get more license fees from that individual customer. And if you think about that Abbott is one of the largest diagnostic laboratory -- or suppliers to the diagnostic laboratories in the world, they will have connections with all the major customers around the world. So it's again a very big step forward. As the agreement at that time -- also the agreement with Abbott till that time was that it was exclusive for sales and marketing worldwide. That came to an end as well in the extension of the agreement, and so we've actually set up our own business development resources to sell RippleDown direct as well around the world again. And I'm pleased to say that South Australia Pathology was just -- our first new customer just signed after the end of the financial year. And what I mentioned before, the PKS basically acquired Pavilion Health, which was a very strategic acquisition for us, which was completed in June. Some of these agreements what I just spoke to actually more detailed here. And then I would like now to hand over to Doug to talk about the market and the customers as well as where the products and then the opportunities.

Great. Thanks, Ron. At PKS, we're quite privileged to be in a business where our products and service offerings span multiple global health tech sectors. And that has had a trend of phenomenal growth and shows to be continuing that growth trajectory into the future. In particular, 2 key sectors where we operate include the health data analytics sector projected to grow to $51 billion by 2024 and the health information management sector projected to grow to $31 billion by 2022. In addition, it's speculated that the fastest growth in health care spending will come from the Asia Pacific region, where 40% of global health care spend will occur there by 2028. Independently, both PKS and Pavilion have established a global footprint, as Ron alluded to. Combined, we bring together a business with significant global presence and opportunities for growth, leveraging our existing activity as evidenced by some of our key customers here, including Abbott, Philips, Singapore Ministry of Health, the Irish Ministry of Health and many more. At PKS, we now have an enhanced product and service offering, leveraging the RippleDown platform, which is built on the rules engine that is easy to deploy, requires -- doesn't require IT involvement and allows for subject matter experts to easily build their own rules to replicate the effort and decision-making for results. The RippleDown suite to date has focused primarily on the pathology sector of the health industry as Ron said. Our Software-as-a-Service based application offering through PICQ and RISQ provides our customers tools to improve the accuracy and efficiency and timeliness of their patient-level data, enabling the customers to provide the better health outcomes and to secure their funding entitlements. Again, as Ron alluded to, the focus of the PICQ and RISQ product has been in the inpatient acute care setting of the health care industry. Our advisory services practice leverages our own tools and products to gather data so that they can provide better bespoke data analytics and real-world insights. And it's through our advisory service engagements where we can actually lead to a better uptake of long-term product licensing, and therefore, secure stickier recurring revenue. Our growth strategy at PKS focuses on 6 key areas to drive revenue and earnings. We have significant growth opportunities to backfill uncaptured market share in existing markets, particularly throughout Australia. We'll cross-sell in the existing customer bases of both the PKS and legacy Pavilion customer base. We're well placed for expansion into regions where we've already established a presence, such as Asia and Europe. But our push into North America is key for us, not just in the U.S., but also Canada. We're already exploring pushing our PICQ and RISQ product platforms into the existing channel partners, and the outlook is good. Our Software-as-a-Service based applications aren't only built to scale easily and have high margins, but they're built on base platforms with new and expanded feature strategies, allowing us to increase pricing and upsell easily to existing customers. Bringing together the businesses who have historically operated in adjacent space naturally allows us -- allows for the convergence of technology platforms but even more, it fosters great opportunities for advanced innovation, and we have a great innovation road map to take advantage of this. And of course, we recognize, as with the acquisition of Pavilion Health, the strategic growth accelerates through the right acquisitions. We are and will continue to be acquisitive for the right strategic opportunities. As mentioned earlier, bringing together the technology platforms of the companies and the assets of both PKS and Pavilion provide us great opportunities for growth, scale and innovation in our approach for product development. We'll explore the integration of technologies such as RippleDown into our PICQ and RISQ platforms to expand the product capability and offerings. We'll leverage technical resources as a combined innovation hub, and we'll push into each other's native adjacent space with our base products. Our product development innovation road map accommodates for continued development of existing platforms on their own right, leveraging the subject matter expertise in the respective adjacent space of both companies. The exciting bit will be to leverage the cross-platform innovation for hybrid machine learning and rules-based artificial intelligence for new products, such as automated coding; and new platforms and new analytics techniques, which will pave the way for the expansion into new areas of health. This includes moving into new pathology streams, such as molecular diagnostics and even beyond pathology for the RippleDown product platform and moving into primary and sub-acute areas of care as well as real-time data analytics with the legacy Pavilion product suite. By servicing our customers' needs with new and innovative products to help them provide better health outcomes and to secure the funding entitlements more efficiently and effectively, we, in turn, continue to gain access to world-class patient-level data. And this allows us to stay at the forefront of innovation to continue improving our products and services that we offer to our customers. Naturally, this becomes a perpetual cycle of mutual benefit to our customers and us and allows us to continue growth and scale for our business.

Thanks, Doug. I would like to take you through the 2020 financials, and we try to present them in such a way that they were actually easy to understand and follow. As I mentioned before, PKS as a company only listed in June 2019. So the -- basically, the audited financials were in the annual report last year was only for 1 month. In addition, when we look at the Pavilion acquisition, it only happened in June this year. So we only had 1 month of trading of the Pavilion in there as well. So what we thought the best way of actually showing how the business is actually progressing is looking at the 2019 PKS pro forma financials, so it's basically a 12-month trading as is and we compared it to understand where it is actually sitting in the annual report through the audited 2020 financials. But most importantly, I think to get an understanding where the group is sitting is looking at the 2020 pro forma for the group because it actually shows the 2 individual businesses combined, what that actually means. If we then look at 2019 pro forma, the sales was just under $3.9 million. And with the Pavilion acquisition growing the company, we came to around almost double that to about $7.5 million. Again, if we look at that what it means from an operational EBITDA point of view, again, there was growth of about $2.1 million to $2.9 million or just under $3 million, which is about 40% of our revenue. It's very pleasing to see as well that although we're investing in the business, as you can see in the expenses, it is still a profitable business. So a profit before tax of the pro forma group and as well this year for the audited of just over $300,000. If I look at some of the takeouts for the -- from the revenue point of view, we had 75% was recurring revenue, and I think that puts in a strong position to take the business forward as well. Some of the newer products, such as RISQ, growing at significant revenue at 230%. But I also wanted to take out basically how we assume direct revenue versus indirect revenue. I always believe that it is very good if you can control your own revenue, so basically direct sales. I'm always saying that you have to be realistic as well. With a smaller Australian company, it is impossible to capture the world all by yourself. So to have global partners, and particularly in global partners in -- from the capacity like Abbott and Philips, Abbott is a very good way, positive way forward for our products. But still, it's good to see that the majority of our sales comes from direct, about 85%, and the rest actually comes from our global partners. The other takeout I always look at the revenue is the revenue by geography. As you would expect from an Australian company, a big part of the sales will actually come from the Australia and New Zealand territory. It's how -- it is very pleasing to see that we also can get sales from every continent around the world and that puts us again in a very positive position for growth because we -- there's a much bigger market for us now to capture as well. If we look at the takeouts from our balance sheet, and I mentioned this before, our net cash balance is $4.2 million. And we can see our debt. And the net cash from the operating activities was just over -- we added over just $1 million. So we have a very strong cash balance, and it's a cash flow-positive business. So again, it puts us in a very positive position for the way forward. And with the acquisition of Pavilion Health, our net asset increase was $9 million for the year. I would like to briefly touch on the team and the shareholders as well. For me, this slide that is provided is important. That shows that the 3 executives from the Pavilion Health business, Doug, Paul and Mike, all came over and became part of the executive management team in the PKS company. And I think that's a very positive way forward because it shows also a real commitment to the future of the company. Lindsay Peters, that's the CTO, has been a long time with the company, and [indiscernible] around 1.5 years there. We complement this team. In the next 2 weeks, we have a finance director who will start mid-September. We're also in a very fortunate position that we've got a very strong and experienced team of Board of Directors, people that have actually like listed and grown many companies. And we feel like Mike Hill, Andrew Gray, very strong as well in technology, the same with Brad Lancken, Paul Williams, who's actually the ex-CIO of Healthscope and Stephen Borness who actually came through the Pavilion acquisition, was the former Chairman and Finance Director of Pavilion Health. If you look at our shareholder makeup, we -- it shows that around 44% of all the shares actually owned by the management and the Board. So again, they're very committed to the company, and they've got very big trust in the company. About 25% is owned by institutions and the 30% is free float. On the right, you see what has happened to the PKS share price. As most companies, there was a dip when the COVID crisis actually hit. But it's very pleasing to see from a low of around $0.09 that we're now trading at about 3x, that's out around to $0.27. So it's recovered very nicely from a share point of view -- share price point of view. That brings me to the end of the presentation, and I would like to hand over to Jane so we can actually got time for questions. Thank you.

Thank you. Thank you, Doug and Ron, for that. So we have had a few questions that have come through, and I'll just direct them through now. So FY '20 saw recurring revenue for the group so that PKS and Pavilion combined on a pro forma basis, which grew by mid-single digit. Can the company provide some context to this and help us reconcile this backdrop to a 20% growth expected in FY '21?

So yes. Thanks, Jane. We actually put as a target of 20% growth -- a minimum 20% growth for the year. And if you look before the -- what I mentioned, the underlying growth in the recurring revenue is around 7% a year. It was last year, it was the year before as well. And that recurring growth comes from a combination of episode growth. We actually charge on a per use basis as well as some CPI increases. So that's already a part of that. We mentioned before as well the finalization of the agreement with South Australia Pathology. That's an agreement that could potentially work up to $300,000 a year. So it's another 4%. So we're already at around 11%. Now what we've done as well from a sales point of view, because we understand that the market, and in particularly overseas market with no shareholders, is a bit challenging. In the short term, we've really focused on basically growing further in the Australian market -- Australia and New Zealand market. And a product like PICQ has around -- installations of around 60% of hospitals in Australia. So we're really focusing at the moment on the other 40% that don't have PICQ to actually backfill on that. A product like RISQ, which was only launched at the end of 2019 financial year, we pointed it out before, has had tremendous growth this year. And we believe that every PICQ customer should also have RISQ. So there's an enormous opportunity again for a product like RISQ to actually do that. From a pathology point of view where RippleDown is hitting is that we still -- there's a number of pathology labs that don't have that. So we're working closely with them, including with some of the laboratory information system suppliers to see how we can actually build the right interfaces and approach those pathology that actually don't have our product yet. In addition, we're looking at what we can do expanding our product in the hospital sector. And RippleDown is already being trialed in one of the hospitals in Sydney for an early warning system. So it basically -- it picks up patients that are deteriorating before what is actually happening at the moment, which are basically visual signs. This will actually put a lot of data with that as well. So that will give us another opportunity. So that's just the -- what we want to do on a local basis. Now we also -- we're looking at overseas, and there's an opportunity and there's actually a desire for a lot of companies as well to figure out ways how we can work together with no travel. And at the moment, we're going through a whole process with the government in Singapore to see how we can actually work with them for the next phase of the consultancy projects we did with them, and we do that on a remote basis. And then we want to use a similar system to some of the other international markets we're looking at. And actually, we also still got our affiliate in Ireland, and so we can actually look more at what we can do there, getting around to travel restrictions as well as what we can do basically in the rest of Europe. And working with general partners really helps as well because a company like Abbott has got an affiliate in every country around the world. So the travel restrictions there are far less what we can do. So to work closely with them will also benefit us. So if you look at all those opportunities there and we come out, that's where we say we can achieve a minimum of 20% growth for this year.