Beamtree Holdings Limited (BMT) Earnings Call Transcript & Summary

Thank you, everybody, for joining us today, and welcome to the results presentation for Beamtree of the financial year ending 30th of June 2022. First of all, I'd like to welcome you all to the meeting today. And again, thank you for your time. I'll start this morning with acknowledgment to the traditional custodians of the land in which we meet and pay our respects to those -- their elders, both past and present. Today, I want to give you a quick overview of where -- from a Board point of view, where we see the business and what it's achieved over the year. I'll touch on a couple of the highlights, and I will also then pass to Tim Kelsey, the CEO; and Mark McLellan, who will take you through the product strategy, the highlights in more detail, where the business is going, et cetera, so we can cover off full aspect of the year that's been and the outlook just as importantly on where the business is focused. From a Q&A point of view, there's a chat box, a Q&A tab on your screen. If you do have questions, please feel free to lodge the question at any point in time. We'll keep an eye on those. And if there's any questions pertinent to the points we're talking about, we'll refer to the question at that point. Otherwise, we'll try to pick up all questions at the end of the presentation to allow enough time to ensure we cover off queries. So let me, first of all, say congratulations to the team through the course of the year ending 30th June '22. There's been a lot of achievements with Beamtree. And I must say from relatively humble beginnings when the company was listed under the previous name of PKS Holdings Limited to now today where it's Beamtree. The company is almost 4x the size, is a substantial business with a fantastic range of data analytical and decision support products sold into the health care market, not only in Australia but also internationally. A couple of the financial highlights. I think we should just bring out right upfront because it marks the size and the success of the business thus far. ARR for the year ending is now $18.2 million. That's an increase of 172% through the year. Organic growth within that number, 30% and reported revenues of $16.5 million. So this is not a small business anymore. It's really starting to begin to be a proper business, I would say, and something that you'll see within the long-term outlook that the management team and board is confident that, that growth trajectory can continue. That on the international growth is a significant achievement for the business, not only has it achieved great wins in the 30 June 2022 year, but with a $15.7 million of new contracts signed for international clients for the Beamtree product suite is an achievement in itself and means that our products are not only suited to our own domestic market, but certainly demanded by our international clients. Cash flows and OpEx. The business is $6.3 million. It has quite a large receivables, number sitting on the balance sheet. You'll notice as well. And with investment that's being put into the business through the course of last year. We think careful management of their operating costs and strategic investments into our international aspirations set the business up for another strong year and targeted positive operating cash stories throughout the year. I just want to touch on a couple of the major wins that Tim and Mark will cover off in more detail. But those that would have followed Beamtree would have seen that they signed a very significant contract worth USD 7 million towards the end of the financial year. That's a long-term contract through selling the RippleDown product. A significant win and achievement of the team to be able to deliver a significant contract into an international market and follow suit where the products have been sold before. Also indirect sales channels through the conversations and negotiations that Tim and the team have been having with Abbott Labs continue, and the Board's positively looking forward to some real success through the FY '23 year. I can [ now ] touch on success of the renewal rate, 95% renewals goes without saying that clearly, the customers once they start using these products, get good value from those products and renew those contracts over and over again. And I think we saw close to $28 million of renewals across the term of those contracts through the course of last year. A couple of good acquisitions as well made by the team, Ainsoff, which Tim will talk to and So I will then, at that point, hand over to Mike -- sorry, to Mark for an update on the financial results. Potential(x) the data analytics, business that was acquired last year, add scale, weight and sophistication to the product suite and the growth endeavors that the business has got. I think importantly, in these times, outlook is important. And both Tim and Mark will talk to the outlook of the company. We are calling out a plus 35% like-for-like revenue growth looking into next year, which is a really positive move, July has been a good start for the business. And with the pipeline and execution to that pipeline that is underway as we speak, we are all looking forward to delivering that growth and possibly some of those larger contracts are more international expansion as I've mentioned. So enough for me, there's a lot of slides to get through today. Tim is going to take us through what the products do for those that are new to the story, and Mark will touch across the financial aspects and success of the business so far. So Tim, over to you.

Thanks, Mike, and thanks to those joining on the call. Yes, let's just get cracking. So the next slide, please. So I won't recap on some of the things Mike has just said, but just to put out the importance of the acquisitions to be [ increased ] to Potential(x) is Australia's premier provider of data analytics services in a particularly acute medicine in the hospital space and runs on services the Health Roundtable, which is really the world's leading collaboration of hospitals to benchmark quality and drive improvements. And the second acquisition of Ainsoff, a business which has been pioneering the use of machine learning technology to use RippleDown, our expert system to -- in various hospital applications to, for example, project the deterioration of patients on the general ward. I'll come back to that in a minute, but 2 really pivotal acquisitions, which have given us already some very real revenue value in the entry. Beamtree itself, of course, just to remind those on the call, was launched as a business and organization, a brand a year ago and brings together as we'll see in a second, 4 well-established Australian companies. One point just to make in addition to what Mike had said was that FY '22 was a year of growth, obviously, but it was also a year in which we invested significantly in product and in go-to-market. And you'll see some of the early fruits of that, particularly in international revenue expansion. Next slide, please. So just some highlights again, Mike has touched on these, and I won't repeat them. Next slide, please. So FY '23, we are very bullish about the opportunities for next year. We've already, as I said, and you'll see shortly had some very significant wins overseas for -- across our product range. Mike mentioned the win with Ampath, which is a large South African pathology network which purchased RippleDown towards the end of the last financial year for USD 7 million over the course of the next 5 years, by our largest contract to date and just a really important validation of the power of our technology in automating clinical and administrative process in laboratories and now as we'll see much more widely across the health ecosystem. We have already, in the first month of this year, July trading months reported like-for-like revenue increase, sub sales increase of 17% on the previous year, which is -- we're pleased with and gives us the confidence to be able to forecast a 35% year-on-year revenue growth for FY '23. And as Mike says, that doesn't include some of the bigger pipeline sales that we have -- that we're developing in -- particularly, again, in overseas markets. We do think that the diagnostics services that's RippleDown in particular, driving automation in the laboratory will be a very significant driver of growth in this financial year. But we're also very pleased with the speed and pace with which a series of international customers have elected to a trial the Ainsoff products, these new machine learning applications, both -- and mostly in the U.K. and in Hong Kong as well as in Australia. And we also believe that, that will be a significant driver of growth, particularly in the second half of this financial year. In relation to operating expenses, I just particularly point to the operating cash flow becoming positive in FY '23. As Mike said, we very specifically and deliberately invested heavily in the last financial year as we inform the market at the time of the capital raise back in February of '21 that we would be investing to build a platform for growth and launch the growth strategy, which we're now in the middle of executing. Next slide, please. So this is kind of where we see things. People may remember that we had forecast ARR aspiration of $50 million when we launched the capital raise back in February '21. We're now bullish and believe that, that's going to be exceeded based on the current pace with which all our product lines are developing revenue growth, particularly, as I said, in international context, just to give you a snapshot of how that looks. Next slide, please. So just to quickly recap that on what it is actually Beamtree does and what its product set provides. And I think an important context for this, as Mike said, it's just a very, very high level of retention that we enjoy with our clients. I mean 95% is a rough figure. But generally, our product sets are at 100% retention, RippleDown, for example, where once these products are in play, they are meeting such real pain points with clients that they just don't stop using them, and they're constantly delivering a return on investment, which in most cases is predictable and can be quantified. Next slide, please. We -- as I said before, Beamtree brings together 4 Australia -- very proud Australian companies, 3 of which have extremely long track record of delivery in Australia and overseas. And we now operate globally, putting -- building on those existing technology assets, as I say, with that recent infusion of investment to really put ourselves at the cutting edge now of the use of AI and machine learning to empower our existing services. We have -- next slide. I'm sorry, these are the 4 companies, which make up Beamtree. So Pacific Knowledge Systems, the company which was formed as a spin-out from the Sydney South Wales, which developed the original RippleDown technology; Pavilion Health, building on technology to audit the -- automate the audit, sorry, of clinical record keeping and data integrity. Potential(x), I've mentioned servicing the Health Roundtable and other knowledge networks in health and human services; and Ainsoff bringing machine learning back to our core technologies. We operate now globally across 25 countries with well over 1,000 individual end users. Obviously, that's supported through about 175 clients, some like the Health Roundtable representing multiple end user clients for our services. Next slide. And this is the very heart of the vision for Beamtree, which is supporting the learning health system. And you take these technologies and basically produce a platform, an enterprise-wide solution for health care providers to be able to manage data...

Tim, you just hit mute mic.

No, I'm sorry. So data from its very inception in the hospital where we improve the quality of data through automation through the use of that data and benchmarking and quality assessments, So programs like Health Roundtable really supporting hospitals understand how they are performing in relation to their peers and with great ambition for taking that kind of know-how into overseas markets as we're just starting to do now and then really and then taking those insights from those kinds of benchmarking services into decision support, turning them into rules that can then help improve the productivity and efficiency of frontline services. And that's particularly important as we move to the next slide. That's a particularly important value because at the moment, global health care as recovering as it were from the pandemic is facing possibly an even more fundamental crisis that was presented by the -- by COVID, which is the increasing shortage of workforce. And the -- as a result, there's very rapidly growing demand for technology that improves automation. And what we're seeing across our business is that, that demand is very well met by many of the services we provide in driving supporting clinicians to make more effective decisions as well as driving out administrative inefficiency through the automation of services. Next slide. So these are the 4 product domains that Beamtree operate. The first of those diagnostic technology focused on providing services of automation in the laboratory, the pathology laboratory principally. This is where we have our key distribution relationships with partners like Abbott and Philips. Overseas, we're very -- we're in the middle, as Mike said, of negotiating a longer-term agreement with Abbott. And we will be able to report to the market where that takes us within the first quarter, we expect in the next month or 2 of this year. The growth potential in that sector is very significant and driven very largely by, as I said, this growing pressure to maximize the individual contribution of clinical resources and decision-making. RippleDown just to give you an example, automates in some cases, 100% of the clinical work load in a laboratory reading results, determining the diagnosis those test results indicate and then reporting those diagnoses to the requesting clinician. The second area of our activity coding assistance and data quality is working with hospitals across Australia and around the world. In fact, we are -- we operate with almost all acute providers in Australia to do this where we are supporting them, ensure that the quality of data they are using for billing purposes and for analytical applications is at the very highest standard, again, applying our technology and automation to doing that. We have a number of product innovation investments in this space, one of which is to develop an approach to the automation of what's called coding. This is the process of converting the pretax clinical record in the hospital into a set of [indiscernible] defined standards that can be used for billing purposes and other applications. And one of the big pain points in global health care is the dependence of that process on human beings, expert humans to actually code the records. We have -- we're developing now technology, which will automate in large part of that process. I'm very pleased to announce that our first 2 pilots of our approach to that are now contracted in Australia and in the U.K. The third area of our activity, clinical decision support. This is taking our core RippleDown technology and applying to it some very advanced applications developed by Ainsoff as was. Now Ainsoff of course, as part of Beamtree and the 3 particular applications that we're now taking to market. One of them, the Ainsoff deterioration index predicts the risk to a patient of a sudden deterioration in that condition, and as a result, potentially an avoidable admission into the intensive care unit or worse. And we've now been -- that program -- that product has been run through clinical trial in Sydney and is now being implemented in its first public hospital in South Australia. And initial indications from that deployment are that it really, very considerably does reduce avoidable admission into the intensive care unit alongside a number of other key benefits to both the hospital and of course, the patient. In terms of their outcome, we're now -- we've now won contracts to initiate implementation in a number of other countries, including Hong Kong and the NHS in England. And then finally, analytics and knowledge networks, that fourth key domain that by far the biggest activity there is the Health Roundtable in Australia, but we have now launched a number of related services, Global Health Comparators, bringing together hospitals internationally to share insights that empower performance and improvement. And we are now looking actively to export the knowledge the sort of the approach that Health Roundtable table has taken so effectively bringing together hospitals in a network of cooperation and see whether that has application in other countries around the world. Next slide, please. Just -- I won't go into this in too much detail. Obviously, slides will be available for review, but this just gives a bit more depth into where the products add value, which particular problems they are solving. I think one important reflection is that in a way Beamtree is a company that brings together scientists, computational scientists, mathematicians, engineers in solving a set of problems that revolve really around the automation of human expertise. It's really about ensuring that human experts -- that expertise can be replicated in a way that can be cascaded across clinical teams for maximum benefit on health outcome and on efficient delivery of services. And in each case, we bring a different dimension to that of each of these products, but that broadly is the overarching theme. Next slide. Just some highlights from the year. Obviously, our annual report gives much more detail on this now available on our website and through the ASX portal. But just a couple of quick highlights. We've mentioned the contract agreement in South Africa, which was signed in May last year as well during that month as our agreement with Hong Kong with the Hong Kong Hospital Authority trial application of the Ainsoff deterioration index, a range of other key steps there. And of course, probably in many ways, the most important highlight of the year was the acquisition of Potential(x)back last October. We -- as Mike said, we've had a number of very welcome product contract wins during the year. And these really, I think, should be regarded as the sorts of beginning. What this reflects is a sales pipeline that is massively growing during the course of the year. And we are now looking to harvest that growth during the course of FY '23 and these contract wins are really just in a way that the first evidence of the growth strategy being executed at scale. Next. And just to say that when we did the acquisition of Potential(x) back in October, we were doing that, as Mike said, for a number of critical strategic reasons. And those are already beginning to bear fruit. So we found certainly that the symbiosis, the sort of strategic opportunity for synergy between Potential(x)and Beamtree is very real, looking at a whole range of areas in which we can add value holistically to existing clients as well as opening up new markets. And as I said, particularly with an eye on the international opportunity for developing what the kind of a concept of the Health Roundtable table overseas. So I will then, at that point, hand over to Mike -- sorry, to Mark for an update on the financial results.

Thanks, Tim. Thanks, Mike. I've got 7 slides on the financials, just to unpack the impact of some of the key things that both Mike and Tim have talked you through in terms of what's happened in FY '22. You can see in the slide the full profit and loss for the year and the significant transformation of the business. If you look at the P&L for FY '21, that has been driven by 2 factors, really around Potential(x), which is quite a significant acquisition for us and also by the Board and management team's investment in the business to drive the international expansion strategy. So you can see in the P&L the revenue growth has gone from $8.4 million to $16.5 million, almost 100% for our revenue. The ARR has grown by 172% on the year. In terms of the operating expense cost base, and again, that's significantly transformed from $7.5 million last year to almost $21 million of costs. Some of that is obviously Potential(x) and also the $5 million-plus investment in the business that has been made. Looking at the sort of EBITDA and the operating profit. As I said, the conscious decision to invest in the business has resulted in an operating loss of $4 million for the year and a reported EBITDA of negative $2.3 million, but that was off the back of a conscious decision to invest in the company. Overall, net profit after tax was $4.4 million versus $0.4 million of a loss last year. I'm just going to go through each of the lines in more detail on the next couple of slides. So looking at ARR, ARR for FY '20 was $5.8 million then grew to $6.7 million, and it's now $18.2 million. So that's 172% increase. You can see Potential(x) has driven $9.5 million of that outstanding. You've got organic growth of 30% or $2 million. That $2 million compares to just under $1 million in the prior year. So that's basically 100% growth compared to FY '21. In terms of what's driven that growth, it's probably -- it's been about 50% from the diagnostics business, 25% from our cooling segment and 25% from the clinical decision support. In terms of reported revenue, again, as I said, a transformation in the business. It's gone from $4.1 million to $8.4 million to $16.5 million. That's close to 100% year-on-year growth. In terms of organic growth, it's about 14%. But actually when you unpack that organic growth, a lot of it has been driven in the second half. So the second half of FY '22, the organic growth is around 26%. So a positive second half for us, again, driven by recent contract wins, which Tim mentioned previously. In terms of operating expenses, this is an important slide just to unpack where we've invested in the various parts of the business. Again, you can see OpEx has gone from $3.1 million to $7.5 million and then gone to $20.6 million. So quite a significant change in the business. In terms of that $20.6 million, almost $7 million of that relates to Potential(x) acquisition for 9 months of the year. And then you've got $13.8 million organic cost base versus the $7.5 million. So that's gone up by $6.3 million. Those -- the components of that $6.3 million on the right-hand side. It's driven by -- and we bought Ainsoff in August that we continued to invest, and we've increased the investment in that side of the business. We've also continued to invest in our international sales capability and also domestic sales capability. We also continued to invest in our existing product portfolio. So that's probably the biggest chunk of it, over $2 million. And then we've invested $1 million in back office support to drive that international expansion. In terms of operating profit and reported EBITDA. On the left-hand side, there's the trend in operating profit and on the right side is a reported EBITDA. There's a reconciliation between operating profit and EBITDA on the bottom right. The main difference between the $4 million operating loss and the reported EBITDA really is around a fair value adjustment in relation to deferred consideration. But you can see the overall trend was as we flagged back in the capital raise back in February last year that will be negative this year because of that conscious decision to invest in the business. Balance sheet. Again, Tim and Mike have both touched upon the strong cash position. We had $6.4 million of cash at the end of June this year. That excludes a $2 million receivable from an international client, which we expect to get in a matter weeks. So we've got a strong cash position going into FY '23. And then the other thing I'd call out is obviously the increase in intangibles going from $27 million to $47 million, that's almost entirely driven by the acquisition of Potential(x). And then the other balance I'd also call out is around the -- within the current liabilities, there is $3.3 million of deferred consideration in relation to Potential(x). That is entirely equity-related so not cash and that will be -- that's due 2 years after purchase so some point in FY '24. Cash flow case statement. What we've shown is FY '21, I've also shown in the first half of FY '22 and then the full year FY '22. The reason for that is to show you the trend in the second half. So from an operating cash flow in the first half, it was a negative $2.2 million. Operating cash flow for the full year is $2.3 million. So you can see the second half was broadly cash neutral from an operating cash flow perspective. We spent $2.7 million in acquisitions. That's purely in relation to Potential(x). We also continued to invest and capitalize software spend of $2.4 million. That was $2.2 million in the first half, so it's come down materially in the second half and we've expensed a lot of that. So you can see that captured in the P&L. And then when you work through that, we effectively see our cash going from $14 million at the beginning of the financial year down to $6.4 million, albeit I would add another couple of million because we expect that $2 million in the next couple of weeks. And that's it from a financial perspective and really open it to Q&A.

So Mike, we don't have any questions currently on the chat line.

Yes. Maybe, Tim, just let me throw you one and see if that provokes, but there's a couple of points here. One is where we've invested and where we are today and where you see sort of penetration of that pipeline, both domestically and internationally. Given the basis for the size and scale of the business today, how do you feel about the team's ability to execute and to deliver those early-stage pilots, proof of concepts that customers like the NHS are working on right now. Just take us through a little bit of your thinking around the pipeline and that international opportunity ahead of ourselves here.

Yes. Well, maybe I could do that and break it down into the 4 product domains that we mentioned earlier. So if we start with diagnostic technology, so for those who won't know, RippleDown has got a very well-established track record for driving real value in pathology. And that's been one of the reasons why, as I mentioned, Abbott and Philips both distribute that to clients internationally as well as, of course, we sell it directly. What we've seen though in the last -- well, really in the last 18 months, but particularly in the last year, there's been a very significant increase in demand for services that support automation of clinical and administrative process in diagnostics. And we -- the scale is extremely substantial. So our estimation, for example, is that in Europe alone there are very nearly 30,000 laboratory networks that would be potential consumers of our RippleDown service. And so we're essentially working with partners and directly to develop that pipeline with real success. So just in that first product domain, I think there's a very visible and tangible go-to-market with real scale behind it. In the second of the product domain areas -- and I should also add, of course, that we have a very significant footprint of activity for RippleDown in Australia and again that there is a significant opportunity that is also yet to be met. We don't really -- the competition for RippleDown in those markets is really not -- there isn't a similar service that we're aware of that offers the kind of return that RippleDown does. And generally, the issue for us is simply taking the product to the customer rather than having to deal with issues of competition. The second domain around coding and data quality. We've already established a very mature market presence in Australia and New Zealand. But what we're -- and again, there's still plenty of opportunity there. But the really significant opportunity is taking our expertise, and we have world-class experts in Beamtree in relation to clinical record classification and so an automation of process in that area to other countries that use very related and similar data formats. So we've had success in Ireland and Saudi Arabia, Singapore, countries of that kind. And we anticipate those -- a number of those countries moving towards fully automated service provision by us nationally, so during the course of this year. The third product domain, clinical decision support, which I think is the area where we've had most focus on, kind of early stage trials and implementation. As I said, we've seen really unexpected pace of adoption in overseas markets, in particular. And we anticipate that we'll be able to launch a fully fledged industrialized product during the second half of FY '23, building on those initial sort of proof of concepts and trial implementations that we're currently undertaking. And then the fourth area in relation to knowledge networks, and principally, I said that at the moment being occupied by the kind of volume of Health Roundtable. We do see very significant growth opportunities in developing that model in areas like Global Health Comparators, bringing international hospitals into partnership to share information about quality. And we'll be announcing more details of that and the first members of that network very shortly. So I think in a nutshell, we are -- the world is showing much more rapidly, I think, than we anticipated demand for services that are going to support and meet these challenges of ongoing pandemic management, of work for real meaningful workforce shortage, of general fiscal constraints across health care in any case. And we feel we're very well positioned both with existing products and with the investment we've already made in the product development to be able to meet a lot of that demand. And in terms of the capability of the team to meet that level of demand, particularly as we look to growth during FY '23, we feel very comfortable that we've got absolutely the right team in place with appropriate resource to be able to deliver on the opportunity.

Okay. Let me ask you another question just as we monitor any external Q&A coming through. But just for the audience, maybe you could touch on in a little bit more detail the NHS, in particular, your past experience and how you've achieved to get some quite substantial parts of the NHS signing up for Beamtree products and where that sits today.

Yes. So just for a quick bit of background, I was the National Director in the National Health Service in England for technology and related services, data services. And the NHS is the world's largest unitary health system, has a very proud position of innovation and use of technology, and obviously, faces like other health systems around the world, and particularly given its scale, perhaps more acutely some of the challenges I've just mentioned around workforce and fiscal constraints and so on. So we've -- during the course of the last financial year, we engaged in a series of conversations with some of the health service leaders in England to talk about application of our services from the development of approaches to the automation of clinical record coding through to application of some of our machine learning services, and there's been a tremendous response to the opportunity for those in the NHS. We've now contracted with our first 4 NHS trusts, those are the self-administering hospital networks in the U.K. And I would say that the 4 of our -- the first wave, as it were, of our clients in the U.K. are very much leaders of the -- thought leaders in the NHS. So really building our credentials locally for provision of kinds of game-changing services and decision support and automation. We've now lined up a second wave of hospital partners, which we'll be announcing during the course of this financial year as we begin to develop out and industrialize and move to scale in the NHS in England. So the NHS, which, of course, I know well, has a very significant appetite for the kinds of services we're providing and investigating ways in which technology can really help them manage the efficiency and quality of ongoing service delivery.