Beamtree Holdings Limited (BMT) Earnings Call Transcript & Summary

I'm the Emma Gray, I'm the new chair at Beamtree. Delighted to be here. And before we start, just like to say we're on Gadigal land, and we want to pay our respects to elders past, present and emerging. And this is my first results call, delighted first half of '24 and really pleased with the progress that the team has made and that we'll share with you. Tim and Mark will go through the highlights. Principally, we're up 24% total revenue versus the same period last year. Our ARR is also up 20%, which is fantastic. And international revenue is up 45% in the same period last year. So some pretty big numbers. Our operating profit continues to track towards breakeven at the end of the year, and our cash position is strong. Now underlying these numbers, I just wanted to call out a couple of key things. So first of all, if you look at our client retention, it's over 95%. It's incredibly strong. So when we get a client, we keep the client. Secondly, I think very pleasingly, we have chosen to focus on a couple of key geographies, so Saudi, Canada and the U.K. And that strategy is really bearing fruit, and it's where we're spending, frankly, a lot of our time. One great example that the team will go through is I think in the U.K., we've now doubled our footprint in the last half. And it's just a sign of us really narrowing in our focus on some really key growth markets where we're seeing a lot of innovation as well as need for our products. Secondly, you'll see -- sorry, thirdly, you'll see deep strategic partnerships is a key part of our strategy. So we've talked a lot about Abbott in the past. And I think you'll start to hear a lot more about our partnership with Lean in addition to that. So they're our partner in Saudi. And not only are we working very favorably with them on tendering, but we're also doing product development with them. So we can talk more about that, and we're seeing the fruits of that. So it's very, very positive. And we do see partnering as a great way of creating operating leverage for ourselves in these geographies. I really look forward to working with the team for the next half. Our expectations are that we will deliver exactly what we said we would. And I particularly enjoy working with this incredible combination of Tim's salesmanship, depth in the sector, not just in Australia but internationally as well as Mark's keen eye for numbers, which has proven to be a really fantastic combination. So with that, I will pass to Tim.

Thanks very much, Emma. Thank you. So just to remind, those who are attending that if you'd like to ask any questions, please feel free to do so in the Q&A box, just writing your questions and we'll work through those at the end of the presentation as they come in. So just to recap on the overall highlights. These slides have obviously now been published on the ASX for those who want to access them. As Emma said, we had an outstanding first half for the FY '24 on track for a very, very good year overall, maintaining very high growth with, as Emma said, 23% increase in reported revenue and 20% in ARR. The growth in international revenue is important for the company. As you know, we have a very strong foundation in Australia and New Zealand, but we have over the last couple of years, been investing in growth in 3 core markets, which are England, Saudi Arabia and Canada. And again, as Emma sort of indicated, we're beginning to really see growth in those markets and paying off the investment that we've made. I'm just going to jump through to the slides just to give you a sense of that 2 slides, I think it's Slide 17. So just to give you a kind of a geographic view of this international growth. So last year, we have 4 hospitals and regions subscribing to the Beamtree program. That's now increased in the last -- in this last half to 8. And we have a good, strong pipeline of other clients on the roster. These English hospitals and regions are focused on the full range of Beamtree products, and we'll come to, again, remind you of the Beamtree Learning Health System and the platform we offer. But in essence, we're focused in 2 specific directions in the English market, where there's real resonance with what we're doing in the current context there. And that is, first of all, supporting data quality. So England has reintroduced what's called payment by results or activity-based funding. And that means that hospitals get reimbursed for the actual activity that they conduct at least for elective treatment at this point. And this has brought a real focus on data quality, and this is where our technology pick provides really important assurance around the quality and underlying data. So hospitals in England now beginning to pull on that technology as they begin to respond to the challenges thrown by moving back into activity-based funding. And at the same time, as the NHS, like other global health systems faces significant challenge, both financially and demographically, hospitals are looking at ways in which they can automate process. And in a sense, substitute for where previously human staff would have been operating processes. Looking at routines in the hospital and elsewhere and looking at how decision support can reduce the need for human intervention. So this is again where -- we're working closely with hospitals using our RippleDown platform and our more modern, more up to the more recent AI innovations to do things like support prediction of the risk of patient deterioration in hospitals. Next slide, please, Mark. Saudi Arabia, the second of our 3 core overseas markets. Again, we've seen real progress in the last half, and we forecast very strong growth in the second half of this year. And again, that's been very focused on data quality. So in Saudi Arabia, there is a major reform program underway at present in which the Saudi government across all sectors, both private and public is trying to create a very modern, digitally enabled health system for its citizens, and we are supporting the national agencies in the Kingdom of Saudi Arabia to assure the quality of the data that is being used for, as I say, reimbursement purposes. So a number of key milestones during the course of the first half. We have completed a very important piece of workforce called the Center for National Health Insurance, which essentially is the national payer in Saudi Arabia to support it developer and information strategy as a precursor to subscription to our recurrent PICQ software. And as you'll see, we reported very significant growth in what we call advisory revenue in the first half of this financial year. What advisory in our context means is a prequalification sale for recurrent software. So we go into a country, a new market. We will undertake an audit of their existing data, and that will lead to the sale of the recurrent software, which supports ongoing continuous improvement in data quality. And that is exactly what we're seeing in Saudi Arabia where we are now involved in several tenders for procurement of our PICQ software. And that -- we're doing that with -- in partnership, as Emma said, with Lean, a very important strategic partnership for us. Lean is a government agency in Saudi Arabia that has been set up to bring excellence to the use of technology in health care, very exciting business there. We work with them very closely, and that's put us in a very strong position to be able to bid for some of these national contracts. And in fact, most recently, as we move into the second half, we're seeing that the demand for PICQ software is not just being pulled on by national agencies, but also increasingly actually by local health services and the first tenders again for PICQ and for related software have now come to the market, and that's Phase 3 there at the bottom of that slide. And then finally, if you just go to Canada, Again, this is accelerating very rapidly. So we won a contract with the government of British Columbia last year to provide them again with our baseline audit of data in the health system. Again, very much envisaged that will move to recurrent procurement of the PICQ software and the number of hospitals are now participating in that scheme has risen to 14. And indeed, I was in Ontario, the neighboring province last week talking to the government there about potentially launching a similar program in Ontario, where there's very significant demand for that service. So that just gives you a sense, I hope, of the geographic focus and the way in which acceleration is taking place in those 3 core markets. If we just go back then to the summary results, I'll just quickly run through the divisional highlights, Mark, just on the next slide, if that's okay. Okay. Sorry, technical issues. So the divisional highlights, just very quickly working through the areas of our activity. So diagnostic technology is the part of the business which we -- in which we retail RippleDown, our proprietary platform for automation in the laboratory and elsewhere. We -- in this space, we have been working, as Emma mentioned very closely with Abbott Laboratories, new contract agreed last year, which is beginning to deliver real fruit in terms of pipeline globally for sales of RippleDown. In the first half, we report 3 new Tier 1 licenses. And our second co-sales is slightly ahead of target there in terms of the number of co-sales we were expecting in the first half of the year. Second half pipeline, very strong in all core global markets, but with a particular focus on Europe, Middle East, Africa and Asia Pacific. In terms of direct sales, we -- our sales team obviously operating particularly in Australia and New Zealand, but also in the U.K., has had great success, and we point here to a particular client Reference Point, Coventry & Warwickshire, in which we are progressing strongly with a client for implementation of RippleDown, and that provides us with a very important reference site for the rest of the United Kingdom, where there's tremendous interest in how RippleDown can support productivity, automation in the laboratory service. So real success in diagnostic technology. The second domain clinical decision support. This is where we are providing AI technology to support the prediction of patient deterioration in the hospital, very new technology, as I think, people will be aware have been through clinical trial in Australia. And it's had a number of very significant peer-reviewed publications confirming the impact and quality of this technology in terms of reducing adverse events for patients and hospitals and in fact, the cost of their treatment. We're now seeing real sales momentum first half. In particular, I'd just point to a new agreement with Gold Coast Hospital and Health Service in the -- in Queensland Center for innovation digitally in Australia. We're now implementing ADI with them and also with Hong Kong. So Hong Kong has a large number of hospitals, all operating in a very advanced state of digital maturity and very excited to be one of the first movers in using the power of AI to keep patients safe in their hospitals. In the United Kingdom, we now have 4 hospitals who are participating in trials of ADI in the country. So that's all good momentum for clinical decision support division. Coding and data quality. So I've touched on that a little bit already. So as I've said, significant real growth in our core markets. However, also in Australia, Zealand, we're having real success. And as Emma mentioned, we have very high levels of client retention. We really haven't seen any churn in our ANZ marketplace with coding. Quality, even though we have actually implemented a price uplift, which was somewhat overdue, frankly. But we've seen clients really value the quality of the products and very low churn in that space. So a very strong story there in relation to coding and data quality. And we expect that growth to continue and accelerate into the second half of this financial year. Finally, analytics and knowledge networks, very strong entrenched membership at very high levels of renewal for the new -- for the program we offer. And just to remind people, knowledge networks is the biggest part of that program is the Health Roundtable, which provides benchmarking services to around 200 public hospitals in Australia and New Zealand and, in fact, some private hospitals as well. We have been working with the Board of Health Roundtable to transform the membership experience through a program of digital transformation, which will be completed by the end of this financial year. But already is generating real excitement among the membership and will allow us to do a range of new analytic services as well as to make the cost of data extraction for participating members much lower. So just some updates there. So if we move to the next slide, this just tells the story. Well, I think it's been an extremely successful 2 or 3 years for Beamtree, really growing increasing in excess of 20% annual ARR. We expect that growth rate to continue into the second half this financial year and supporting us on the trajectory towards the $60 million ARR that we are forecasting for 2026. Profitability, again, a very important target for us. We have said and will be profitable by the end of this financial year. And as you can see progress in that direction has been well served in the first half of the year. Whilst we are, of course, still continuing to invest and making some significant investments, particularly in international business development and notably, as on the slide here, the appointment of Marek Stepniak as Chief Growth Officer, with very long and distinguished career in international health care and Mark, both have the maturity of Beamtree as it grows, but also the opportunities that lie ahead for us. I'm just going to turn to Mark here, just to take us -- just to remind us of the target we have for the $60 million and how that's made up.

Thanks, Tim. I think this is a slide that we've shown previously a couple of times. But again, the long-term horizon is no change for us. We're targeting $60 million ARR, we're announcing '24 a bit at December '23. Again, the main drivers are reasonably consistent with what we disclosed. The first one is really around customer retention and upselling to the existing customer base. That's -- we have a business that is the legacy is within ANZ, and that's still a really core part of our business and growing in that market and upselling to existing customers is a focus for us as well as the international expansion. Having said that, we expect about 70% of the growth will come from the overseas market, which Tim has sort of talked about the foundations that we put into some of these countries and the growing profile we are developing. We've also talked about the partnerships. So Abbott is a key partnership for our diagnostics business, and that will continue going into 2026. We are focused on the international direct sales of RippleDown as well. And then Tim has also talked about the clinical decision support, this new product, so that is a greenfield product. We are very excited about the capability of that product. It will take time to mature, but we're having very positive conversations with hospitals about the benefit of that product. And then the sort of dark pink segment of us is around the coding side. Again, you can see what Tim alluded to, both in Saudi and Canada and the U.K., the entry point into these markets is coding and data quality. So we do expect the international expansion will drive a lot of that growth. And then the anchor point is the analytics and knowledge networks. We've spent a lot of time investing in this new data platform, which will go live at the end of the financial year. And that will provide a foundation to look at adjacent markets to that and also international markets. So that will drive that segment of the business.

Okay. So just in terms of the outlook, I'm back online. So in terms of the outlook for FY '24, no change to the forecast we gave actually at the end of the last financial year. As we move to the second half, so still very much standing by the forecast of $60 million by 2026. But full year growth will be in excess of 20% in FY '24. And perhaps most importantly, we'll be delivering positive operating profit by the year-end. I just very quickly before I hand over to Mark just to take us through the financial results, I just wanted to quickly remind those on the call of the Beamtree platform. So if we just go to the next slide, Mark, -- there are some slides in the deck which cover our more kind of strategic offer, the product offer, which I won't go through, but there for you to read if you wish to. But just very quickly, this slide captures the narrative products narrative for Beamtree. So Beamtree essentially as a platform which supports the Learning Health System and has 3 components to it. The first of those is our product set that supports data quality. So foundational requirement for all health services around the world is to have confidence in the underlying data that is reporting the activity and quality of outcomes in health care. Without that, very little can be done. And crucially, the financial health of the system is deeply affected by errors in that data. So misreporting activity leads to misallocation of resources or if you're in a private sector under reimbursement often for services provided. So data quality a really key priority for health systems as we've seen around the world, particularly at a time of such financial constraint in public health services. So there we have products like PICQ and are developing new products around automation of that coding process and actually integration of the whole workflow of coding across the hospital. But at the moment, we're promoting PICQ and RISQ existing products into that market environment. The second component of Beamtree story is that if you have data, you can rely on, then you can use it for benchmarking because clinicians will take it -- will find it credible. And here, of course, we operate the Health Roundtable and the Ability Roundtable, which is a similar comparative benchmarking service for disability providers in Australia and New Zealand. We are now not only building out the offer in the Health Roundtable, as I've mentioned, with its digital transformation, but also finding international pull on the opportunities for exporting the Roundtable to other parts of the world. And the third component of the Beamtree Learning Health System is, if you have good data which is clinically credible. You can use it a benchmarking. That benchmarking will reveal areas of variation that you will want to reduce and to support that decision support, giving frontline staff the ability to be able to manage down variation, a really important priority for health services. So here, of course, we have our RippleDown technology, supporting that those decisions supporting the efficiency and productivity of health care, and we provide RippleDown both in the laboratory and into the hospital, and have other related AI applications as we've heard. So just to give you a quick sense of the Beamtree Learning Health System and how our clients face onto our services. I'm now just going to hand over to Mark to take us through the financial results.

Thanks, Tim. I'm on Slide 22, I'm just going to step through the kind of key financials for the first half of FY '24. Slide 22 shows the annual recurring revenue growth. You can see the annual recurring revenue at December '21 versus December '22 versus December '23. The organic growth has been 20%. It's gone to $20.1 million to $24.2 million, the main drivers of that ARR growth has been diagnostics and the coding product as well as the international growth and the international revenue growth or the international growth is about 36% of our revenue and it growing at 45%. So that is a key driver going forward. In terms of reported revenue, the reported revenue in the first half of FY '24 was $13 million. The previous year, it was $10.5 million, and prior to that, was $7.1 million. And this slide shows you our organic growth half on half. And you can see the uptick in organic growth in the current first half of FY '24 of $2.5 million. And kind of key driver of that has been the activity in Saudi Arabia and Canada. So they are coding audits. So there's -- like there are advisory consulting income, essentially a precursor to recurring revenue growth. So the Saudi and Canada contributed about over $1 million of that $2.5 million. The other contributors to that growth were coding where we did the recent price increase as Tim said, longer we do. And then in terms of the success in the knowledge networks are being driven by product upsell and actually new customers into that domain of our business. And we continue to also grow in the diagnostics side with our partnership with Abbott. In terms of OpEx, what we had said at the beginning of the financial year is that we would grow -- our OpEx would grow less than our revenue. So our OpEx grew by 19% versus revenue growth of 23%. That we are very careful about where we invest in the business to support our international growth. In terms of employment expenses, they've gone from $8 million to $9.3 million, so that's the dark purple segment of that bar chart. That $1.3 million is really driven by investments, specific investments we're making around our additional capabilities to drive both the international revenue growth, but also our capability to support our existing customers and new customers. So we've got the Chief Growth Officer. We've got new Head of Insights & Analytics. And then we've also invested in new cyber security capabilities as well. So there's sort of a number of insights into that. What's driving that employment expenses increase. And for the nonemployment it's gone from $3.4 million to $4.2 million, so up $800,000. That's been driven by investment into cyber software tools, higher hosting costs predominantly FX-driven and then increased insurance. And then also, we continue to invest quite a lot in travel costs to support our international growth. From an operating profit trend a pleasing first half. So despite that investment, we delivered a similar result to second half of FY '23, which is a very strong half for us. So you can see the pleasing trend around operating profit half-on-half. So we made a $4 million loss in FY '22, that went to $1.4 million loss in FY '23. And then we started the first half of FY '24 with a $0.5 million loss. We are on target to produce a full year profit in FY '24. On the right-hand side, this is providing full transparency on the part from operating profit to EBITDA, consistent treatment over the last couple of years. You've got -- the top half of that table is nonoperating expenses that have a cash impact, and they total about $100,000 and then you've got nonoperating expenses that a noncash item, noncash impact and they're about $300,000 in total. So you can see the operating profit going from $0.5 million to a reported EBITDA of about $800,000. So just in summary around the P&L, first half '24 versus '23, revenue is up 23%. OpEx is up 19%. So that's allowed us to improve the operating profit position of the business by 38%, and the EBITDA position by 63%. So a very pleasing first half in terms of profit. Cash flow, we have $5.1 million of cash at the end of December '23. So that's a strong cash position. We have -- the cash has gone down mainly for two reasons. One is we're expecting $1 million from an international customer that will come in the second half. We've already got $600,000 of that in January. And there was some catch-up payments to creditors in July and August that brought the -- of about $1 million, so that brought the cash balance down. We do anticipate the second half will be materially stronger from a cash perspective, and we start going into the second half with a $5.1 million. So we're comfortable with that position. In terms of where we're investing. So we continue to invest in our software products. And so you can see we spent $2 million on those products and capitalize those. That has -- obviously, when we did the annual results for FY '23, we guided to an increase in that spend driven by the new data platform for analytics business. And we anticipate that spend to go up to $4.2 million for the year. As we start to invest in a new integrated coding platform alongside Lean. Important to pull out that the coding platform is being funded by -- jointly between Lean and ourselves as well as the data platform has also been funded by Health Roundtable and by Beamtree. So we are receiving contributions from both our partners on that spend. And then in terms of cash flow from financing, there was an issue of 6 million of $0.10 options during the period as well as over $100,000 from the directors tied to the capital raise commitment, we made last year. Balance sheet. The balance sheet is reasonably simple for this business. I would say the kind of two things I'd call out. You can see the trade and receivables up to $6.1 million, that's includes a $1 million that was due from international. And in terms of the trade and other payables have gone from $5 million to $3.1 million, as we paid down some trade payables in the first half. And then the final point I'd make about deferred consideration they were paid out during the first half. So you can see that come off the balance sheet in December 23. So I'll hand over to Tim, just to final.

Yes. Well, thank you very much, that's the summary there. So I'm just looking at some questions that have come in. I'll just quickly run through those. We're at time in 30 seconds or so. To clarify is the company looking to have a positive operating profit in FY '24 or for all of FY '24, that is for all of FY '24. Any guidance insights you can give into investments in second half '24. Mark?

In terms of investments?

Yes.

Yes. Well, we will continue to invest in the data platform, which we're capitalizing and then also around this integrated coding platform project that we're doing with Lean, so that, they are kind of a key investments. And we continue to invest in the international development. So that -- in the other main areas.

Yes. And are you comfortable that there are sufficient cash to deploying capital and market share with particular reference to competition in the market space? so we are comfortable that we've got adequate cash to do that. And we are -- when you say competition in the market space, we are, at the moment, progressing very well in relation to the competitive advantage of our products confer on the clients, particularly in the 3 markets we've talked about and obviously in Australia, but very -- not complacent at all about the fact that competition -- these are really growing market opportunities, competition is obviously developing. So we need to, as I think the question is inferring, maintain our levels of investment in our products to ensure that functionality keeps -- is at the cutting edge of competitive advantage, which is exactly what our strategy is.

Can I just -- again, one of the questions is, is the company looking to have a positive operating profit in FY '24 or for all of FY '24. So just to be clear, we made $0.5 million loss, operating loss in the first half. And we are saying that we will make more than $0.5 million profit in the second half. So overall, will be profitable for FY '24.

Could Beamtree -- final question and then we'll close. Could Beamtree expand into the genomics industry by adapting the RippleDown software for genomics. That's a really interesting and important point. We are, in fact, working very closely now with the institute for position diagnostics in England, and that does start to leave us in the direction of genomics. And certainly, RippleDown does have application in that space, but that's something to keep an eye on and we'll keep people posted as we move into that area of clinical activity. If I could just finish by saying thank you to all those attending and in particular, thanks to our amazing Beamtree team for the incredible effort and passion they bring to helping global health care, improve the quality and it serves to patients. Obviously, I'd like to thank the customers who are giving us the privilege of working for them, and also to thank shareholders and our Board for their continued support and leadership. So thank you to all on this call, and thank you very much.