ImExHS Limited (IME) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, shareholders of IMEXHS Limited. Welcome to the 2020 Annual General Meeting. My name is Doug Flynn, Chairman of the company, and I'll be chairing today's meeting. I'd like to introduce this meeting -- sorry, commence this meeting by introducing your Board of Directors and members of the management team who are present or online during the meeting today: Dr. German Arango, our Managing Director; Dr. Douglas Lingard, Nonexecutive Director; Carlos Palacio, Nonexecutive Director; and Tony Thomas, Chief Financial Officer. Damian Banks, who we have announced will join our Board, is also present. We didn't have that position in place in time to be elected at this AGM. Also present online is our company secretary, Peter Webse; and Dean Just, representing BDO, the company's auditor. This year's meeting is being delivered live via webcast as we play our part in the social distancing that is vital as all Australians work together to slow down the spread of COVID-19. And we trust all of you are well and enjoying your shutdown. Due to the government restrictions in response to COVID outbreak, I regret that we are unable to meet with our shareholders personally today. Every effort has been made to ensure that this meeting runs smoothly for our shareholders, including giving you the ability to ask questions regarding the business of the company. Shareholders have had the opportunity to submit questions in advance of the meeting and may ask a question by submitting the question electronically during the meeting. If you have a question already prepared, please submit it now so that I can answer as many questions as possible. I'll address questions in order based on the relevant agenda item number. All questions should be addressed to me as Chairman. I will either deal with a question personally or ask someone who is better placed to respond. We'll do our best to answer any relevant question raised. Please ask the question with the agenda item number to which it relates. I ask that you keep your questions short and to the point so that as many shareholders as possible have a chance to ask a question. It is now at 10:30 a.m. And as we have a quorum of shareholders present, I declare the meeting open. Today's meeting has been convened in accordance with the Corporations Act. The Notice of Meeting was sent to shareholders on 17th of April 2020 and lodged to the ASX on that date. We will take the Notice of Meeting and the resolutions to be considered at the meeting as read if there are no objections. With regard to the format of today's meeting, we'll run through the formal aspects of the agenda as set out in the Notice of Meeting. As previously notified, all resolutions today will be decided on a poll based on proxies that were submitted before the meeting. Before moving on to the meeting -- business of the meeting, I would like to say a few words about the progress of IMEXHS in the past year, and German will provide his presentation prior to moving on to the formal business of the meeting. So we've sent out a -- on the website a couple of -- a slide pack which you may wish to refer to. So 2019 was our first full year as an ASX-listed company, and it's an exciting time to become Chairman of IMEXHS. Although IMEXHS is currently at the small end of the Australian market, it has a big story to tell. And as an innovative and agile disruptor, it has the potential to become a major global player in medical imaging software. Let me note 2 truisms of health care. Firstly, at the macro level, despite decades of advances in digital technology, the cost of health care has continued to rise as a share of GDP right around the world. And secondly, at the coalface, no matter how skillful and well-trained our medical practitioners are, their productivity is ultimately limited by the tools and processes around them. The HIRUKO platform, as envisaged by German and his co-founders back in 2012, addresses real needs and delivers better outcomes for doctors and patients by improving productivity and reducing health care costs. Turning to Slide 4. There are a number of factors that make IMEXHS' business model compelling. To begin with, it has a highly recurring revenue base, which limits earnings downsides during tough times, such as those we are living through at the moment. Secondly, HIRUKO is a critical system, as shown by its customer retention rate of over 95% and the fact that IMEXHS has never been displaced by a competitor. And finally, the cloud-based platform has multiple runways for growth, whether that is via expansion in its core Latin American markets, the development market -- development of new markets in the U.S., Europe and Australia or the leveraging of its cutting-edge technology to create other medical imaging verticals. Slide 5 provides an overview of IMEXHS' global footprint, which currently extends across 15 countries. Over 600 radiologists use our imaging solutions, which are developed by software engineers who are based in Colombia, an emerging tech hub. Slide 6 captures the significant global opportunity with a combined market for radiology imaging systems and picture archive and communication systems expected to grow from $2.7 billion in 2018 to over $5 billion in 2027. I should point out that this figure only includes radiology and does not capture the upside from the development of other verticals such as cardiology and pathology. Turning to Slide 7. I wish to take this opportunity to thank the Board and the executive team for the warm welcome I've received over the past couple of months. In addition, I'd like to thank our outgoing director, Howard Digby, for the significant contribution he has made to IMEXHS, and welcome Damian Banks, who was most recently Chief Executive Officer and Director of Konekt, an ASX-listed tech-focused health and employment business. I'd also like to acknowledge the dedication of our team who have rapidly adapted to remote working practices. We have an outstanding group of scientists, software engineers and business people who are rapidly growing in stature in Colombia. As a shareholder and Board member, I cannot thank them enough for the outstanding work they are doing. I'd now like to invite our Chief Executive Officer, Dr. German Arango, to address the meeting and provide a business update.

Thank you very much, Doug. Good morning, ladies and gentlemen. I would like to add my welcome to today's AGM. 2019 was another important year for the company, and we made good progress against our key objectives: Developing new medical imaging verticals and business models and extending our footprint into new geographies with specialist distributors. We attended the Radiological Society of North America or RSNA conference for the first time and received several international awards which recognize our unique tech offering. Turning to Slide 9. We created IMEXHS in 2012 to solve a dilemma that combined a remote location and limited bandwidth with a global shortage of radiologists. We had a contract to take images and scans at a clinic in the Amazon jungle, but there was no radiologist to do the reporting or interpretation, and the available bandwidth was only 250 k. At the time, the only answer was to develop a teleradiology product ourselves that could be delivered over the Internet and which became the core of our HIRUKO platform. As physicians, we had a clear idea of the sort of functionality we need from both a business and clinical perspective. And within 12 months, we had completed our first client deployment. Seven years later, in 2019, our medical imaging software performed almost 26 million studies at over 270 sites across 15 countries. When we founded IMEXHS, it is fair to say that we did not expect to list one day on the Australian Stock Exchange. The Amazon is a long way from Sydney, but that journey reflects the early interest shown in IMEXHS by our director, Carlos Palacio, and other investors as well as the ASX' support of innovative tech start-ups from around the world. It is thanks to our shareholders that we have been able to make important investments in research and development and enter new markets since listing in 2018. Turning to our FY '19 results. Slide 10 provides a financial summary, which shows strong growth in all key metrics. Total revenue of $7.7 million increased by 34% on the previous corresponding period, or PCP, due to a number of new contract wins as well as the renewal or extension of contracts with existing customers. The company remained focused on growing recurring revenue, which was 136% higher on PCP and represented 85% of total revenue. An EBITDA loss of $4.6 million reflected increased investment in research and development, sales and marketing and radiology services to develop AI tools. In December 2019, we successfully completed a $10 million placement and received significant support from existing and new shareholders. Slide 11 shows that our FY '19 result was underpinned by several operational achievements. These included a strong revenue momentum in our core Latin American markets and the realization of several milestones as we entered new markets. In the key U.S. market, we received FDA clearance. And our debut at the world's leading annual radiologist event, the RSNA conference, generated significant interest and sales leads. We also signed our first Australian contract with Countrywide Medical Ultrasound, and Tecnicas Medicas Milenium became our first European customer. Finally, 2019 was a very successful year in terms of research and development. And we achieved significant milestones, developing new medical imaging verticals and AI capabilities, which further improved our competitive position. Slide 12 shows our research and development priorities in 2019, which enhanced our product offering and revenue opportunities and delivered better outcomes for customers and patients. Slide 13 shows our executive team, and we are extremely fortunate in the talent we have assembled across the company. Most of our highly qualified engineers trained in North America are based in Colombia, which provides us with a competitive advantage in terms of development costs. We also have a close relationship with the largest university in Bogotá, which give us access to their best and brightest PhD students. Slide 14 shows our HIRUKO platform, which consists of 3 key components. Our core platform is made up of a Picture Archiving and Communication System, or PACS, which enables health care organizations to capture and store images for viewing and sharing by radiologists and the -- other medical professionals. This has been combined with a vendor-neutral archiving system, or VNA, which can receive images from all sources. This is important because the ability to achieve images from different verticals on a single platform is a growing requirement of health care organizations. We have a universal web viewer, which allows doctors to diagnose images from any device on any web browser; web portals for patients and physicians, which ensures easy access to images and results; multi-tenant architecture, which is critical to delivering a cost-effective solution via the cloud and online marketplaces. The core platform also integrates Nuance's 360 voice recognition solution, which is fully web, and we are one of the few medical imaging software providers in the world that are entirely web-based. Next, I would like to talk about our enterprise imaging system, which customizes specific workflows for different clinical departments or specializations: Aquila for radiology, Alula for Pathology and ANTEROS for cardiology. Finally, we have our advanced post-processing elements, which are the most sophisticated layer and includes Stella, an AI tool for chest x-ray as well as advanced visualization tools from third parties in Alma and Vital. One of our recent additions to the platform is Braviz, which stands for brain visualization. As a professor of neuroradiology, I am extremely proud of the work our engineers have done to develop advanced post-processing for neurological images, including automatic brain segmentation, volumetry, tractography and embedded statistical analysis for research. Slide 15 shows that HIRUKO integrates all the steps of our radiology imaging workload into a single platform, which means it can also measure the metrics of the business and produce statistics in real time. The core of the platform is radiology reporting, visualization, post-processing and voice recognition, but it also provides practice management functions such as scheduling and billing. Slide 16 outlines our unique streaming technology. Our experience with bandwidth limitations meant that our technology uses server-side rendering to stream the pixels to any web-enabled device, resulting in a fast and efficient imaging delivery. Turning to Slide 17. Our competitive advantage is based on 3 factors, which together enable us to scale the business around the globe. First, accessibility. We are fully cloud-based and can be deployed rapidly and accessed from any browser or location. Teleradiology is at the core of our platform. Second, capability. Our tech is state-of-the-art with a single platform and an archiving system, expanded medical imaging portfolio as well as innovative AI tools and multi-tenant architecture. Third, flexibility. Our modular platform provides great flexibility as we meet the different needs of our customers, whether they are a single clinic or a network of large hospitals. Slide 18 shows some of our customers who vary enormously in terms of size and complexity. Several have approached us, such as Tecnicas Medicas Milenium in Spain, who wanted a teleradiology solution; and AG Mednet in the U.S., who are using our PACS in clinical trials that are being carried out in 40 countries. Turning to Slide 19. One of our important clients, Clínica Las Américas, needed a new solution because their software provider was unable to process the new breast tomosynthesis modality. The hospital network ultimately decided to replace their entire solution with HIRUKO and have since extended their contract to include the new medical imaging verticals for pathology and cardiology. Slide 20 shows that recurring revenue accounted for 85% of total revenue in 2019, and customer retention remained extremely high at over 95%. Some customers have recently renewed or extended their contracts in advance, illustrating the stickiness of our platform. Turning to Slide 21. We have a proven track record of growing ARR, which has increased by a compound growth rate of 124% since inception. At the end of March 2020, ARR was $9.2 million. We have a strong pipeline across all markets, and our inclusion on cloud marketplaces will also support future growth. The diagram on Slide 22 shows that IMEXHS' distribution model is based on a combination of direct sales and exclusive partnerships with specialist distributors in overseas markets. These distributors form part of a low-risk go-to-market strategy, as their experience in selling similar products reduces the sales cycle. The reasons these distributors cite for choosing us over a competitor is that our technology is better, more affordable and flexible, and we offer teleradiology and AI tools. In April, we announced our inclusion on Ingram's Micro global marketplace, which provides another distribution channel which is disruptive and scalable and will assist in selling to customers in rural and remote areas. Turning to Slide 23. We are providing radiology services for a small number of contracts to access images for training algorithms and AI datasets. IMEXHS has also developed an AI tool for detecting faulty pathology on a chest x-ray and are working on another that would split radiologist's work list to improve productivity. There is more than just imaging on the AI development front, and we recently released nonimaging AI tools in natural language processing. Other projects on our AI road map address administrative workflow and include improving the scheduling process and technician workflow. Slide 24 shows that we are well placed to benefit from a number of macro trends in the health care sector. Our focus will remain on growing sales from existing customers through the provision of additional verticals and AI tools and attracting new customers in our core markets, new geographies and cloud marketplaces. Turning to Slide 25. We have had a positive start to the 2020 financial year. Our first quarter activity report showed cash receipts from -- sorry, of $2.3 million, which were 62% higher than the first quarter of 2019 and a closing cash balance of $6.9 million. For the year-to-date, we are tracking in line with expectations across our key financial measures of revenue, ARR and cash. We are in a strong financial position, and there has been no material impact from the COVID-19 outbreak, as the reduction in nonessential imaging has been offset by increased demand for radiology protocols related to COVID-19 diagnosis and treatment. The pandemic has reinforced the advantages of our teleradiology platform, which has resulted in increased sales leads. While there has been some slowing of decision-making in relation to new projects, the pipeline has not reduced, and there has been no decrease in the success rate or size of deals. I want to thank the Board and our team for their hard work and dedication. In particular, I would like to thank Howard Digby for his efforts over the last few years. In the 2 months since coming aboard, our new Chairman, Doug Flynn, has provided valuable counsel and guidance. And I look forward to working with him and our new director, Damian Banks, in the years ahead. And finally, to you, our shareholders, thank you once again for your ongoing support.

Thank you. Thank you, German. We'll now move on to the business of the meeting. As previously notified to the ASX, all resolutions today will be decided on a poll based on proxies that were submitted before the meeting. I declare the poll open, and I will now vote all directed proxies in accordance with the directions provided by shareholders and all undirected proxies in favor of each of the resolutions, as set out in the Notice of Meeting. I can now declare the poll closed. The formal results of the poll will be notified to the ASX after the meeting and will be posted on the IMEXHS' website. I refer you to the first item of business as set out in the Notice of Meeting, which is to receive the financial report of the company and reports of the directors and auditors for the financial year ended 31 December 2019. Does anyone have any questions or comments on the financial statements or reports or wishes to ask a question of management or of the auditor?

I have one question that has been raised, and I will go through that now. But feel free to ask any other questions. A question has been raised about the nature of the company's related party transactions and what steps are being taken by the Chairman to ensure independence and probity with specific questions regarding the Lingard loan facility and the PaaS equipment financing loans. The Board takes the issue of related party loans seriously, and I would like to address them in turn. The loan to Dr. Lingard's related party came about when the company was unable to obtain financing on terms that are considered acceptable to the shareholders primarily due to dilution being offered. An offer was proposed by third parties, which was going to be accepted. And subsequently, a superior counter offer was made, which the Board was obliged to consider and accept as being in the best interests of the company, and that was from Dr. Lingard's related party. Subsequently, the Board has elected not to repay the loan, as it was ensuring that it retains sufficient liquidity, particularly in the current COVID environment. The Board will reassess this when the current environment becomes more stable. In terms of the PaaS equipment financing, these were loans that existed prior to listing and were undertaken when other financing opportunities -- options, rather, were not available to the private Colombian company. It's important to note that these loans will not include -- not only include counterparty risks but have a risk premium because the lender does not receive payment, unless the payer's contract is paid. These loans will also not be renewed when the initial payer's contract term expires. Do we have any other questions? We have no other questions, so I will move on with the resolution.

Resolution 1, as set out in the Notice of Meeting, is to consider as a nonbinding ordinary resolution the adoption of the remuneration report. Are there any questions or comments on the resolution? The proxy votes received on this resolution are currently displayed on the screen. Resolution 2, as this resolution relates to my election as a director of the company, I will now hand the chair to Carlos Palacio.

Thank you, Doug. Resolution 2, as set out in the Notice of Meeting, is an ordinary resolution to approve the election of director, Mr. Douglas Flynn. Are there any questions or comments on the resolution? The proxy votes received on this resolution are currently displayed on the screen. I now hand the chair back to Doug Flynn.

Thank you, Carlos. A resolution is set out in the Notice of Meeting as an ordinary resolution to approve the reelection of director, Mr. Carlos Palacio. Are there any questions or comments on the resolution? There are no questions on the resolution. The proxy votes received on this resolution are currently displayed on the screen. As resolutions 4 and 5 relate to me, I'll hand the chair to Carlos Palacio.

Thank you, Doug. Resolution 4, as set out in the Notice of Meeting, is an ordinary resolution to approve the issue of shares to director Mr. Douglas Flynn. Are there any questions or comments on the resolution? The proxy votes received on this resolution are currently displayed on the screen. Resolution 5, as set out in the Notice of Meeting, is an ordinary resolution to approve the grant of options to director Mr. Doug Flynn. Are there any questions or comments on the resolution? The proxy votes received on this resolution are currently displayed on the screen. I now hand the chair back to Doug Flynn.

Thank you, Carlos. Resolution 6, as set out in the Notice of Meeting, is a special resolution to approve additional capacity to issue equity securities up to 10% of the issued capital of the company. Are there any questions or comments on the resolution? The proxy votes received on this resolution are currently displayed on the screen. Resolution 7, as set out in the Notice of Meeting, is a special resolution to amend the constitution. Are there any questions or comments on the resolution? The proxy votes received on this resolution are currently displayed on the screen. Resolution 8, as set out in the Notice of Meeting, is an ordinary resolution to increase the directors' fee pool. Are there any questions or comments on the resolution? The proxy votes received on this resolution are currently displayed on the screen. Thank you, ladies and gentlemen. That now concludes the formal part of the meeting. I'd like to thank you for your online attendance today. I would also have liked to have said let's have coffee and a -- or a cup of tea, but unfortunately, we're not able to do that. As noted earlier in the meeting, the formal results of the poll will be notified to the ASX after the meeting and will be posted on the IMEXHS Limited website. I now declare the meeting closed and hope to catch up with you as soon as this lockdown ends. Thank you.