ImExHS Limited (IME) Earnings Call Transcript & Summary

Good morning, and thank you for joining us for the presentation of IMEXHS first half '20 result. I am Dr. German Arango, CEO and co-Founder of IMEXHS. And with me on the call today is Doug Flynn, our Chairman; and Tony Thomas, our Chief Financial Officer. Slide 3. Today, I will begin by providing an overview of the first half '20 result and IMEXHS before handing over to Tony, who will cover the result in more detail. I will then address our strategy and FY '20 outlook before opening up for questions. Slide 5 shows that we achieved good growth across our key financial metrics in the first half. Sales revenue of $4.5 million was 68% higher on the previous corresponding period and 79% higher on a constant currency basis due to new contract wins and renewals. Recurring revenue of $4.25 million increased by 71% on pcp and by 82% on a constant currency basis. 95% of our sales revenue was recurring, reflecting our strategic focus on driving subscription revenue growth. Annualized recurring revenue was $8.8 million, up 5% on pcp and 20% higher on a constant currency basis. Our EBITDA loss of $1.3 million improved by $0.5 million on pcp. This partly reflects a change in our accounting policy from the 1st of January 2020 to capitalize software development expenses. Adjusting for $360,000 in capitalized development costs, our EBITDA loss improved by $100,000 on a likely-for-likely basis. Underlying EBITDA excludes the impact of FX and share-based payments. In the first half of 2020, it was $0.8 million, an improvement of $0.9 million, or $0.5 million once we adjust for the capitalization of development costs. Finally, IMEXHS is in a sound financial position with closing cash of $6.3 million at 30th June. Slide 6 provides an operational overview of the first half. We continue to have good revenue momentum in our core Latin American markets, and there has been strong interest in our Aquila in the Cloud offering. Our expansion into new markets is progressing well with key appointments made in U.S.A. and Australia. And we received ANVISA certification in Brazil, which allows us to operate in this market, which is Latin America's largest. Since joining us in April, our new Chief Sales Officer has implemented a new sales structure, which is driving increased customer engagement. Slide 7 shows that we have continued to make important investment in research and development and AI during the half, which included the redesign of Aquila, our radiology information system with multi-tenant architecture, to create a new business model in Aquila in the Cloud; new streaming technology, which has improved the performance of ALULA, our anatomical pathology laboratory information system, to provide whole slice imaging; the enrichment of Stella, our AI engine, with new algorithms such as the new chest CT algorithm for early detection of viral pneumonia, including that caused by COVID-19; development of new architecture so that Vital, Canon's advanced visualization tool, is available on the cloud for the first time and as a part of our Aquila in the Cloud offering. Turning to Slide 8. The first half of FY '20 was marked by the outbreak of COVID-19. We responded rapidly to the crisis with the early adoption of biosecurity protocols in-house to prevent transmission of the virus and transition our employees to working from home. During this period, we maintained our service levels, and our teleradiology capabilities have allowed our clients to have their radiologists work from remote locations, ensuring their safety. The pandemic has led to a slowing of the sales cycle, but the pipeline has not reduced, and there has been no decrease in the success rate or size of deals. In fact, there has been an increase in inquiries as COVID-19 has highlighted the advantages of our teleradiology platform. The reduction in nonessential imaging caused by decreased outpatient activity has also been offset by increased demand for radiology protocols related to COVID-19 diagnosis and treatment. As a result, there has been no net material impact on earnings from COVID-19 for the year-to-date. For those of you who are new to the company, I would like to take a few minutes to give you a brief overview of IMEXHS. Turning to Slide 10. IMEXHS is a provider of medical imaging software solutions that are fully web- and cloud-based. Our HIRUKO platform is a critical system that provides solutions for all complexity levels. We have a customer retention rate of over 95%, and we have never been displaced by our competitor. Teleradiology forms the core of our platform and allows radiologists to view and distribute images from any device and location. We also have a large proprietary image database that we are using to develop AI tools. Slide 11 shows that our competitive advantage is based on 4 key strengths. First, accessibility. Our HIRUKO platform can be accessed from any device or browser and rapidly deployed. Second, capability. We have innovative and disruptive technology. Third, flexibility. We provide scalable modular solutions for all complexity levels. Fourth, affordability. We can deliver a high-quality product at a lower price point than our competitors. Slide 12 shows that our HIRUKO platform consists of 3 key elements. First is our core platform, which consists of a Picture Archiving and Communications System, or PACS, which enables health care organizations to capture and store images for viewing and sharing by radiologists and other medical professionals; a vendor-neutral archiving system, or VNA, which can receive images from all sources; 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 our cost-effective solution via the cloud and online marketplaces. Second, our enterprise imaging system customizes specific workflows for different clinical departments or specializations: Aquila for radiology; ALULA for pathology; and ANTEROS for cardiology. Finally, the most sophisticated layer is our in-house advanced post-processing elements. Braviz, which stands for brain visualization, is a recent addition to the platform. 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 anatomic brain segmentation, volumetry, tractography and embedded statistical analysis for research. We launched our AI engine, Stella, commencing with algorithms for chest CT and x-rays, and are working on several additional algorithms as part of our software development road map. Our platform also integrates advanced visualization tools from third parties in Alma and Vital, which is available in the cloud for the first time via HIRUKO platform. Slide 13 shows that HIRUKO integrates all the steps of our radiology imaging workflow 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 scaling and billing. Slide 14 shows our unique streaming technology. Our experience with bandwidth limitations means that our technology uses service -- server-side rendering to stream the pixels to any web-enabled device, resulting in fast and efficient image delivery. Turning to Slide 15. Our research and development investment in the first half enhanced our product offering and revenue opportunities and deliver better outcomes for customers and patients. Turning to Slide 16. We are providing radiology services for a small number of contracts to access images for training algorithms and AI data sets. IMEXHS has also developed an AI tool for detecting faulty pathology on a chest CT and X-ray and are working on another that would split a radiologist's work list to improve productivity. There is more than just imaging on the AI development front, and we recently released non-imaging 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. I will now hand over to Tony Thomas, our CFO, to cover our first half '20 financial results in more detail.

Thank you, German. Turning to Slide 18. We can see that we achieved strong growth in our sales revenue in the first half. Our sales revenue was $4.5 million for the period. This was 68% higher than the prior corresponding period and 79% higher when measured on a constant currency basis. The increase reflects the addition of new contracts and renewals and the extensions of existing contracts. Looking at our sales revenue in more detail. Recurring revenue is a strategic focus of IMEXHS. The graph on this slide demonstrates the growing importance of recurring revenue to the company. In the first half of 2018, 62% of sales revenue was from recurring revenue contracts, and this has risen to 95% of total sales revenue in the first half of 2020. Recurring revenue was over $4.2 million on a reported currency basis and over $4.5 million on a constant currency basis. This is an increase of 71% over the prior period and 82% when measured in constant currency terms. Moving to Slide 19. Annualized recurring revenue provides a good measure of the continued growth in our contract book. In June 2020, this reached $8.8 million, which is 5% higher than June 2019 and 20% higher when measured on constant currency terms. Although sales activity has been undoubtedly impacted by the advent of COVID-19, we have still achieved contract wins, including Centro Médico Buenos Aires, Clínica Sedna and Hospital Escandón. And we have secured contract renewals and extensions with existing clients, including Colsubsidio, Radiofam and Clínica Los Valles. Turning to Slide 20. We can look at the company's EBITDA performance for the period. As discussed, our sales revenue continues to improve, which is driving an increase in total revenues to $4.6 million, representing a 65% increase over the prior corresponding period. The company's operating revenues increased over the same period by 41% to $6.9 million, with the increase largely driven by radiology services for the large Colsubsidio contract, which commenced on 1 June 2019, and therefore, only had 1 month of impact in the prior corresponding period. Our EBITDA has improved by $1.3 million or 26%, which includes the change resulting from the capitalization of software development expenses of $360,000. So when excluding this impact, our EBITDA on a like-for-like basis has improved by $106,000 or 6%. The underlying EBITDA excludes the impact of net foreign exchange items and noncash share-based payment expenses, which was $0.8 million or a 51% improvement over the prior corresponding period and was a $0.5 million improvement or 31% when excluding the software capitalization impact. On Slide 21, we have a summary balance sheet. Our cash on hand at 30 June was $6.3 million, and we see a continuing improvement in our trade receivables period-on-period, even as our total sales revenue increases. Similarly, our trade and other payables have improved period-on-period. At 30 June, 2020, the company's net assets was slightly over $8.5 million. Moving on to Slide 22. We can see a summary of our statement of cash flows. The cash receipts from customers was up 36% to $4.6 million when compared to the prior period. It is important to note that the prior corresponding period's number of $3.4 million included receipts from large one-off sales from 2018. Our payments to suppliers and employees was $5.5 million, which was up 22% over the prior corresponding period and reflects the increased business activity. As noted earlier, the capitalization of software development expenses has resulted in an increase in outflows associated with investing activities. However, in total, investing activities outflows of $980,000 are down 22% on the prior corresponding period. This has left our cash on hand at 30 June of $6.3 million. Now I'll hand back to German.

Thanks, Tony. Slide 24 shows that we are well placed to benefit from a number of macro trends in the health care sector, and we have multiple runways for growth, whether it is by expansion in our core Latin American markets, development of new markets in the U.S., Europe and Australia or delevering of our cutting-edge technology to create other medical imaging verticals. Turning to Slide 25 and the FY '20 outlook. We will continue to focus on expanding into new geographies and converting the strong interest in our Aquila in the Cloud offering. To date, there has been no material impact from COVID-19 and trading for the second half is in line with our expectations. Looking ahead, we expect revenue for FY '20 to be in the range of $10 million to $12 million. I will now hand back to the operator to open it up for questions.

[Operator Instructions] We do have a question from [ Darren Book ] of [ Rail ].

Congratulations, firstly, on a very good result.

Thank you very much.

My question is with regard to the revenue growth that we're discussing, how do you see the actual license component of that growing on an annualized basis? So we're talking about the percentage increase in total revenue. How do you see the growth in the ARR for the next 12 months?

Okay. Well I will take that question. Thank you very much. And first of all, our main focus is to improve our -- to increase our recurring revenue deals. Our sales strategy is very focused on achieving, as I said, recurring revenue deals, mainly software-as-a-service deals. The new business model, which is Aquila in the Cloud and is gaining significant traction, is very focused on this kind of revenues, which we expect to cause a significant effect on our main -- in one of our main metrics, which is the ARR. We are not giving guidance on the revenue forecast besides the total revenue. But as you may see, we have been improving our ARR comparing to the previous corresponding period in 20% in a constant currency basis. So it's a demonstration of the focus of the company on recurring revenue deals, and the confirmation is the creation of new business models like Aquila in the Cloud.

[Operator Instructions] Our next question is from Antony Sormann of Nero Capital.

Yes. I also wanted just to say well done on a good result. I guess my question is -- I've seen a couple of your, I'll call them, competitor or other similar types of business who charge on a, call it, per transaction basis rather than just an ongoing subscription basis. Have you looked at those sorts of models? And I guess also just trying to get a bit of a feel for the scale of how much you might charge a small practice versus some of the bigger contracts that you're going after.

Well essentially -- thanks, Antony. And essentially, we have been trying to be disruptive, not only in the technology but also in the business models we offer to the customers in our marketplace. Our Aquila in the Cloud business model is a model based on a subscription model, as we have said. And the attempt of this is to standardize the offer to our customers to make a more cost-effective deal for them and also to allow more rapid and easy decisions, also to make it affordable for the small-sized and midsized customers. In the -- in terms of the -- why we have been able to deliver this kind of business model, and the main reason is that we have been taking advantage of our existing technology, allowing us to go in the cloud and do a fully cloud-based offer, which is, again, as I said, very cost effective. And to answer your specific question regarding to the price we are charging to our customers, I can say that we have been able to be even 50% cheaper than our competitors with a better proposal in terms of the functionalities and quality, and still having very good margins in that kind of deals.

I mean, can I just get sort of a sense of scale for a small practice? Is it sort of in the $5,000 to $10,000 type -- per annum type range? Or is it significantly more than that? And how does that...

So yes, for -- well, this Aquila in the Cloud business model is very focused on small and midsized customers. The thing that we -- again, taking advantage of the technology and the scalability of the cloud deployment, we have been able to deliver a very flexible deal for the small customers. In that specific field, we are charging is a subscription model that is based on the volume. So it allows the very small customers to access to these kind of technologies not having a minimum fixed rate. So they will be charged based on the volume of studies they are producing. And in that fair -- if we try to compare our offer to our competitors' offers in terms of the price per study, we can be 50 -- even 50% cheaper and, again, still maintaining a very good margin on that kind of deals.

[Operator Instructions] We do have a question from [ Andrew Lilly ].

Congratulations on the fantastic result. I was just wondering how big is the sales pipeline.

Well Andrew, we're not giving guidance on the sales forecast again. But what I can say is that we -- the size of our pipeline is maintained. We have not lost any significant deal. The quality of the pipeline is also very good in terms [ of study ], including significant recurring revenue deals. And the delivery of the new business model is allowing us to include several new deals, which have an important element to highlight and is -- most of those new deals are coming from different geographies to Colombia. So we have been including recently leads from the U.S., new opportunities from Australia, from Central America, a significant traction from Mexico and most recently from Brazil, where we already have a pilot site. And as we announced recently, we achieved the ANVISA clearance, which will allow us to do a very good work on that new geography.

Dr. Arango, there are no further questions at this time, would you like to make some closing comments?

No. Thank you very much. Thank you for -- thank you all for making the time to assist into this conference call. Thank you all. That's all from our side. Have a good day.