ImExHS Limited (IME) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the IMEXHS Conference Call on the Acquisition of Radiology Service Provider, RIMAB SAS. [Operator Instructions] There will be a presentation by Doug Flynn, Chairman of IMEXHS; followed by a question-and-answer session with CEO, Dr. German Arango; and CFO, Reena Minhas. Presentation is based on slides lodged with ASX yesterday morning. [Operator Instructions] I would now like to hand the conference over to Mr. Doug Flynn. Please go ahead.

Good morning, ladies and gentlemen. My name is Doug Flynn. I'm the Chairman of IMEXHS Limited. And with me on the call is Dr. German Arango, our CEO of IMEXHS; and Reena Minhas, our CFO. So German is also the principal shareholder of RIMAB. I will leave this discussion, but we'll rely on German for questions at the end. I'll start with an overview of the acquisition. Please turn to Slide 2 of the presentation pack lodged with the ASX yesterday morning. IMEXHS will, subject to shareholder approval, acquire RIMAB SAS for consideration of $8.5 million with estimated purchase price adjustments, which will be satisfied in cash of approximately $1.4 million and shares of around 3.6 million at $1.76 each, being the 10-day VWAP to 3 days prior to the announcement. The acquisition represents 6.6x RIMAB's 2020 EBITDA of $1.5 million and is expected to be earnings accretive to shareholders. RIMAB's 2020 revenue was $9 million and post acquisition on a consolidated basis, $3.2 million. The difference between these 2 amounts relates to related party transactions of $4.4 million in IMEXHS' accounts and $1.2 million in RIMAB's accounts plus a small foreign exchange difference. Now because of this is related party transaction, there has been strict separation of responsibilities of parties, and Dr. Arango has played no part in the Board's consideration of this transaction. Nonexecutive directors have undertaken extensive due diligence in regard to both the company and commercial due diligence of the radiology market in Latin America. Slide 3 provides you with further details about RIMAB. Establishment of RIMAB in 2012 predates a reverse takeover of IMEXHS in 2018. At the time, the Board involved in the RTO decided not to include RIMAB in the float. Over time, IMEXHS and RIMAB have done an increasing amount of business together and had several joint agreements with customers, taking advantage of the practice of outsourced radiology services for major hospital groups in Colombia. RIMAB has shown strong growth. The use of IMEXHS software has facilitated RIMAB's local radiology and internationally teleradiology in Spain. Slide 4 highlights the key benefits of the acquisition. Access to the database of reports generated by RIMAB and IMEXHS radiologists is important to the ongoing development of AI tools to expand and enhance our software offering. Similarly, trialing and feedback of new software releases, in particular user interface and user experience, requires direct and easy access to the user body. RIMAB is profitable, and we would expect the acquisition to be accretive at every level. It is growing and has ongoing solid growth drivers. Importantly, it removes a related party situation and facilitates a path for greater transparency for shareholders. In conjunction with that, we are able to establish a better defined management structure as RIMAB management team will oversee IMEXHS' radiology managed services. Slide 5 shows you how RIMAB fits into the radiology process. Moving to Slide 6. RIMAB is well positioned for growth domestically and internationally. It has a strong presence in the Colombian market with a 5% market share in Bogota and has a foothold in Spain. Its high-quality radiology team and experience using RIMAB software means RIMAB is well placed to expand its presence in Colombia and other countries in Latin America, Spain and the U.S. Slide 7 demonstrates how RIMAB is helping IMEHXS to develop AI capabilities. Developing AI capabilities will provide both parties with a competitive advantage. Access to a growing radiology database with agreement from our clients gives us fast and powerful access for AI training and beta testing for new releases. Slide 8 touches on the future benefits of a combined group. The role of technology in radiology, in particular AI, will increase in the future and benefit both IMEHXS and RIMAB and their customers. Turning to Slide 9. RIMAB acquisition broadens our customer offering in radiology service provision and strengthens our software-as-a-service offerings. Turning to Slide 10. The addressable market for RIMAB in both Colombia and Latin America is huge and driven by increased demand for remote radiology services due to high setup cost, scarcity of high-quality radiologists, turnaround time and price. Now moving on to a timetable on Slide 11. We expect to send out the notice of meeting mid-August for the extraordinary general meeting to be held mid-September. An AGM is required to approve this transaction because this acquisition is a substantial asset and a related party transaction. Related to these matters is an independent expert report. An independent expert report is required to inform shareholders, and this report will be appended to the notice of meeting. Thank you very much. I will turn it back to the operator to field any questions you may have.

[Operator Instructions] Your first question comes from [ Glenn with Wright ].

I was just curious to get some feedback. The market doesn't seem to like the transaction. Is -- any comments in relation to what it might be?

I think the original set approach by the Board at the time, when the RTO was established, was to put in place a pure-play software-as-a-service business. The fact of the matter is though it pretty much always had some radiology services business in it, it's had a significant related party issue attached to that. I've had several shareholders comment on that and seeking us to solve that problem at some point. I think this company is going to remain very focused on the software-as-a-service business, and the development and deployment of our software remains first in our minds and our first priority. What we do have is interwoven businesses in radiology services, and it's profitable. It's growing. And quite frankly, we can do 2 things. We can build that business out and, at the same time, continue to grow and build out our software business. Everyone likes to see their share is going up every day. But quite frankly, if our shares go up over the course of the next year, 2 years, I'll be happy with that as we see our software business grow and as our radiology services business grow.

So the strategy going forward, if I could just ask a follow-on question, to continue to develop the technology but also the physical radiology businesses?

Yes. We -- categorically, we're not changing direction. We're trying to make this clearer for shareholders, provide greater transparency, improve the way in which we're managing this business and not have as complicated a structure as we've had up till now. We're categorically not moving away from our software business at all. In fact, this is -- in my view, this is going to allow us to accelerate it.

Your next question comes from Iain Wilkie with Morgans Financial.

Just looking at the current performance, $9 million in revenues, and then strip that out $3.2 million, can we get an update on the historical performance of RIMAB? So where has it -- what sort of the growth have you guys seen over the last couple of years? And then I guess it might be a little bit more detail, but if you stripped out the IME, so the Aquila product from these guys' business, what would it have been? Because I know that the IME software is sort of almost as a revenue passthrough for RIMAB. So can you just comment on that, please?

So I'm going to ask German talk about the growth of RIMAB over the last 2 or 3 years. And it's going to be -- we declare some -- I'm not quite sure if you're seeking any -- whether you're seeking the split between radiology services and the rest of the business. But we declare $4.4 million in 2020 accounts related real to a global subsidiary contract, and that's the majority of it. But it's going to be difficult to do a deep dive. We intend to split the radiology services up from the software business in our full year accounts this year, 2021, but it's difficult to do it on the fly. German perhaps could comment on the growth of RIMAB over the last couple of years.

Yes. Sure, Doug. Well, RIMAB has been growing -- well, good evening -- good morning to everybody, first of all, and hello, Iain. The growing rate for RIMAB has been significant in the last 3 years, has been, well, growing -- from '19 to '20, there's more or less a 70% growth. From '18 to '19 was more than 100% growing rate. So it's a company that has been accelerating the growth in the recent years.

I think just a follow-up on that, it's Reena here. We do say in the announcement that in 2020, reported EBITDA was 191% and revenue was up 60% on 2019.

Yes.

Okay. That's great. And second question, do you guys see any synergies between the 2 businesses? I mean I know it's sort of a different sort of model. But are there some staffing, which can sort of be integrated into the one central area, anything there?

Let me skip that question. Let me start by saying we don't see a huge amount of cost synergies, but we do see significant synergies on the revenue side. And maybe, German, could you pick that up and take it from there?

Yes. Sure. Well, we think that in some way, we are anticipating the future in the sense of the interaction between technology and radiology practice. We think that currently, there are several crossing pathways, but in the future, there will be more and more integration between the 2 elements. So in -- with this step we are taking, we are probably going a bit ahead in the future in order to have both sides of this integration under our control. In the future, we expect that, for example, the AI will take a significant part the operational activities of our radiology practice. If this is the case, we have one -- we have presence in both sides, and we will be able to take a better advantage of it. So the main thing that probably is going to be positive for us behind all the elements Doug already mentioned is that we are like anticipating what is going to happen in the future.

And just as a -- generally, is there any update to your guidance? I know that for a while there, you guys were saying EBITDA breakeven on a sort of run rate basis by the end of the calendar year '21. So stripping out the RIMAB acquisition if it goes ahead, are you guys still on track to hit those numbers?

With -- we plan to do the update at the annual -- sorry, the half year results, and we'll provide detailed guidance at that time in the same way we did last year. So probably a month early on that question.

[Operator Instructions] Your next question comes from [ Nick Worrall ] with 708 Capital.

You talked about EBITDA in this presentation. What about EBIT, what's the amortization and depreciation schedule like for this business? And what's the CapEx expenditure profile looking forward as well, please? And how much is that going to drag on the resources of IME?

So [ Nick ], I'm not sure -- I might turn to Reena in a moment on your question on EBIT, but this business does have some CapEx attached to it. In the model, each client is not the same each time. So in some cases, we had clients who have their own equipment. In other cases, we provide it. So it's not as CapEx-heavy as a typical radiology services business in Australia but it's not nothing either. So we do have -- we do in circumstances where we are providing equipment. If you think of the Everlight business that's currently owned in Australia by Intermediate Capital Group, that has no equipment. If you think of a business like I-MED, which has its own clinics and all of its own equipment, it's kind of somewhere between those 2 models. We don't run any clinics ourselves in terms of having property and equipment in our own clinics. These are outsourced contracts from major hospital establishments. So there is some CapEx but not as heavy as the typical Australian models. German, do you want to add to that?

No. I -- just to confirm your statement. In the model, the principal business model for RIMAB, which is outsourcing, is not always requiring CapEx. Sometimes, it happens as an internal teleradiology activity, which doesn't require the purchase of any piece of hardware. Sometimes, it requires -- and the degree of investment in that scenario depends on a case-per-case analysis but can go, as you said, from no requirements to CapEx requirement depending on the magnitude. But in the overall, the average of our deals are requiring some CapEx. We have some with no CapEx and some other requiring a more significant portion.

Reena, on EBIT?

Yes. So just based on what you guys said, obviously, there is some D&A going -- well, depreciation going through the accounts. But the acquisition will still be accretive on the EBIT basis.

On the which basis? Sorry.

EBIT, EBIT. So there is some depreciation going through the accounts. It's not -- it's -- the acquisition will still be accretive on an EBIT basis.

Yes. I would assume it would be.

Yes.

And [ EBIT ].

Yes. So there's -- yes. There's a bit of depreciation going through there but not a large amount.

Okay. Also in -- not in the presentation, but in the other accompanying announcement, you talked about the reference there, the consolidated revenue of $3.2 million and EBITDA of $1.5 million. That's -- so all the EBITDA is coming from non-related party transactions. Am I correct in assuming so?

Correct.

All right. So is that indicative of the sort of margin attached to this kind of business?

Say again?

Is that revenue and EBITDA margin, I guess, commensurate with what we should expect going forward for transactions through that business?

I think -- German and Reena?

Well, I think that given there is a spectrum of possibilities in terms of the business, well, it's like all that in average, just is a reflection of what is currently happening from all the business lines RIMAB has currently. So we can expect, in average, something like this.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Flynn for closing remarks.

Thank you very much, everybody, for joining this call. We'll try to make this, right, a good success.