ImExHS Limited (IME) Earnings Call Transcript & Summary

Thank you very much, and welcome, everyone, to the FY '22 results presentation of IMEXHS. Today, we are pleased to share our achievements with you and our future plans for the company. We have 2 presenters with us today. Myself, Dr. German Arango, I am the CEO of IMEXHS, and Reena Minhas, our CFO. I will be running through the FY '22 results presentation released to the ASX investors platform yesterday. And it will be helpful if you can have this in front of you. We will open it up for questions at the end of the presentation. Turning to Slide 2. Today, I want to take you through an overview of our company, our operational results and discuss our strategy and outlook, and Reena will talk to the FY '22 financial results. Turning to Slide 4. Firstly, let's take a look at IMEXHS overview. We are one company with 2 businesses that aim to democratize access to medical expertise. We provide innovative cloud-based medical imaging software solutions as a software provider, and we also outsource imaging services, and teleradiology to hospitals, and medical facilities as a radiology services provider. Slide 5 shows our global footprint, which is expanding now with 449 sites in total in 18 countries. More than 3,000 radiologists using our software and 35 distributors, much more mature in countries like Mexico, Ecuador, and some Central American countries. On the radiology services business, we have operations in Colombia, Spain and Mexico with 35 radiology centers and more than 150 in-house radiologists. Turning to Slide 6 and 7. Let me share with you our FY '22 results overview. We have demonstrated the scalability of our business across different geographies with an attractive product and disruptive business model. Our focus now is generating positive earnings and cash flow. We have pulled back from costly direct sales efforts in the U.S.A. and our focus is on sales within Latin America and those product development projects that have a path to profitability in the near term and clear competitive edge in the midterm. Our efforts have paid off, and we are happy to announce that our FY '22 revenue was $17.1 million, up 28% on PCP and 34% at on constant currency. This is a testament to the hard work of our teams and their dedication to delivering high-end services to our customers. We are confident that 2022 will be seen as a transition year to a profitable growing future. On Slide 8, as shown our FY '22 operational highlights. We have continued sales momentum for IMEXHS Cloud with an ARR of $3.5 million from 169 active customers at 31 December 2022. IMEXHS Enterprise and IMEXHS HS Cloud installed in 63 new sites in the year, with a total of 449 installations worldwide by 31 December 2022. Our software contracts in LatAm and outside of Colombia are priced in U.S. dollars. During the year, we announced that the company was awarded a new expanded 3-year contract with a major hospital group, Colsubsidio, for the outsourcing of its entire radiology services network at increased prices and additional services. We also renewed our 2 contracts with Colombia's National Police Force with a price increase of 15% and ARR of $1.3 million. Additionally, we have entered a high-margin enterprise software RIS/PACS 3-year contract with Mexico's Social Security Institute. In February this year, we commenced operations and billing for a new material radiology deal. We flagged this negotiations some time ago, and the contract is still awaiting final signature. We will announce the details when the contract is executed. Turning to Slide 9. We have also focused on cost reduction with a cost-out project addressing the cash cost to the company and improving at the EBITDA level. This cost reduction plan was successfully implemented and completed by the end of Q3 in 2022. We have consequently decreased our run rate operating and software CapEx costs by circa $250,000 per month with a view to moving the company to cash positive. This has driven increased margins with no significant impact on operations. Slide 10 shows our financial highlights. Our sales revenue was up 28% year-on-year and 34% on a constant currency basis. After choosing to exit a customer with a poor payment record, our ARR was down 4% year-on-year, but up 8% on a constant currency basis. Our underlying EBITDA was negative $0.1 million compared to negative $1.4 million in FY '21. Our recurring revenue was up, and we closed cash at $1.9 million and debt at $1.1 million compared to $2.4 million at the end of FY '21. Slide 11. We are pleased to present for the first time the split by business model, software, and radiology, including revenue, ARR, and EBITDA. We will continue to report in this way for future releases. ARR for radiology being below revenue reflects exiting a business with a poor payer at the end of June 2022. As we close business in our pipeline, we expect to see good growth in radiology. On the other hand, we expect to see revenue growth in software as we implement contracted but not yet billing customers. Turning to Slide 12. IMEXHS has a diversified business model with its offerings in the health care sector, including its enterprise imaging platform, standardized cloud-based radiology solution, and outsourced radiology services. IMEXHS enterprise tailored to large complex hospitals and multi-site health care organizations has now 117 customers across 8 countries. The platform has around 10 million new studies per year, up 33% year-on-year. Turning to Slide 13. On the other hand, IMEXHS Cloud, its standardized radiology solution has been successful in penetrating the underserved global market, providing small and medium-sized customers with a low-cost, rapidly deployed product offering. The company has signed 169 deals as of December 31, 2022, and generated an ARR contribution of $3.5 million in 18 countries. On Slide 14. Finally, the company's radiology services offering provides outsourced radiology services, including administration, technicians, enterprise software, training, equipment, if required, our radiologists located on-premise and internal teleradiology. The teleradiology services are predominantly for international customers. Given the magnitude of the operation, the company has become a top 5 player in the Colombian market and a leader due to the high academic profile of the radiologist team. Let me now pass to Reena, who will take you through the FY '22 financials in a little more detail.

Thank you, German. I will now run through the FY '22 financial performance of the company, starting on Slide 16, progress on annualized recurring revenue. ARR of $19.7 million as at 31 December was down 4% versus PCP and up 8% on a constant currency basis. ARR of $19.7 million consisted of $10.5 million from radiology services and $9.2 million from software. The software ARR includes $3.5 million from 169 active IMEXHS cloud contracts and $5.7 million from IMEXHS Enterprise. The increase in ARR reflects new contract wins in the high-margin IMEXHS Cloud and enterprise software businesses and the decrease in radiology ARR largely reflects the company choosing to exit the customer on July 1, 2022 due to a poor payment record, which has been partially backfilled. The chart shows annualized recurring revenue, which is currently billing as well as ARR, which has yet to commence billing in a lighter shade with focus on getting this ARR billing as soon as possible. Turning to Page 17, the income statement. FY '22 revenue of $17.1 million was up 28% versus PCP and up 34% on a constant currency basis. The software and services split of revenue is $6.4 million and $10.7 million, respectively. Recurring revenue represented 98% of total revenue in FY '22 versus 92% in the prior year, which included $1.2 million of one-off sales. The underlying EBITDA loss, which excludes costs in relation to share-based payment expenses, foreign exchange movements, and one-off costs was a loss of $0.1 million versus a prior year underlying EBITDA loss of $1.4 million. Moving to Slide 18, the balance sheet. At 31 December, the company had a closing cash balance of $1.9 million and net assets of $15.9 million. Intangible assets of $8.1 million consisted of goodwill of $4.9 million, software assets, $2.4 million and $800,000 of customer contracts. Slide 19 summarizes the cash flow. The cash balance at December 31, 2022 was $1.9 million versus $4.2 million at the end of the prior year. During the year, a capital raise of $4 million was completed with proceeds used to pay down some high yield debt and fund working capital. Net cash flow used in operating activities in the year was $2.2 million. The work on the cost-out program was completed by the fourth quarter of the year. However, Q4 was negatively impacted by some collection slippage through to the beginning of January. Net cash flows used in investing activities includes payments for software development of $1.4 million and a deferred payment for the RIMAB acquisition of $0.3 million. The cost out program and reduction in software development will see investing cash flow decreased during 2023. Debt of $1.1 million was down from $2.4 million at December 31, 2021, with debt of $1.3 million being repaid during the year. I will now hand back to German to take you through the strategy and outlook on Slide 20.

Thank you very much, Reena. Turning to Slide 21, software development. We have pulled back from moonshot development and introduced much tighter discipline around project definition, resourcing, time lines and ROI guidelines. Our strategy remains to deliver outstanding software and provide our clients access to the most advanced tools throughout our market. Most of our development is focused on immediate product capabilities and extensions that will go to market within months, but we continue to develop software that will give us a key competitive edge on several fronts and that will go to market within 1 to 2 years. On Slide 22, as I said, we believe that 2022 will be seen as a transition year. We were confident in going into 2023 and remain so. We are seeing the evidence of the success of the cost reduction project. We have a better-defined software development program. We have an aligned, motivated, and capable management team improving in their disciplines across the board. Our sales pipeline is quite strong, and we are working hard to convert those opportunities. The number of inbound inquiries has been rising and is now far higher than, say, 12 months ago. Recently, executed contracts and near 10-1s will contribute to growth for much of the year. While not providing guidance at this time, our objective for the year is to deliver solid growth and a cash positive outlook. I will now hand over to the operator to open it up for questions.

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

Most concern to me was the unexpectedly low EBIT margin on RIMAB. I think you generally touched on this somewhat here with some price increases pushed though. Is there anything more you can elaborate on there for us investors?

Hello, Nick. Thank you for your time and questions. RIMAB is essentially delivering radiology services through an outsourcing model, which has, in average, gross margins around 20% to 25%. And in the previous year, we have been doing a big work around the optimization of our cost structure. And now there has been a big improvement that during the year, we were close to the limit. This is something that I can say that is improving and will be better shown in the numbers of the current year. But the previous year was, as I said, a transition year in which we had to improve performance and enhance several fronts like the different of the margins from the radiology services side. We have achieved a few goals and milestones to improve these margins, like, for example, having a better pricing level in the renewals from the 3 main contracts RIMAB has. That said, for example, the Colsubsidio contract is not only bringing new services and increasing the volumes, but it has been renewed with a price increase. The 2 police department contracts have been signed or renewed with pricing increase; one of those with a 15% price increase. Those are the 3 main contracts from the RIMAB business and the reflection of this price increase plus the optimization of our cost structure coming from the cost-out program will represent a much better margin in the near term.

Okay. So I should interpret that as a trough in our gross margin?

Also, Nick, I think the loss of the customer has impacted the lots of the customers that we had in the first half. That was a material customer with good margins correctively, German.

Yes, that's correct. And the margins in that front are linked to volumes. And as there is a decrease in the volume, there is an effect on the margins. Now we are going to the opposite direction, winning volume. And obviously, with the 2 other forces I mentioned, price increasing and cost reduction, there will be an improvement in the margins.

All right. You fix that, and that's a lot of the work we need.

Yes, that's correct. Thank you very much.

Thank you. We are showing no further questions at this time. I'll now hand back to Dr. Arango for closing remarks.

Thank you, and thank you all for taking the time to join us. We are excited about the year ahead and look forward to updating you on our progress. Enjoy the rest of your day.