Mach7 Technologies Limited (M7T) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Mach7 Second Quarter FY '25 Business Update. My name is Francoise Dixon, and I'm Head of Investor Relations for Mach7. Today, our CEO, Michael Lampron, will provide an overview of our first half results. We will then open it up for questions, which will be answered by Mike and our CFO, Dyan O'Herne. [Operator Instructions] I'll now hand over to Mike for the half 1 update.

Thank you, Francoise, and welcome, everyone, to our first half FY '25 investor presentation. We're going to take a quick spin through a business overview, discuss our product offerings and some differentiators. Then we'll get right to the first half results and we'll finish up with some comments on the outlook for the rest of the fiscal year, along with questions that all of you may have. So, just to review Mach7 and sort of our purpose and why we get up every day. We enable exceptional patient care by empowering health care providers to make more informed decisions. The intent of Mach7 is to be able to provide imaging and information data to any clinician when they need it to make decisions on how they treat and diagnose patients. Our offering goes beyond just radiology and towards other specialists and we do this through an innovative data storage and management solution, along with an image viewing solution. Some of the unique value propositions of our company. We're an interesting sized company. We are a global company, but we're small enough to still have a personal touch. And it's actually a differentiator for us in the U.S. market. The fact that we are a public company, I think, actually works to our advantage because our clients have a lot of visibility to our business that if we were a typical entrepreneurial private institution in the U.S., clients wouldn't get the information they do on Mach7. That helps give them some reassurance of the stability of the business. And with the size, we're really able to build a personalized service for our customers and that's something that our clients really appreciate. From a deployment perspective, we deploy in the cloud, we deploy it on-prem. We give our users ultimate flexibility. They can use hardware that they've already invested in. They can buy new hardware. They can change out their hardware at any given time. Not only is our model flexible, but our solutions being independent of one another offer modularity so that as an institution grows, those modules may make more sense in the future or they may make less sense. But you don't have to rip and replace technology to either add on or replace. And that's a differentiator. That's the independence. And our customers have said to us that they no longer want to be held vendor captive. So, the concept of having independence and giving our customers flexibility so that they can make decisions into the future is a big value-add for them and something that's a little unique to our company. From an ongoing perspective, built for the enterprise, again, reiterating the concept that we weren't built just for radiology. We were built for imaging across the enterprise. We are a highly performance solution. And we have a very, very strong universal viewer for radiology and for outside of radiology. And we've got great workflow that's enabling both the acute care sector and the non-acute care sector. So multiple sectors, great breadth of offerings and breadth in the sort of the geography of which we cover between APAC and North America. The actual offerings that we have, our 3 central product offerings are on the Enterprise Data Management side, that's our VNA. That's sort of the brains of our solution. That's where all the data management happens. Our Enterprise Diagnostic Viewer, the eUnity Enterprise Viewer, that's our zero-footprint diagnostic viewer for radiology. And then on the Workflow Orchestration side, we have the Communication Workflow Engine and that is unique to us. It offers tag morphing, data anonymization, life cycle management, routing, HL7 workflow rules. Our VNA, along with this Communication Workflow Engine is different than many other VNAs where traditionally, VNAs have been behind the PACS solution. So, images go from the modality to the PACS to the VNA. Typically, with our deployments, it goes from the modality to the VNA then on to the PACS because our routing capabilities are typically faster and superior to those within a PACS solution. So, it's a little bit of a different way of looking at the technology stack. And again, it doesn't matter if it's acute care or non-acute. It's the same technology stack. From a strategic perspective of where are we spending our time, again, we talk about these pillars pretty consistently. Cloud Enablement is where we're spending a lot of time right now on the R&D side along both products. Both products are a little -- one product, the eUnity product is a little further along than the VNA product on Cloud Enablement, but they were both -- we're bringing both products towards a native cloud environment, particularly in the Azure and AWS environments from a hyperscaler perspective. On the Service and Supportability perspective, this is really about continuing to evolve our products and using the innovation of R&D to make our products more deployable, creating templates, creating the ability for us to deploy our product with a bunch of customizations already built in, which will make the product that much easier for the implementation engineers and the deployment team to roll the product out to our customers. Along with that, tools for supportability, proactive support tools are very important to us, trying to utilize different third-party AI applications for predictive analytics is an important part of what we're doing from a supportability perspective. And on an Integration and Interoperability perspective, enterprise viewing, enterprise management, enterprise solutions, all of that is to say that no one vendor can do it all. And so whatever the backbone is of an enterprise solution in regard to a hospital and imaging, you have to have the ability to integrate to multiple third parties to make a complete solution. There is no vendor out there who does it all. And that's a really important component to give all of the customers the end product that they need so that they are empowered to make those good clinical decisions. A great example on the interoperability component is our new offering with the UnityVue. UnityVue is a collaboration between Mach7 and Nuview. You'll see Nuview has several partners, but it's a little unique with us in the sense of this integration with our viewer is truly unique. They have built a work list that's creating a radiologist cockpit and it's giving radiologists a lot of capabilities that they otherwise haven't had, whether it's from -- a lot of the worklists are the same that are out there in regard to their ability to triage, their ability to assign different studies, their ability to have subspecialists. Nuview really concentrates also on its ability to really help in the teleradiology format and help with RVU assignments and build in some AI capabilities to take into account availability of radiologists spread across a country, spread across hundreds of locations and be able to allocate that work. So, UnityVue is meant for disparate solutions, disparate health systems, whether it's an IDN or whether it's a radiology practice with multiple radiologists spread across the geography. There's a link here where I would encourage anyone to go out and watch the product video. It gives you a great description of exactly how UnityVue can help customers. We're getting a lot of great traction on this product offering. And again, just a great example of how we look at interoperability. So, as we came to the end of the first half of the fiscal year, we thought it was a good idea to talk a little bit about progress that we've made so far. Broke this up into 3 categories. We'll talk about the left-hand side here first, the team side. So, we've spent some time since the middle of December, thinking about how we want to realign our sales team to focus on net new sales and customer success. As we looked at that, when we met with the sales directors within the organization, we realized that close to 50% of their time was being allocated to existing customers. So, 50% of their time allocated to the existing installed base and not out hunting net new logos, which is a focus of our company. But there's another focus of our company around customer success and customer intimacy as well. So, this realignment process really has to do with making sure that we've got the right number of people focused simply on net new and net new only and then the right number of people who are dedicated to the installed base and our customer success and making sure that those clients are happy and that the land-and-expand model continues to thrive within the organization. So that realignment process is underway for us. And look, it's an ever-evolving thing. And right now, we think that's the best way for us to have laser focus on 2 of the really big goals for the business. We've finished our investment in our 3 strategic pillars within the first half of this fiscal year. And at the same time, we've taken a really close look at the business. We continue to take a look, but we have a close look at all of the costs in our business and where we can drive out any operating costs to sort of start eking out more leverage to the business and making more progress towards our recurring revenue covering our operating expense and working towards better and better profitability. It's an ongoing process, but there is an active costing out initiative within the business at the moment. On the customer side of things, again, focusing on those net new logos and the conversion of that pipeline, but at the same time, concentrating on the installed base, driving sales orders for revenue growth through the installed base, right? Two separate components, both contributing to revenue. And then the creation of this customer success team. We used to have what we call the more of a standard account management team. And now we've refocused them and we established how we want them to operate and that's the foundation for our new customer success team that we're building. On the product side, leverage and the investment in product innovation, we want to continue to invest in innovation. And investing doesn't always mean money, right? Sometimes when I talk about investing, it's investing time and energy, human capital towards reaching a goal. It's not always about money. In our case right now, our innovation is going to come from the R&D organization as it stands today, along with the product team, along with feedback from all of the services and support organizations and our marketing organization to bring that feedback from the customer to the product team. And we've had a lot of really good positive feedback from our customers on UnityVue and it's getting some good traction from a sales pipeline perspective. So now, we'll sort of get into the meat of our results here for the first half, delivering strong growth in CARR and ARR and revenue. We've achieved positive EBITDA and NPATA as we continue to grow that revenue. We have introduced some cost discipline and we're driving towards operating leverage. And our recurring revenue made good progress covering our OpEx in the first half of the year. We did that while being able to invest in our people, our processes, our tools, again, driving that growth and innovation. We were able to initiate an on-market buyback program. That will start on March 3 coming up next week. And we remain to have a strong financial position with no debt. And again, with these results, we're reaffirming our FY '25 guidance for CARR revenue growth of 15% to 25% and OpEx growth, which will be less than our revenue growth, working again towards more profit. So, here are the highlights for you. $17.7 million in revenue, looking at a 33% on PCP and puts us on track for our FY '25 guidance, again, that 15% to 25% growth. 12.6% in recurring revenue, again, making good progress towards hitting that goal of having recurring revenue covering our operating expenses, reaching 80% versus 72% PCP. Our CARR continues to grow at 19%, 31.8%. And our ARR is -- again, that's an annual run rate of our annual recurring revenue at $25 million, covering right around 80% of OpEx as well at the moment. On the bottom half on the left, $15.8 million of operating expenses, that's running us around the 15% growth on operating expenses over last year. And on EBITDA, we have an adjusted EBITDA of $800,000 and we have an adjusted NPAT of $1.4 million if we take away the amortization associated to the Client Outlook acquisition. And we had closing cash at the end of December, so the end of the first half of $23.6 million. We did make the statement at the end of January, we had $25.3 million. So, we did see some cash influx there at the end of January versus where we were at the first half of the year. So, concentrating a bit on just revenue for a second. Again, good numbers on the revenue, up 33%, on track for our FY '25 guidance. Recurring revenue on track with where we would expect to be for the year. Professional services is down a little bit. We'll see that come back up in the second half. And on the capital license revenue, we had a bit of capital licenses. And again, the capital licenses, it's a little bit of an up and down. We are primarily signing subscription licenses, but occasionally, a capital license will sneak in there. So just know that it's always going to happen, but occasionally. And then from a product revenue split, about a 60-40 split in the first half between the VNA and the viewer. So, looking at sales orders of $16.2 million, $49.5 million last year was a really big number. So, I wouldn't expect for our sales orders for the first half of '25 to be the same as our first half in '24. That being said, we do want to focus on these net new logos. And I will reiterate that we would expect to get 3 to 4 net new logos in the door by the end of FY '25, just as we said we would. We still believe that that's achievable for us. But we think that focusing the sales team on those net new logos and focusing on customer success is going to get us where we need to go from a sales orders perspective. So, a slight adjustment to outperform in the second half of the year. ARR-type sales of about $10.1 million, like I said, predominantly subscription revenue for us. And then on the professional services side, a little bit of a decrease, but expect to see a bigger number on professional services as we go into the second half of the year. And when we're looking a little bit towards profitability, OpEx growth of 15%. You know that there's some targeted investment in our pillars that fell into that, that drove up to that 15%. We invested in software tools and we invested in resources for those pillars. And we think that, that's going to help us long term. So that contributes a bit to that 15% mark. EBITDA of $0.8 million, showing good improvement over where we were last year, this time last year and NPATA of $1.4 million, again, improved due to the revenue growth and cost discipline and showing in absence of the amortization for the acquired -- for Client Outlook, Mach7 had a profitable half year. Cash receipts increased by 3%. A lot of that is due to timing. So quarter-over-quarter, half year over half year, that could change if you're trying to do comparables. And then $23.6 million in cash. And I think what we're really showing here is that we continue to have good cash numbers. We continue to have no debt. We continue to have good revenue growth and we're really keeping an eye on how we're spending those dollars. Leading us to the cash conversation. And you can tell as you look at that chart that cash has been pretty stable for us. Again, cash on hand of $23.6 million, had a little over $25 million at the end of January. Total receipts, $15.9 million, again, slight increase over PCP. Total payments to suppliers increased by 18%. And again, highlighting that this is really where we have the targeted investments in our strategic pillars. These suppliers are generally software providers, either proactive support tools, cybersecurity tools that were important for the business to implement and professional service automation tools to help us get to a more streamlined deployment process. So, some of that is really built around tools. And then we did capitalize some development costs of about $0.5 million. And again, talking about the on-market buyback announced at the end of January, which will begin on the 3rd of March. So, as we think about the outlook and we think about where the industry is, in North America, for sure, we see the landscape continuing to evolve. The acute care and the non-acute care are certainly competing for patients at the moment. And we're seeing a lot of adjustments there and adjustments in how people are getting paid from the insurance companies. A lot of this behavior is driven by reimbursements and how people are getting paid. And so -- and there's acquisition in there from the provider's perspective that's throwing a little bit more confusion to it. We feel at Mach7, like that gives us an advantage. We've got a great example throughout our installed base of both the acute care and the non-acute care settings. It gives us an advantage over some of our competitors. We've realigned our sales team to really focus on that, focus on net new wins and logos. And that land and expand business, I've talked about it every time I've gotten on these calls, it's super important to us. And having a team that's dedicated to customer support and customer success, making sure that those customers are getting the attention they need and having us act more as a consultative expert and helping them as a trusted adviser is more what we're looking to do here rather than trying to sell product to our installed base. It's a different feel and it's a different experience for our customers. Looking ahead, we continue to have a great pipeline. It's robust. It's diverse across regions. APAC region pipeline is growing. Care settings are pretty diverse in our pipeline and it's pretty diverse in our product offerings between VNA, Viewer and UnityVue. And we remain confident in our ability to execute and deliver value throughout the rest of FY '25. And lastly, reaffirming our FY '25 guidance, CARR growth of 15% to 25%, revenue growth of 15% to 25% and OpEx growth, of course, being less than that revenue growth, all of which we feel quite confident in as we look at the first half year results. So with that, Francoise, I will hand it back over to you, and we can open it up to questions.

Great. Thanks, Mike. We have received some questions in advance from [ Mike Goodson ] via e-mail. So, I'll start with these. Considering Mach7's investment in bringing customers on board sooner, are there any recently completed or planned deployments where you can demonstrate the return on investment? For example, what was previously a 6-month deployment is now expected to be completed in 3 months?

Yes. Look, a good question looking for tangible evidence of this. We haven't signed and started a lot of net new projects over the course of the last 6, 7 months. But what I can use as a metric for this is I can say that Adventist is a client we've had for quite a long time. We've actually bought 13 independent Adventist hospital live in 2024. So in total, we had over 18 go-lives in 2024, 13 of which were Adventist go-lives. Again, these are all independent hospitals with independent deployments, no commonality amongst them other than they have the same IDN. So, I think those deployments have been going anywhere from -- we had 1 in 45 days, but we've been averaging 3 to 4 months. And I think previously, we were averaging closer to 9 months. So that's the one kind of piece of tangible evidence I can give to that example.

Thanks, Mark. Our next question from Mike Goodson is, would you please comment on the status of the renewal program in FY '25?

Yes. -- well, first, I guess, our renewal program is not nearly the size that it was last year, right? Just everyone should be aware of that. Last year, we had a massive renewal program. This year, it's much smaller, as you would expect. And we still have about $4 million to $6 million in total contract value of renewals that we will still expect to get in, in FY '25. So, the renewal program is going well. We have not lost any customers this year. If that's sort of like one of the tertiary questions there, we've not lost any customers and everybody is renewing that we've expected to renew.

Thanks, Mark. Our next question is, when do you expect the RFP to be released for the replacement of the VA, Vistra's solution?

Yes. I wish I knew. The government hasn't really indicated when they expect that to come out yet. I think early and very unofficially, I think we were expecting it to come out maybe this fall in the October, November time frame. But that's really an assertion by me. That's not that the government has come out with any dates. So, don't hold me to that, but just to give you a really gross idea of time frame, it could be around that time, but we really don't know.

And our final question from Mike Goodson is how was Mach7's experience at Arab Health recently?

Yes. I was happy to be at Arab Health this year. I don't go every year. And Arab Health is a really good experience. And we had several clients that we're working with come by and we have a really strong relationship with Atlas, who's our partner in the region. And Atlas was terrific and we were able to organize a lot of different meetings with various different folks from around different countries. And it's just -- it's a very diverse group of people that are coming to Arab Health for lots of reasons. I mean you can look at everything from latex gloves to ambulances at Arab Health. And imaging is just a small component of the overall health care offering. It's really amazing to see the variety of things that are shown at that show. But for us, it was great. Atlas did a really good job, gave us good space. We had good demos, had a lot of good people walking through the booth and we feel really good about the opportunities throughout the Middle East.

Thanks, Mike. I'll turn to the live chat now. Our first question, we've got several questions actually from Iain Wilkie. The first one is, can you outline the UnityVue business model? Is this a separate new product or an add-on to eUnity?

Yes. It's a separate product. So, the people that would be interested in UnityVue are people that have got disparate reading workflow needs, whether that's from an IDN or whether it's from a teleradiology group, people who have the need for -- when we use the word Workflow Orchestration, we're talking about a really advanced worklist capability for the radiologists to read from, along with this whole radiology cockpit that integrates the voice recognition and previous reports and other information from the electronic medical record, all into one beautiful package that's in front of the radiologist to read from studies coming in from multiple different locations. So, it's really a separate offering. It wouldn't really be considered an add-on. Although in some cases, somebody that has like eUnity might add on UnityVue, but I think we tend to look at it like it's a stand-alone model right now.

Thanks, Mike. We have a second question from Iain Wilkie. With the finalization of the investment into the 3 pillars, can you give some feel for second half '25/FY '26 OpEx base levels and where you see this going? Also, this program was to deliver $1 million in annualized savings. Was this present in the first half of FY '25? Or should we see a step down in the second half and beyond?

So, I think there's a couple of different topics in there. So first of all, the $1 million, I think, that's being referenced here was in reference to the innovation work we're doing on the 3D engine and the replacement -- we're building our own 3D engine to replace the engine that we're getting through a partner. And that's where the $1 million savings comes from. That's one project that's on target for release here in Q4. And once that's released, we'll get it out to the customers, and that's when we'll start to realize that $1 million a year of savings. We won't be paying the royalty fees anymore to our -- to the vendor that we've been getting the 3D engine from. That's one component. In regard to the investment of the $2 million to $3 million and where does that stand in regard to our OpEx moving forward? Yes, look, those costs have been incurred for sure. At the same time, we've had costing out initiatives that have happened as well. So, it's sort of like a rightsizing and alignment of our business. So look, yes, you'll see some benefit in FY '25. You'll see more benefit in FY '26. And we're not guiding to FY '26 yet, but you will see some of that savings in '25, more in FY '26. And I've always said, to be clear, I intend on getting us to the point where you're only seeing high single-digit OpEx growth year-over-year. And that's OpEx growth based off of the business growth needs. And I hope to get us there as quickly as we can. FY '25 will not be that year. FY '25 is a year where, again, we've guided to our OpEx growth being less than our revenue growth. Our revenue growth right now is -- we've guided to 15% to 25%.

Thanks, Mike. Another question from Iain Wilkie. On the $16.2 million TCV and sales orders, can you break this down into new customers or logos versus renewals?

Yes, we could. I don't actually have the breakdown though right now. I didn't -- we didn't break that down for this presentation. But I would say that it is substantially geared towards existing customer base.

Thanks, Mike. Our next question comes from [ Juliana Salvatierra ]. Can you please detail how many sales staff you currently have? And if you intend to grow this number over the year ahead, along with some comments about the size of potential logo wins in calendar '25?

Yes, I think I can give you some of that information at least. So, we will have 2 people focused on net new logo growth. We'll have 3 people focused on the installed base and the land and expand model. We will -- we have 4 people focused on supporting those 2 teams. We have 1 person managing the overall sales organization and we have one person who's geared towards channel management, all of our partners, that sort of thing. That's for the North American market. And in the APAC market, we have 2 people, a sales director and an architect -- sales architect that are dedicated to that APAC market. I think for now, that is the rightsized organization within the sales team for the pipeline that we have and for the deals and where the deals are between brand new opportunity to contract negotiations. And there's a lot of variation in how much effort each deal takes depending on where they fall in the funnel. And for now, we feel that that's the right size for the business. And as we always have, if we believe that we're going to get better results by growing that team, we will not hesitate to do that. For now, though, we think it's the right size and the right alignment and give people some focus on what they're doing.

Thanks, Mike. We now have a couple of questions from Jenny. The first one is, how much or what proportion of the payment to suppliers is related to the 3 strategic pillars? Now that the 3 strategic pillars are completed, are there any that are not paid yet? And so what payment to suppliers is expected in the second half of '25 and FY '26?

From a percentage of overall vendor payments, what I -- I don't know that I can actually give you a percentage on that, but I can say that we've spent about $500,000 towards vendors related to these pillars, Aussie. And that is substantially completed now. There's no further cash spend related to that. So, I think from that perspective, we -- the only additional spend we'll see are not necessarily related to those pillars, but more related to team growth based off of where the team needs to go for future deals that are signed.

Thanks, Mike. We have another question from Jenny and it relates to the sales realignment. Will the account management team handle the existing customers? How does the -- how do the costs look like by realign both the sales team and the account management team? When is the net new expected to come?

Yes. So net new, like I said, 3 to 4 net news still expected for FY '25 to answer that piece. On the customer success side, yes, they're managing all of the installed base and any of those opportunities that fell within the installed base will now be managed through that customer success team. From a cost perspective, there's a bit of cost savings that are saved there just in relation to the fact that customer success managers are not commissioned employees. These are people that are dedicated to customer success and making sure that our customers are being successful with our software. That's their goal. And I think that's the right goal for them. I think that's the right way for them to be thinking and the right way for them to be acting. I want them to be advocates for the customer. I want them to be working with the customer so that they're getting good value from our software and that they're taking advantage of all the software that we have available to the customers. I think that can be better served through that customer success role and through a typical sales rule. I'm not sure if I missed another component of that question or if I answered all of those components.

I think you covered them all, Mike. Our next question comes from [ Andrew Ribero ]. Where are we currently tracking in the class writings?

Yes, good question. So, best-in-class came out at the end -- maybe middle of February, I guess, maybe early middle of February. And we came in -- trying to remember my memory, we came in fifth on the VNA. But the one thing I would highlight on that is our actual score went up by 10 percentage points this year from last year. So that was a really good bump. It's just that there's some other vendors that had a bump too. And so we came in fifth there. And then on the viewer side, it was a bit of a tighter race, but we came in fourth on the viewer, some new names kind of on that viewer list that we've not seen. I think for both the VNA and for the viewer, the Universal Viewer segment, it's called, Agfa was the winner in both of those categories. So that's not a name that we've seen on that list recently, but they were there this year.

Great. Thank you, Mike. Before handing back to you, I'll just pause a moment in case there are any final questions. We have no further questions at this time. So, I'll hand back to you, Mike, for closing remarks.

Yes. Great. Thank you, everyone, for attending. Looking forward to delivering a great second half to the year and look forward to being able to speak with you all soon. So, thank you all for your time.