PharmX Technologies Limited (PHX) Earnings Call Transcript & Summary

So today, I'm really thrilled to present to you a few speakers who will talk about their business, their journey and some of the insights. And we're going to kick off with speaker #1. So sitting in the front row is Tom Culver, who's the Chief Executive Officer at PharmX Technologies, a role he assumed in November 2023. Tom has a diverse background with experience leading technology companies, strategic transformation projects, sales and growth, and he has over 20 years experience as a founder and business owner as well as senior leadership roles in organizations across public and private sectors, and is both B2B and consumer-focused enterprises. Tom holds a Bachelor of Honors in Business Law and Management and an Executive MBA. Tom, welcome to the stage.

Thank you, Sabine. I can't promise I will be fun or entertaining, but I can promise you I'll probably be quite quick. I do realize it's end of the day. So we will go quickly and obviously, any questions at the end would be fantastic. So good afternoon, everyone. My name is Tom Culver. I'm the CEO of PharmX. Today, I'll be providing you with an overview of the PharmX business. I'll also be covering our FY '24 results as well as a Q1 update for FY '25 as well as talking about our strategic objectives and initiatives for FY '25. You've seen about 50 of these over the last 2 days, so I won't cover that. So PharmX is an Australian-owned business. We've been in existence since about 2007, so coming up to our kind of 20 years in the industry. And we operate very much at the heart of the pharmacy network. We ultimately connect the industry. We streamline inventory management and order management, and we enable smarter business decisions through our analytics and data solutions. Today, we're used by 99% of the Australian pharmacy market, and we have a growing presence in New Zealand. As we look back at 2024, 2024 was a transformative year for our company. As you can see, we delivered very strong revenues and earnings. But whilst actually the disposal of the pharmacy software business to Jonas Software was the final step in our strategic refocusing of the business. And this came following the sale of a real estate e-commerce business in FY '22. So as you can see, we grew well. We delivered strong growth in our underlying revenues and earnings. We finished with a strong cash position whilst also distributing almost $4.5 million back to shareholders. And we had some very strong platform metrics with up to 20% year-on-year growth across some of our platforms. As we look a little bit more into that kind of financial performance at the end of last year, our underlying revenues continued to grow. Underlying EBITDA in H1 definitely benefited from our ability to allocate some of our corporate costs to discontinued operations. So obviously, I mentioned we sold a part of our business. This was not the case in H2. So our underlying NPAT was lower in H2 as a result of that lower EBITDA for the same period. So now as we look to where we are in our current financial year. I'm very pleased to share that we're ahead on revenue. We're ahead 4% against our budgets. But more importantly, we are double digits ahead of where we were this time last year in Q1 FY '24. This ultimately is being driven by growth across our business. But in particular, this is coming from our marketplace, where our year-to-date revenues are already 94% of what they were for the entire last financial year. Our operating expenses are also below budget at 6% of previous year and below our budget for this year by 5%, whilst our EBITDA is exactly in line with where we stated in our FY '24 statements. So ultimately, what we're seeing here is the early success of our kind of ongoing platform optimization, the implementation of more efficient ways of working, which is led by our new leadership team, our customer acquisition strategy and our focus on increased sales and growth. All of this is resulting in us having a very strong cash balance as we come into Q2. So let's take a closer look at PharmX, who we are, what we do and what we deliver. So simply put, PharmX is Australia's largest pharmacy ordering network. We are the industry's first choice. We're used by 99% of pharmacies. I'll show you a little bit later. We're also used by the vast majority of suppliers, wholesalers and network vendors. Through our network, we support and offer more product than any other single platform as an aggregator. That means we're offering almost 80,000 SKUs into the pharmacy network to support their supply chain and their ordering capabilities. We've designed technology over the nearly 20 years of being in business to fit directly into the existing industry infrastructure, and we continue to innovate on that technology, giving everyone more options on how they trade and how they interact with both us and within the industry. And over that 20-year period, we've established an unrivaled 97% brand awareness with 80% of pharmacies today saying our integration across our platform is our key differentiator. So as I mentioned, clearly, PharmX sits at the heart of the industry. We provide critical infrastructure for ordering and inventory management with direct access to the biggest network of suppliers, pharmacies, POS vendors and government agencies. Simply put, if order transactions happen in this market, they are going through our systems, and we facilitate the vast, vast majority of them, estimating a little bit over 80% of all transactions. So what do we do? Positioned at the heart of the industry, we exist to make a difference to health care by reimagining how the industry connects. It's something we've been doing for many, many years. It's something we continue to do through our technology solutions and through our service solutions for the many years to come. Our business model and growth strategy enable us to significantly and continuously expand our addressable market. We're able to unlock additional revenues and opportunities by capitalizing on the scale of that network that we own and the proprietary pharma technology that we also own as well as our data ownership. And so this breaks down into our whole-of-market capabilities, our unrivaled industry network, the digitization of our technologies, and we will also talk about consumer trends and tailwinds a little bit later as well as our extensive data and analytics capabilities. So let's talk a little bit more about actually what we do. So what are our products, what's our technology, what do we do in market that gives us this enviable position. Our fourth-generation gateway is our core network solution, which continues to grow very strongly, as you can see. This gateway is responsible for processing almost $19 billion worth of transactions last year. We're heading towards $20 billion for this year already, providing critical connectivity technology that enables a sufficient trade between all parties. Ultimately, we offer what's called an EDI solution, which is an electronic data interchange. So we are the people who sit in the middle of the industry that bring conformity across every player and every piece so that people can transact quickly and accurately. So ultimately, we remove errors and we increase speed. As we look at our marketplace proposition, we've really become Australia's go-to B2B marketplace for pharmacy. We're fully integrated. So our marketplace is fully integrated into our broader network, giving -- making a very easy access platform for suppliers to market and distribute their products to pharmacies. And now that we're serving the majority of pharmacies through our marketplace platform, the marketplace is really becoming the evolution of ordering in the industry. And this is coming about because actually, we now see that 70% of pharmacies today want to change the way in which they order. So they don't want to do what they've been doing for the last 10, 30, 40 years. They need a new way of ordering that is modern, that is streamlined, that helps their business grow. The pharmacy industry has a wealth of data that often lacks analytics and total visibility. So with our unrivaled view of supply chain activity, again, remembering that we process more than 80% of all transactions through this industry, our analytics solution presents a valuable opportunity to drive better business outcomes for both us and our customers. So by enhancing our analytics capabilities, PharmX is driving optimization of critical industry processes, and we're creating additional revenue opportunities for us and others. And lastly, we also make money through delivering services to our partners. So we deliver technology services and marketing services, which we generate revenue from depending on the scope of work that we're working with. Looking ahead, we actually see a reduction in a lot of the technology services that we're delivering today. So a big part of our future is developing systems that are self-service, systems that don't require integration work and systems that don't require us to provide additional services. Now conversely, what we do see in our future is actually a growth in our B2B marketing partnerships and in particular, digital media management across industry channels. So we provide digital media capabilities within our platform today, which is an expansion area for us tomorrow. So why pharmacy? And why do we not look at other industries? Pharmacies are increasingly important as a health care access point. So as some of you may be aware, pharmacies are increasingly starting to take on some of the role of the GP. They're increasingly be able to provide services that you might not immediately think of from a pharmacist. And this can be anything from vaccines as we obviously learned through the pandemic era, even through now to providing sleep apnea tests. And so this change in service, we expect to lead to higher sales through the pharmacy, which directly relates to how we generate revenues across our platform. And in particular, there is a changing scope of practice that is coming around due to regulatory change. There is also a shift in habits, a broadening of the over-the-counter remit within a pharmacy, which is continuing to kind of lift sales within the market, but also importantly, change the customer that's coming into the pharmacy. So we're increasingly seeing a younger audience and an audience looking for different products and different solutions from the pharmacy, not just people going and getting their scripts filled. So as such, the Australian pharmacy market remains very highly attractive as we see it. A combination of factors, including population growth, demographic shifts, regulatory changes, all create very strong tailwinds that will drive market expansion. So even today, despite what we're seeing in the kind of broader marketplace, if you've seen kind of Woolies' announcement today, people are being hit. There is inflationary pressure on consumers. However, we're not seeing that translate into pharmacy sales as yet. So we're confident that the pieces around the changing scope of service are going to continue to drive expansion within the industry. Furthermore, as an industry leader, when it comes to technology and product solutions, we are very well placed to support growth through our solutions as our participants, so banner groups, pharmacies, suppliers, sellers are all looking for technology to meet their growing demands and increase their efficiency of their businesses. So let's talk a little bit about growth and growth of our business. Our longer-term strategy is to be the premier vertically integrated ordering and management platform. We will also become the provider of the most impactful data solution for AU and international markets within the pharmacy space. Our FY '25 strategy centers on laying the foundations for that future growth, and it's specifically focused on developing solutions to better service both our suppliers and our pharmacies. And this is to, as you can see by the flywheel, this is to bring in supplier growth into our business, which in turn drives volumes through engagement with our pharmacies, which in turn increases our revenues within our business. All of this adds to our capability around data and analytics, not only increasing the value of our proposition, but also broadening our addressable market, which in turn, obviously starts to bring in more customers as we think about suppliers again. Now as we've also demonstrated, this growth strategy that we have currently working is being demonstrated to prove dividends already in Q1, but also we're starting to see that our view around doing this in a very well cost-controlled manner is also starting to come through even in Q1 of this year. So specifically, what does that mean for FY '25? We're looking to increase our supply base by 30%, and we're also looking to increase our active accounts by 10%, both of which have a direct line into our revenue generation. How we're doing that, particularly when thinking about -- sorry, suppliers is focusing on growth brands, which have low or no penetration into the pharmacy market. And so particularly focusing on beauty, health, technology. We're also looking at those other sectors, those new sectors to the industry, which are coming about as part of the changing scope and regulation and additional regulation changes. So medicinal cannabis vaping, which is now a key area for pharmacy growth in the future as well as working with key partners that provide us with additional market scale. So there are a number of government agencies that we're increasingly working with as well as a number of technology suppliers that maximize our scale across the industry. As we look at that technology supported growth, this is about our ability, as I kind of alluded to earlier, about creating more opportunities for our partners to self-serve. That enables scaled growth, more similar to a SaaS-type business than a services type business that we are today, allowing us to scale our suppliers and grow our business more strongly. It is also an opportunity for us to consolidate some of our technology platforms. As I mentioned, we have our analytics, our core platform, our marketplace. We are commencing work to bring all of these within one brand, which better leverages the power of the PharmX brand in market, but more importantly, creates greater efficiencies within our business. And then lastly, as we think about analytics as a growth engine. Analytics is still a new part of our business. It has only been implemented since I've been in the business and has only really started in earnest in the last 6 months. And so for us, this is about establishing efficient and scalable and secure data analytics platform. We have to have the foundations in place to be able to provide these solutions. Saying that, we are already commercializing some very high-value bespoke reporting with suppliers and banner groups and government agencies as well as now starting to communicate with some of the large corporate partners and universities who need access to the health data that we can provide. So for us internally, this is about focusing on full integration into our platform, understanding that integration is key within our business, ultimately to the point where we can provide analytics as a service back out to the market. This is also about using data within our own product solutions to enhance our competitive advantage to enhance the capabilities for our customers and our pharmacies. And this materializes in things such as recommended purchasing, more efficient purchasing opportunities for our pharmacies, analytics for our pharmacies and suppliers so they can do better business as well as analytics internally for us as a business. It's something that has not traditionally been done well in our business, but it is an area that creates opportunity for us. We can drive greater insight. We can operate more efficiently as a business and ultimately drive further growth. So in closing, we are the most prominent independent whole-of-market platform, delivering outcomes to pharmacies in Australia. We have an unrivaled network that this year, we anticipate will process around $20 billion worth of transmissions. We have a very strong strategic growth agenda, prioritizing supplier account and volume growth as well as our expanding analytics capabilities. With a 97% brand awareness and used by 99% of pharmacies in the market, we ultimately have an unmatched base. Today, we deliver high availability, stable and secure systems that are developed through modern cloud architecture, all of which gives us the agility and the mobility to deliver better new product solutions back out to our customers. With visibility of the entire supply chain, we're able to provide an unrivaled analytics proposition and with strong recurring revenues and a cash base of nearly $5 million for this year, our business is secure and well positioned for growth. Thank you. I did say I'll be quick.

Tom, you were spot on in terms of timing, but you do get to stand here a little bit longer. I want to open up to the audience for any questions. There is 2 people here with rolling microphones and gentlemen in the front #1. Go ahead.

Just curious, if you've got kind of -- nearly every pharmacy, I think there might be like 9,000 or 10,000 pharmacies in Australia and you're doing such sort of volumes through the network. One might expect that you'd have greater revenues or more profitability. I'm just sort of interested in the sort of how structurally important PharmX is and whether there's any other levers you can pull to improve that?

Yes, yes. Fantastic question. So I'll try not to go too long, but there is a little bit of a history lesson with PharmX to kind of give you the context as to why I guess our revenue generation appears to be lower than it might be given the transactions that we process because I mean that's ultimately it. So PharmX was originally established by 4 point-of-sale vendors within the market. So roll back 17 years ago, the company was essentially a service provider to help others do business. It has since grown and expanded since then. A lot of the growth and expansion has actually happened within the kind of last 5 or 6 years. So for a good 10-year period, the business was, I guess, not well loved, but it was also positioned to benefit those kind of 4 founding members rather than necessarily ourselves as a business and looking to grow revenue. So if I was to go back and start again, this business should have been built on a percentage-based model based on volumes. I mean I think that's very, very clear to most people who have a quick glance at it. Where our growth opportunities do come from today is actually the relationship between how many pharmacies are transacting with how many suppliers. So you're right, we work with 99% of pharmacies, but not all of those pharmacies work with all 140 of our suppliers today. So as we grow the penetration of pharmacies to the broader number of suppliers, the average number of pharmacy per supplier, as that increases, our revenue opportunity increases. So there is a very large amount of headroom for us. So at the moment, on average, pharmacies operate with about 7 suppliers. We do have some cohorts that are much higher than that. They operate at about 25 suppliers. So we have a huge opportunity in front of us to increase the number of suppliers that each pharmacy works with. And that comes back to our strategy is looking at new brands that are kind of operating and working more closely towards that kind of shifting demographic and behavior that can drive those connections. Outside of that, we have a number of other things, which we're not quite ready to talk to you today that relate more to kind of volumes-based transactions, payments as well as media, all of which will, I think, reconcile or close that gap, which you've clearly noticed.

That sort of sounds like there's another supplier in the market who does similar to what you do [indiscernible].

So actually, from a core platform perspective, no, there isn't. Well, sorry, there is a very, very small one. They have about 1,000 accounts. So that is across a very small number of pharmacies. They are not growing. We can see that because we can see that we do not lose business to them. It simply actually comes down to a point of history of going when the business was set up, we had a limiting model in that respect, which we are currently addressing.

So all the pharmacies that you deal [ in are always supplies through you ].

Ultimately, yes. So we -- they go through our network. So they may order through their point-of-sale vendor, which will come through our network. They may order directly through us through our marketplace which comes through our network. And again, just to caveat, it's about 80% of transactions. So there are still some orders that go directly to a supplier. You may or may not be surprised to hear that there are still even some orders that get processed by facts. So this is an industry that is still evolving, and we're still very much a part of that evolution.

It seems to me like you've got an extremely powerful position and the revenue line seems to be like a lot lower than you would expect as you've discussed. Have you looked at like medical adherence or like I know you're B2B, but isn't the -- I guess, the pull factor from the pharmaceutical side, they need to be selling more products? And how are you going to incentivize them to be -- incentivize both sides to be dealing with each other more?

Yes. I mean that's a fantastic question. And again, as a business that kind of sits in the heart of the industry, that is very much of our role. We talk about connectivity in the way the industry connects. Bringing both parties together is a kind of key function of that. So again, thinking about the growth in the suppliers, so broadening the scope of what pharmacies can deliver to their consumers is exactly a part of that. What we do not want to do as a business is take a step back into being a point-of-sale vendor, which is what we recently sold our business to Jonas for. The reason for that is it actually then takes us into a regulated world where we're then starting to deal with prescription compliance and prescription management, which is a very low-margin part of the business, which doesn't actually grow or allow a huge opportunity for growth. So our focus very much on the retail side and the transmission side of the business, we see as the greatest opportunity with still a very, very significant upside.

I can see there's a gentleman with a microphone in his hand. I might say that's the last question, but...

Who actually pays you? Is it the chemist? Is it the suppliers or...

Simply put, it's the suppliers. So their interest in our platform is distribution because we have the network into the pharmacy, they achieve distribution. And increasingly, suppliers are looking to do -- to offer distribution in a more efficient way. So looking to reduce their sales teams, their rep teams, look more towards digital and modern distribution methods. And that's a big part of why our marketplace now exists. Time for one more?

Thank you so much, Tom.

Thank you, everyone.