Vitura Health Limited (VIT) Earnings Call Transcript & Summary

Good morning, and welcome to the Business Update and H1 FY 2024 Results Investor Presentation for Vitura Health Limited. My name is Rodney Cocks. I'm the Chief Executive and Executive Director. With me on the call, I have Tom Howitt, who is our Chief Financial Officer and Company Secretary. Also joining, Guy Headley, Chief Commercial Officer and Executive Director; and Ryan Tattle, our Chief Revenue Officer. Next slide, please. Next slide. This morning, we intend to walk you through the results, but also talk about the future, and then there'll be ample time for questions. Questions can be entered into the chat box, and we'll work through those in the order received. In relation to our H1 FY '24 results, in the main primary market that we operate in medicinal cannabis, we faced a more challenging trading environment. That said, we're still able to deliver just on $60 million of revenue, $5.2 million in EBITDA and delivered a profit after tax of $3.12 million. That has then left the company with 12 -- just on $30 million of cash at bank. Three key points as we reflect on those financial results. In terms of competition, pricing and margins, we saw increased competition in the market. That was characterized by a proliferation of SKUs in the market now numbering up to 800 SKUs in the market. More players have entered the distribution market. In addition to these competitive dynamics, we also saw the average selling price drop from $130 per unit to $110. Also common place in the medicinal cannabis market are rebates, which are paid to pharmacies, particularly the large banner groups that we work with on a widespread basis, noting that we are represented with the CanView platform in 80% of pharmacies nationwide. We also did see some cost pressures during the half, both with products and overheads. And we also endured some one-off costs in relation to the acquisition of Doctors on Demand during the half. In response to this, we have implemented cost control strategies. From this half, we're executing against our Vision '26 strategy as we continue to expand our digital health ecosystem beyond medicinal cannabis in a deliberate strategic expansion into other product and service verticals. I'll pause just for a moment. I'll hand over to Tom Howitt, our Chief Financial Officer, for some further insight into the numbers. Thanks, Tom.

Thank you, Rodney. Good morning, everyone. As Rodney points out, if we analyze the financial results for the half year compared to the previous half year, we did see a decline in gross profit of around $2.6 million. As Rodney points out, that was largely attributable to the decline in the average selling price that was felt across the industry as a whole and an increase in the rebates paid to customers from about 2% of gross revenues up to about 3.7% in the half year. If we look at operating expenses incurred and the increase that we saw there, around about $4 million increasing. Of that $4 million increase, approximately $800,000 represented one-off costs, largely attributable to the acquisition of Doctors on Demand and other things that we will not see replicated going forward. Of the remaining $3-and-a-bit million, approximately half of that additional expense line items brought into the business, principally Doctors on Demand from the 1st of November. And of the balance of about $1.5 million, there were additional headcount as we scale the business and preparing for future growth and the introduction of the product verticals that we're talking about. And as made public by the RBA, it's no secret that wage growth is currently running at a 20-year high. Vitura has not been immune to that. And we have seen personnel cost increases of anywhere up to 10% across the board in that period. We're hoping with the current macroeconomic environment that, that will not continue to increase, but that additional personnel cost will be a base that we will be looking at going forward, notwithstanding the company is focused on cost containment rather in the second half of the financial year.

Thanks for that insight, Tom. And obviously, Tom, will be able to take questions as we move through the presentation. Next slide, please. As we saw units sold through CanView increased nearly 10% compared to the prior corresponding period of H1 2023. And we're seeing also not just increases in medicinal cannabis units, but also our new product lines in the smoking cessation vertical, which came online in late December 2023. We see the sales there, again, up slightly prior corresponding period to H1 2023. Those sales, as outlined, were impacted by both falling prices and rebates paid to pharmacies, which are now commonplace in the industry. Next slide, please. Pleasingly, though, we saw prescriber accounts increase significantly over the period, predominantly attributed to the hard work and activity of our Medical Science Liaison team. Number is 15 in total. We add another 10 in January alone, who are effectively our hunters working with the doctors, engaging with them in the field. And then they're supported by what we call our [ farmers ], our customer success team who are working with those doctors to enable them to prescribe, to promote confidence in their prescribing of products. So great to see those numbers tick up significantly. In terms of pharmacy accounts, great to see we're represented in over 80% of pharmacies nationwide, including all the key banner groups everyone would know in terms of household names. And in addition to that, we're supporting those relationships through our key account pharmacy team to support, retain and grow those accounts. Next slide, please. In line with this growth, we also saw patients at December 31 increased to nearly 11,000 active on the platform and growing. That number has grown since that time. And we've also seen SKUs available on the platform on CanView increase to right now beyond 300 at December 31, 295 SKUs from leading domestic and international brands, noting that moving forward, that will also include other products that we've added in terms of categories, particularly our smoking cessation category. Next slide, please. terms of the key insights, what we can draw from this half just past H1 2024. We saw a saturation in the medicinal cannabis market coming that triggered the establishment of our Vision '26 growth strategy and a strategic expansion into digital health, particularly adding on additional product and service verticals outside of medicinal cannabis and a clear diversification play. We set ambitious targets for onboarding of prescribers and patients into our ecosystem to build a critical mass. This was a very deliberate strategy, investment in more MSLs in the field, investment in customer success team, which has resulted in a rapid adoption of the CanView platform by users. This also sets the conditions for loyalty on the platform for stickiness and of course, creation and deepening of those network effects on the platform as we drive prescribers and patients to a critical mass, noting that we have reached that with pharmacies with 80% of the pharmacies in the nation on the platform. And as we've outlined, cost pressures in products and overheads were experienced in H1 2023 -- 2024, sorry, including those one-off legal and cost expenses. However, we do have a very clear focus on cost control strategies in this half and also moving forward. And last but not least, as we move forward in this half and beyond, we're going to be leveraging that user base as a foundation for the growth that we've delivered so far as we establish those new product and service verticals in our ecosystem and roll them out both in this half and then beyond. Next slide, please. We've been asked questions around what our response is to these market challenges. These are 9 key initiatives that we're delivering on now. First and foremost, cost control with a very clear focus on EBITDA improvement. In terms of our engagement with prescribers, our nationwide MSL team backed up by our customer success team to deepen those prescribing volumes, which will translate into increased prescribers on the platform, which then provides increased patients on the platform. We've also got a very keen eye on widening the product verticals -- sorry, the product offering in the ecosystem. We've shown success in medicinal cannabis to date, and we're looking to replicate that in the smoking cessation market and other products beyond that as we add in those new product categories. And last but not least, we've listened to our prescriber and patient user base, and we'll be adding additional service verticals, linking those with products moving forward. So that's how we see the competition. That's how we see our response to that competition in a very proactive way. Next slide, please. So where to from here? We see the future of Vitura being focused on the innovative delivery of health care beyond medicinal cannabis. Next slide, please. And this diversification into new markets, particularly into digital health is all focused in a very patient-centric way in terms of enhancing their health care experience. We've got a very solid foundation with CanView, with Doctors on Demand to power and enhance this experience, creating the ecosystem, we're able to deliver not just products and services related to medicinal cannabis, but to indeed other health care verticals and with products and services. Next slide, please. How this ecosystem works? We enable interactions between the participants, the users being the patients, the prescribers, the suppliers and the pharmacies. We generate network effects to increase the value for each of those users, then we reach a critical mass as we have demonstrated to date with our pharmacies on the platform. And that leads to creation of value, not just with distribution and consults, data licensing, preferred pharmacy and subscriptions for preventative health programs. They are just a few examples of the value that can be created within the ecosystem. Next slide, please. As we think about broadening our service vertical markets, smoking cessation products are now available on the platform. There's been a significant portion of the market signed on the platform on an exclusive basis for supply. Mental health, in addition to our Cortexa joint venture, we're looking to address the significant demand for consults in the GP Mental Health Treatment Plans area, which is definitely in line with demand we see in society for Mental Health Services. Weight loss currently hampered by supply of products, but definitely a large and growing market in that area that we'll be able to service. And lastly, men's and women's health or discrete medicine, where we're seeing demand for products and services for consults and plain package delivery of medication. And these are just four of the number of verticals we're adding to the ecosystem and decisions on additional verticals will certainly be based on patient and prescriber demand moving forward. Next slide, please. We look to how we tie this together. We see value capture points both with our consult fees and distribution fees. As we look to growth in the ecosystem, additional product verticals we've spoken to, additional ecosystem participants providing services. And in addition to that, continuing to grow the user base, particularly with patients and prescribers, and we've got a very deliberate approach to doing that with our MSL and customer success team to add those users to reach a critical mass in the ecosystem. Next slide, please. And finally, this ecosystem links patients with consults and products. We think about our front-end patient access to medical services with Doctors on Demand. Currently, that platform has in excess of 500,000 registered patients, and we're delivering on an annualized run rate of in excess of 300,000 consults per annum. Linking that with CanView, which is a seamless flow of data with the users on that platform, prescribers, pharmacies and suppliers, effectively links the patient with the product. And then that places Vitura in a position where we're able to -- we're in a very well positioned to provide end-to-end health care offering through our digital footprint through this ecosystem we've developed. Next slide, please. Just before we go to that, a reminder as well, please put your questions in the chat box, and we'll get to those momentarily. Just to cap off before we turn to your questions, we are a digital health company. We are not just a medicinal cannabis company. We've had very great success with our medicinal cannabis offering to date. We're looking to replicate that in the digital health space. We have a very solid base, a foundation within our ecosystem, which continues to grow of patients, prescribers and pharmacies linked with our suppliers and also the credibility of working with some of the largest health insurers and corporates in the health space who our Doctors on Demand platform. That is a business update -- we go to the next slide. That is the business update for H1 2024 and our financial updates. We are happy to take your questions now. Thank you.

So we've got a question around cost savings in the second half and some of the cost-saving measures. Do you want to take that one, Tom?

I think it's a balancing act between reducing costs where we think that there is merit to doing so, but also maintaining sufficient expenditure in the areas to grow the business and develop the product verticals that we see have an enormous potential for the future. Obviously, sales and marketing expenses come into that category. But I think there's a focus on looking at areas of the business that perhaps we can trim without having any negative impact on the growth potential for the business.

Thanks, Tom. We've got a question about the software. I'm assuming that's related to our C4C arrangements. As we've described before, CanView has a number of developers and a number of software providers that make up the CanView platform. Those on the call would have seen that we released to the market just after Christmas, an announcement that C4C, Code4 Cannabis was not planning to extend beyond the contract end date of August of 2024. That then triggered by Vitura 15-month workout period and then which expires in November of 2025 and then a 12-month exclusivity period, which expires in November of 2026. During the workout period up to and including during the workout period, the company will assess its options, as it's already stated, within the contract with Code4 Cannabis, it has the option to purchase that company in order to acquire the software. There's a process, which is outlined in that services agreement or it also has the option during the workout period to build and replace that platform. So the Board will take that decision in time. But again, I just want to point out the time frames that we've outlined today that we do have that workout period from 15 months from August of 2024, which takes us through to November of 2025. And then an exclusivity period prohibiting any other licensing of the software through to November 2026. Thanks for that question. The question around Doctors on Demand, what was the cost to acquire? That was -- $25 million was the acquisition price that was paid for with 25% of the consideration in script and 25% in cash. There was vendor financing on 0% interest for 12 months for 25% and the final 25% was paid for through a debt facility with the ANZ. Thanks for that question. Just reading the questions as they're coming in here, please place them in the chat box. In terms of -- we've got a question around growth moving forward as we've had hits on the margin, as we described in terms of our H1 results. We believe that we've implemented our Vision '26 strategy, which has led us to not only continuing to invest and looking to grow the medicinal cannabis side of the business, but also investing in those additional verticals in order to deliver EBITDA for the business. And we've described some of those today around smoking cessation, which is now available on CanView. We've spoken about men's and women's health. We've spoken about weight loss and mental health, all products and services that do carry potential for EBITDA contribution to the business, and we're looking forward to executing against those strategic plans to deliver on that. Got a question about weight loss vertical and what kind of drugs will be prescribed through that service. And as the individual asked that question, has highlighted, there are -- and as I mentioned in the presentation as well -- there are some concerns at the moment around supply of those or no concerns? There are some challenges around supply of those drugs into the Australian market now in line with the global shortage, but we'll certainly be well positioned to capitalize on those opportunities once product supply comes back into availability. Thanks for your question. And again, just please keep those questions coming in the chat box. We've got a question here around pharmacies and key account management. How many pharmacies do we have? And what does it look like in terms of that management? As I said earlier, we have 80% of pharmacies on the platform, 80% of the pharmacies nationwide on the platform currently. And with a number like that, you can obviously assume that we have the vast majority of all the large groups on the platform. All those household names you'd be familiar with. The key account team is engaging on a continual basis to provide or to gather the feedback from those pharmacies to provide improvements to the platform and to make sure that the pharmacists feel empowered, educated to dispense medicinal cannabis and other products, which are available on the CanView platform. In addition to that, that team is also running large-scale education events with the pharmacy groups as part of their role as well. So again, do we see that increasing beyond 80%, we think, but we certainly have reached a critical mass with those pharmacies and by no means is it an impediment to growth. Got a question here around the number of cannabis SKUs in the market. And do you think that will reduce as consolidation picks up in the market and what will drive up prices again? Maybe I'll throw it to Guy Headley, our Chief Commercial Officer, for an answer on that one, please.

Good morning, everyone. Yes, we have definitely seen a proliferation of SKUs in the market over the last year. There is a consensus that there's pricing wars going on and for new entrants to enter the market with a limited number of doctors and patients, pricing is a key factor. I think the question is correct in that we will see some consolidation moving forward. Some brands may not be able to survive those pressures. And in that scenario, yes, you might see prices stabilize or increase with less offerings in the market. Doctors are finding it difficult to navigate the large number of products and companies offering those products in terms of all the information to comfortably prescribe those products. So having CanView's ability to consolidate a wide range of products with information at hand is one of the reasons why we're seeing a rapid uptake of that system by doctors at the moment. So yes, lots of products in the market, lots of confusion and to cut through that confusion with a clear concise offering, I think, is a competitive advantage that we have at our disposal.

I've got another question here. I might throw to Ryan Tattle, our Chief Revenue Officer, just in relation to the ecosystem. And obviously, Ryan, with his remit is delivering on the CanView platform. Just in relation to why there's an importance to build a critical mass of both prescribers and patients on the platform, Ryan?

Yes. Thanks, Rodney. This is probably one of the most exciting parts, I think, of the vision of the company. And yes, we have a strong foundation of where we've come from in the medicinal cannabis space, but using that into the future. The basic premise and dynamics and forces that underlie the ecosystem strategy is the critical mass at the top of the funnel, that being patients flowing through. The more patients that flow through, the more console billings that come through to our doctors, the more patients that come through to those doctors, the more prescriptions that are written and that get sent out to our pharmacies, those pharmacies in our network of CanView pharmacies receive the benefit of being part of that ecosystem by increasing their business once those scripts flow through. And of course, once those prescriptions for the products that have been prescribed by the catalog on CanView, those pharmacies are ordering those products from us that then benefit one of the most important people or participants in our part of the ecosystem, which is our suppliers. Of course, that's where the majority of our revenue at the moment gets made up. And so the network effects from patients all the way through to the suppliers and the ability to capture the value at each part of that at the moment is critical, and that's where we have an incredible competitive advantage at the moment, where we're far ahead than anyone else in the space, not just cannabis, but in terms of other distributors and digital health care in general.

Thanks, Ryan. We've also got a question about our new Chair, a bit about in terms of background and what he's going to bring to the company. Investors on the call would have seen that we had a recent appointment of Robert Iervasi as our Independent Non-Exec Chair following a search, a widespread long-term search, which was conducted. Rob joins us from a very distinguished corporate career, most recently at Asahi Beverages which is -- has about 50% market share in the beverage business here in Australia, including owning Carlton & United Breweries, which owns brands such as Carlton Draught, Great Northern and also delivered on the acquisition of that asset to the tune of about $16 billion. So very experienced and seasoned executive, strategy, operations, M&A, who's already even in short time with the company has added significant value. He's also coming from the point of view of being an accountant CFO as well as a lawyer, General Counsel in addition to his service as a CEO. So we, as an executive and Board are certainly looking forward to continuing to work with Robert as we move forward. So a couple of last questions in here. There's a question in relation to legalization. And those investors on the call would have seen the changes in Germany in recent days in relation to legalization or certainly a framework for legalization in that country. We often get questions in relation to legalization as a leader in this industry in Australia. Legalization, and we know from the main parties is not a policy priority in the Australian context, noting that there are some arrangements in place with the territory government in the ACT in Canberra. However, at the federal level, which would need to drive it, it's not a policy priority. That said, if you look to analogous markets such as Canada and the framework that has been put in place there in relation to licensing, sale and distribution of recreational cannabis, we would assume that the regime in Australia would be licensed and heavily regulated. And given our position in the market, we believe we'd be well positioned to obtain certainly a box seat in that -- in any legislative change. But again, we don't think this is a short or medium-term change, which is likely given it's not a policy priority for either party of the federal government. And it's probably looking sort of a decade plus in terms of legalization. Thanks for the question. It looks like the last question here. If there are any final ones, please do jump in. We've got a question in relation to CanView and international markets. Obviously, we've seen a lot of companies, particularly in the medicinal cannabis space, go into international markets and not amount to a great deal in terms of value for their shareholders. We certainly maintain a watching brief on various markets that could benefit from CanView, including those that would require relatively small tweaks to the platform for regulatory changes to adapt it for local uses. It's something that we continue to watch. And whether we do enter those markets through an acquisition, through establishment of a subsidiary or through licensing, that would be part of that consideration. And we look forward to updating the market as we work through those decisions. And -- but again, that's not something that is -- we expect to be happening next week. If there's any final questions, I'll just pause for just a moment. We've got a question. Our last question has just come in, in relation to revenue and earnings about where the full year will land. Again, we've been asked these questions before in terms of guidance and providing guidance to the market. I think in an industry which continues to evolve and evolve rapidly, the Board is not in a position to provide that guidance in relation to revenue and earnings. There are obviously various analysts that do cover the company from major brokers in the market, and they have taken a view on where things will land, but the company is not in a position to provide guidance on its revenue and earnings. I think that's all the questions we have. There is -- we appreciate everyone's attendance on this webinar this morning. We look forward to continuing to update the market as the company continues to grow and we execute against our strategy. We thank everyone for their attendance this morning and look forward to seeing you next time. Have a great day. Thank you.