Vitura Health Limited (VIT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Vitura's shareholder call. I'll start with a few opening comments before providing a summary of the FY '24 year. I'll then hand over to Tom to take us through an operational and financial review for the year. Now given the reset strategy that we announced in May, this year's results, while disappointing, were expected. As a Board, we did take a rapid and decisive action when it became clear that our growth profile was compromised, aiming to strengthen the business and restore sustainable growth in FY '25. While reflecting on the past year is important, and we will do that today, we remain committed to focusing on strategy that positions us confidently for FY '25 and beyond. Though recovery may not be fully realized in the current financial year, we are also aware that we're making some positive inroads to delivering a strong outcome in FY '25. Now just turning to the next slide. I wanted to share with you a quick reminder that Vitura is a leading health care digital platform. And what we do is innovate health care delivery through a centralized experience. We are uniquely positioned in that we control each critical component of this platform from our 3 clinical businesses following the Doctors on Demand acquisition to our product portfolio via Burleigh Heads Cannabis and Cortexa and the Canview marketplace, which seamlessly connects patients, doctors, pharmacists and suppliers. Now as you can see from the next slide, we're going to touch on some of the highlights from 2024 and provide you with some context on what we achieved during the course of that financial year. As you'll see from the next slide, as I referenced in the opening of the discussion today, we've swiftly addressed challenges faced by the business and made key decisions to diversify Vitura's operations. The acquisition of Doctors on Demand expanded our telehealth infrastructure. And whilst negative EBITDA at the time of acquisition, integration benefits are already evident, which is a great thing to see. And we are flowing through some of the best practice elements of Doctors on Demand to our other clinics and our other businesses, but also in terms of being able to consolidate our back-end services that have already delivered a turnaround in EBITDA to contribute to overall group earnings. And that sets us for a very strong growth agenda in FY '25 and beyond. Pleasingly, as we spoke about during our reset strategy launch, we've also added new products and service verticals to mitigate some of the competitive pressures experienced by our medicinal cannabis portfolio. Our reset strategy that we launched in May outlined a disciplined path back to growth, focusing on execution with an evolved leadership team. We've committed to balancing our growth revenue with profitability and ensuring that our investments are driven to support EBITDA expansion. These initiatives go to the heart of strengthening our foundations, contributing to future success through new revenue channels as well as providing less reliance on single units, closely monitored financial stewardship and a motivated leadership team aligned and focused on growth. On the next slide, I start talking about the business diversity in a shifting environment that we spoke about recently. The challenging environment faced by the broader medicinal cannabis industry underscores the importance of why we need to diversify our business. Vitura has been a market leader and a market maker and remains a leading medicinal cannabis provider in Australia, and that is at the core of what we do. But increased competition, particularly from lower-quality cheaper product is creating pricing pressures that we need to mitigate and have made some success in doing so as we started FY '25. Whilst we remain absolutely committed to this sector and believe our market leadership will support our longevity and sustainable growth, exploring new revenue channels is critical to our success. The demand for our telehealth services is undeniable, driven by a strained health care system and growing patient demand for convenient at-home care. Vitura is in a fortunate position where we get to capitalize on this growing trend and continue to evolve that service in FY '25 and beyond. On the next slide, I've outlined again what our reset strategy encompasses. And I've previously presented this to the market in our reset strategy launch. But it's also a reminder of the actions we've taken and our commitment to steering Vitura forward and addressing the declining financial performance that we saw in FY '24. And it's just a reminder, our task is strengthening market position, expanding customer and market base, technology enhancement and financial improvement. And I'm confident that Tom will talk about each of these aspects in FY '24 and will provide an outlook of what we see in FY '25. Now to the financial summary. So as I mentioned in the opening of this discussion, despite our disappointing financial results in FY '24, it's pleasing to note that the reset strategy is already showing early positive effects. In the first 2 months of FY '25, we are tracking ahead of budget and are in line with the objectives of our strategy reset, which is really important again sets the momentum of what we expect to see for the balance of the year. Group operating revenue increased by 5.6% in FY '24 despite challenges that I've already spoken about in the medicinal cannabis space with Doctors on Demand contributing significantly to the growth in clinic revenue. While EBITDA was below expectations, several one-off items, including acquisition, integration and restructuring expenses as we rightsize the cost base of our business impacted the results. We don't expect these to materially affect FY '24 and FY '25, but it's pleasing to see the progress that we've made. Now finally, to leadership. And I'm really pleased to be introducing to you today Vitura's new leadership team, fully aligned behind the strategy of what we're trying to achieve and driven by delivering long-term success. Geoff Cockerill will join Vitura in late November of this year as our new CEO. And Geoff brings an inordinate amount of experience from global FMCG companies, including Diageo, Lion, Subway as well as more recently being the CEO of a consumer health business in ATP Science and so understands how to navigate both consumer product, brand and marketing as well as the consumer health environment. Geoff will oversee the new operational structure that I've announced to drive collaboration, goal achievement and full alignment across the collective Vitura group. In addition to Geoff, Nicola has joined us as our new Chief Operating Officer, and she started with us last week. Nicola also has a strong background in commercial leadership in companies such as Bunnings, Telstra and NightOwl Convenience. What really struck me about Nicola's leadership qualities is her ability to translate actions into tangible results in the market, and we look forward to seeing that happen during the course of FY '25. I would also like to take this opportunity to thank Tom, who stepped in as our interim CEO and continue to be our interim CEO until Geoff commences in November of this year before reverting back to being the CFO of Vitura Health. He's done a fantastic job in supporting the setting of Vitura and ensuring that we're maintaining our momentum over this transitional period. What's important to note is that we started with strategy, and we announced that strategy in May of this year. And then we designed an organizational structure to support that strategy. And now we're filling those roles with immensely capable individuals. Many organizations start the other way around. And we've turned that on its head. We're led by strategy and direction, and now we're bringing that to life. In closing of my section, I also wanted to point out the changes to the Board with Guy Headley stepping down from his executive duties effective on the 1st of September of this year and remaining on the Board as a Nonexecutive Director. As a founder of the original CDA business, Guy has had a significant impact on our business and will continue to support us as a Board member. We've also set up 2 advisory committees, which will draw on the necessary experience to not only guide our business going forward, but to provide best-in-class medical care and stewardship for the services that we provide. And we'll share more details with that during the course of FY '25. With that, it's a pleasure to now hand over to Tom for more of a deep dive into what we achieved in FY '24.

Thanks very much, Rob. I'd like to start just on the next slide by highlighting the physical and virtual infrastructure that we have. So maybe if we can turn to the next slide. The diagram on the right is an illustration of the components of our fully integrated end-to-end health platform comprising 24-hour telehealth services provided through Doctors on Demand and the connection of more than 15,000 prescribers to a wide range of health care products through Canview. This valuable ecosystem provides us with seamless distribution, logistics and a route to market for the licensed wholesale supply of medicinal cannabis, smoking cessation products, MDMA, Psilocybin and other products through the Burleigh Heads and Cortexa network. Importantly, through this ecosystem, we are currently accessing more than 80% of all pharmacies in Australia, which provides us with a valuable capture point across the market. If we turn now to the acquisition of Doctors on Demand, which we completed in late October 2023, this important acquisition enabled us to strengthen our market presence. It was funded by a combination of cash reserves from activity from trading activities in previous periods, a small amount of debt and the issue of shares in Vitura. In combination with the rest of our clinic businesses, Doctors On Demand is now performing significantly better since joining the Vitura Group with a 28% increase in monthly consultations and a growing and importantly, high-quality B2B customer base. In its first 8 months within the Vitura Group, Doctors On Demand contributed $14.4 million in revenue post acquisition, and we are now starting to see cost and operational benefits, which we expect to further realize in FY '25, which we're confident will lead to growing EBITDA and general increase in revenue and activity. Additionally, the acquisition of Doctors on Demand has enabled us to expand our service verticals to include smoking cessation, mental health and weight loss, and we anticipate more verticals to be added in the coming months. If we can turn to the next slide to talk about some of the acquisitions -- some of the synergies that have already been realized. We've also -- we've already realized a number of operational efficiencies and economies of scale at the CDA and Cannadoc businesses by digitizing the use of the DOD technology that we acquired. We've also realized a number of cost savings through the consolidation of various support services, and we now have more than 200 doctors who provided in excess of 227,000 patient consultations in FY '24, maintaining a 55% return rate. We've also launched a mental health GP referral service, and we've had 671 consultations at a premium fee having already been provided, and we've introduced a quick script service to provide seamless electronic prescriptions. Turning now to Canview. As many of you will know, Canview is our multisided platform that connects doctors, patients, pharmacists and suppliers, facilitating interactions and product exchanges. In FY '24, we were very pleased to report the addition of 876 new pharmacies, taking their total account to 4,525 nationally, the addition of another 1,200 doctor accounts, taking the total to more than 2,200, providing the company with considerable and growing scale. Shareholders are no doubt aware of the transition from our current arrangements with software provider code for cannabis, which we will occur -- which are now well advanced and will be completed well ahead of October '25. Importantly, planning for this transition is now well advanced, and we expect no disruption to quality of service or continuity of service during that period. Turning now to our leadership position in cannabis and psychedelic medicines. It's worth reminding shareholders that Vitura is fully licensed and equipped through its 2 state-of-the-art distribution centers in Melbourne and the Gold Coast to distribute all pharmaceutical products scheduled under schedules 2, 3, 4, 8 and 9. This provides us with a great opportunity to provide additional medicine products beyond the medicinal cannabis products that we're known for. Importantly, last year, we established our 50-50 joint venture Cortexa to distribute psychedelic medicines, including GMP-grade MDMA and synthetic Psilocybin. This is just one of the many examples of additional products, which we believe can be seamlessly integrated into our existing digital health platform businesses. Despite the industry pressures that Rob alluded to before, our strong product portfolio and position led to Vitura distributing nearly 1 million units of medicinal cannabis in FY '24, reaching a cumulative 2 million units distributed by Canview by December of last year. We also signed 13 new supplier agreements and added a further 80 product SKUs, bringing the total portfolio to in excess of 430, representing a significant proportion of all the medicinal cannabis products available in Australia. I'd now like to take you through a deeper review of the financial results for FY '24. If we turn to revenue and earnings, as Rob alluded to, total revenue increased by nearly 6% in FY '24 to almost $124 million. This comprised product sales of $108.5 million and consulting and service fees of $15.4 million, driven largely by an 800-plus percent increase due to the acquisition of Doctors on Demand in October. The pie chart on the left at the bottom of units sold is not particularly meaningful yet, but we're confident it will become more meaningful as we introduce new product and service verticals and diversify away from our historic reliance on medicinal cannabis. The verticals we are adding have a similar profile in that they are in high demand from patients and provide us with a number of growth opportunities, which we're going to leverage in FY '25 and beyond. Clinic margins were a healthy 36% during the year, which offset product margin compression, which fell to nearly 27% during the year. We will continue to focus on margin improvement throughout FY '25 and improve the overall product mix. EBITDA for FY '25 was normalized to $8.4 million after adjusting for more than $2.1 million of one-off costs related principally to the Doctors on Demand acquisition and integration as well as legal fees and restructuring costs. This normalized figure provides a level of transparency to demonstrate the solid underlying business and we believe positions us well for further growth into FY '25. Turning now to cash and earnings. FY '24 resulted in net cash flows from operating activities of $7 million. Overall, the cash balance fell from the previous year due largely to the $12-plus million that we spent on the acquisition of Doctors on Demand and the payment of a $5.4 million dividend in FY '23. As expected, with the fall in profits, income tax paid did fall, and we do have a $1 million tax refund that we anticipate will be collected prior to Christmas. NPAT for the year at $3.25 million also contributed, and we benefited from working capital initiatives, including the holding of a greater proportion of our product inventories on consignment, which means that from a cash perspective, the payment is only made on the eventual sale. Given our focus on the strategy reset and growth into FY '25, the directors have resolved not to pay a dividend in respect of FY '24. While we understand that this news may be disappointing to some shareholders, the company believes it's essential for our future success to rebuild the company's cash reserves to fund further growth. And we believe that this decision is in the best longer-term interest of all shareholders. Turning now to the balance sheet. As I mentioned before, cash declined largely due to the acquisition payments made for Doctors on Demand and the dividend. However, we still maintained a healthy $11 million at the end of 30 June. As I said, we have an income tax refund due of $1 million, which we believe will be received prior to Christmas, and there is a material outstanding debt, which is being prioritized for collection at the moment. Right-of-use assets and lease liabilities increased materially due largely only to a timing difference. And it's worth noting that we acquired significant intangibles as part of the DoD acquisition, including goodwill, customer relationships, brands and capitalized IT costs, which will be valuable assets for the company going forward. Noncurrent debt of the ANZ Bank started at $6.25 million, and that's being amortized at the rate of $300,000 a quarter. Overall, the balance sheet is in a strong position. I'll now hand back to Rob for some further comments regarding the expectations for the company's financial performance going into FY '25.

Thanks, Tom. In our commitment to provide greater transparency and accountability to shareholders, investors and analysts, our guidance that we're providing aligns with the strategy reset. What we're doing as part of that strategy reset is targeting a 10% revenue increase through organic growth, a 3 basis point improvement in EBITDA margin and a 10% improvement in OpEx efficiency over the course of FY '25. Some nonfinancial metrics that we're targeting include the growth in clinic patients, the introduction of new product and service verticals and increased Canview users. As mentioned in our opening, it's pleasing to see that for the first 2 months of FY '25, as a business, Vitura Health is tracking ahead of budget and importantly, in line with the objectives of the strategy reset. It's early evidence of the success of the strategy reset and the critical steps we've taken as a business to not only invest in our growth, provide for a sustainable future and improve our financial metrics overall. So what is our overall investment thesis? So we are building a sustainable quality business with quality clinical care at the heart of what we do, expanding our clinics and our doctor network. We do see our doctor network as our privileged route to market and something we need to enhance. And we're launching new verticals that not only enhance patient care, but also give us the opportunity to put more products to patients each and every day. We're balancing our growth with financial business, which is absolutely critical in delivering improved earnings to our shareholders. Also, I want to take this opportunity to thank our shareholders for their support during this rebuilding phase. I've reached out to a number of shareholders over the past 6 months and engaged in dialogue about Vitura and what we're doing going forward and be really pleased with the feedback and the challenge that we've received from our shareholder base, and we'll continue to keep you updated as we progress our strategy during the year of FY '25. I now welcome your questions, and I'll hand over to Beck to facilitate the Q&A forum.

Thanks, Robert. [Operator Instructions] Investors were also invited to share questions in advance. We have received some questions and where these are similar, we will group them together. So let's start with, have margins for the cannabis business stabilized? And what are your expectations looking forward?

Absolutely. I'll kick off the answer to that question, and I'll hand over to Tom to provide us with some further context. What we are seeing in the early stages of FY '25 is some stabilization in the competitive landscape and the margins that we're able to deliver. In the first half of FY '24, the margin compression that we experienced due to the increased level of competition was quite strong and material. And towards the back end of FY '24, we saw some level of stabilization. We're still targeting to deliver improvements in operating margin over the course of FY '25 and ensuring that we're dealing with our suppliers and our customers in a way that delivers on that capability going forward. Tom, is there anything you want to add to that?

Yes. So I would note that while we talk about the average gross margin across the portfolio, there is quite a significant difference between the margins of some of the products that we either have exclusively within the portfolio or which we own ourselves. And obviously, as the product mix changes, we do have opportunities to increase the average gross margin across the portfolio. I think also if we look at the gross margin of the business as a whole, obviously, as we mentioned, the clinic revenues, the clinic parts of the business generate better margins than the cannabis products. And obviously, as the revenues from a variety of new verticals come online, we're confident that, that will help. And obviously, given Canview growing importance, we are able to do better deals with a number of new suppliers who come on board, and we're confident that we can get better quality margins going forward, which will obviously increase the margin overall.

Thanks, Tom and Robert. What EBITDA margins is the company targeting in financial year '25?

Yes. Thank you for that question. As mentioned in our reset strategy, we are targeting a 3 basis point improvement in EBITDA margin of FY '24. For the first 2 months of the year, we're pleased to report that that's consistent with the results we're seeing coming through, consistent with our strategy and the guidance that we're providing, and we're hoping to continue that momentum in the balance of the financial year.

Terrific. There are a couple of questions in relation to the material debt that you mentioned on and someone has pointed out that we did disclose in the annual report or in the financial report that, that debt is $3.6 million. Can you please update on how you're planning to recover that and also whether you can comment on why the customer has failed to pay?

Obviously, there are confidentiality aspects to this. But in terms of why we believe we're confident, as we've stated in our financial report, this is based on numerous discussions with the party concerned. It's also based on our understanding of their underlying businesses and their desire to want to continue to work with us. Processes are underway at the moment to negotiate a settlement of this. The resulting payment may be a combination of elements, which will get to the value of the total debt. A significant amount of work has been done prior to signing up on the financial reports to get to that point of comfort, and we'll be able to update the market as we progress on that, I would imagine, in the coming weeks and months.

Are there any updates on the C2C software lawsuit?

Yes. Thank you for that. And we've also indicated in the past that there has been a lawsuit in relation to the CDC and Canview platform. As indicated in our presentation today and consistent with what we shared with the market in May, we're continuing to explore the workout period for the current arrangements that we have in place with the technology provider. That workout period has now commenced, and we're in discussions about a potential new platform going forward and have that ready by the time the transition period comes to an end. So we're very confident that we -- business continuity has been maintained and that we will be delivering an enhanced experience to our customers and our consumers and users of the platform. In addition to that, we are continuing our discussions with the current provider of the platform. Those discussions are ongoing, and we anticipate that we'll be able to work with that provider to achieve a mutually beneficial outcome that maintains the business continuity of Vitura Health.

And maybe I'd just like to add too, as we alluded to on the leadership slide, we are very close to appointing a new Chief Technology Officer. News of his appointment will be made at an appropriate time, but we're confident that this individual is highly experienced and has a lot of relevant knowledge for our business, and we think it will be a valuable addition that will help with that transition.

Thank you. Are there any other outstanding legal matters yet to be resolved?

Outside of sort of business as usual legal matters, the second matter that has been brought to the market's attention is a legal dispute with the TGA in relation to historical matters that were premature ownership. That matter is ongoing, and we expect to resolve that matter in an efficient and expedited way over the next few weeks and coming months. And when we have more news to share, we'll share that with the market as well.

Thanks, Robert. Just turning now to some of the growth opportunities. Are you able to expand on the different verticals you're looking at bringing into the business?

We've alluded to a number of those in the presentation. The smoking cessation vertical has already generated significant value. That includes not only consultations for those services, but also the distribution of those products through Canview. Canview has a number of the leading brands and the sales of those products post the changes in regulations have already been very encouraging and have contributed to our successful start to FY '25, and we have a number of initiatives in place that we are confident we'll expand that going forward. We've also talked about our mental health service that's doing well. We are looking -- we already have a weight loss and looking to introduce men's and women's health services in the coming months as those verticals start to increase. Obviously, in addition to that, our psychedelics business continues to grow, albeit slowly as the market takes off, but we certainly have a leading position in that area as well.

Tom, there was just one follow-up in relation to that large debt just whether you're able to confirm that you ceased extending credit to them until that has been repaid.

Yes, we have.

Tom, while you've got the floor, what will the net debt target be for June financial year '25?

The net debt target?

Yes.

So as we said before, the current debt with ANZ Bank is amortizing at $100,000 a month. So that will obviously reduce that by $1.2 million over the course of the year. We do have the final installment on the deferred consideration payable to Doctors on Demand at the end of October. The company believes it has adequate cash reserves to make that payment, but there is a possibility that it may be more expeditious for the company to take a longer-term debt position to basically convert a short-term debt into a longer-term debt that can be paid off over the next 3 to 5 years. The Board is examining various alternatives that may be open to us at that point. I think that will largely determine what the final balance would look like at the end of the year.

What will the new platform offer that Canview doesn't?

Thank you for that. In terms of a new platform or a new iteration of the Canview platform, as we spoke as part of the reset strategy, the intention there is to focus on the experience, the experience of the user on the current Canview platform and enhancing the quality of that experience. So whether it's the current Canview platform or a new version of Canview that will be created over the course of this transition period, what we're working on with our new CTO and with the executive team is developing a stage process to enhance patient and consumer and supplier experience over a 3-year time horizon. That reflects on items such as ease of use with the platform, the ability to identify products quickly and how those products can be provided and overall enhancements that we have been unable to execute over the last 2 to 3 years. I think also there will be further integrations between the Doctors on Demand business, which is running on a discrete platform at the moment to more seamlessly integrate that with the rest of our offerings. And there will inevitably be some modernization and improvements in some of the DoD offering too to make it a more holistic sort of experience for patients.

Thank you. Have you seen a recent decline in demand for medical cannabis based on anecdotal evidence that regulatory bodies are cracking down prescribers who have been overprescribing?

Certainly, in New South Wales, we've seen some evidence where it's been particularly harsh, some short-term decline, not significant, but short-term decline from some prescribers who used to prescribe more cannabis than they do at the moment. It's fair to say that a number of those doctors are looking at alternative ways of still providing prescriptions to their patients who need the products. I think there has been pushback by the industry at the crackdown that has been put in place. And I suspect that over time, that will soften to enable more realistic prescribing levels to return. And on that basis, I don't see any long-term reason why the decline should be particularly damaging, recognizing, of course, that demand for cannabis generally is still increasing.

Absolutely. And just to add to Tom's answer to that question, as a market leader in the medicinal cannabis space, we're also investing in capability to ensure that we're in a position to have a voice and influence future regulation and how the industry will be shaped. We are an organization that stands behind our integrity and ensures that we're delivering our services in a legal compliant and appropriate manner, and we'll continue to grow that over the next 2 to 3 years and invest in our capability to influence various stakeholders, government regulators and those sorts of positions to ensure that we are maintaining absolute professionalism in the way that we discharge our services to our patients.

Thanks, Robert. Two final questions. The first one is in relation to Dr. Jansen coming on to the advisory committee. And I suppose shareholder just wanted to understand the context of coming back into the company given the relationship over the last year or so.

Absolutely. Thank you for that question. I think I mentioned to the market when I first joined the organization that the level of transparency, respect and equality amongst shareholders was something that needed to be enhanced with Vitura. And certainly, over the last 6 months, as Chairman, we've worked tirelessly to ensure that the voice of our shareholders is heard and that we are delivering an outcome that's consistent or meet shareholder expectations. I've certainly been pleased with the cooperation, support, collaboration and encouragement that we've received from all of our main shareholders within Vitura, which I think is a very positive step forward and something that's important as we continue to grow the sustainability of Vitura in the future. So I take that as a positive for our business going forward. In relation to the appointment of Dr. Ben Jansen to one of our advisory committees that meets on a quarterly basis, we are also acknowledging that we are a provider of care and health care to our patients. So the quality of the support that we can provide our doctor network, which is a privileged asset of our organization, is absolutely critical to our future success. So having someone of Ben's caliber to help provide that support in the way that we discharge our obligations to provide care to patients who receive medicinal cannabis will set us up successfully for the future. So we're very much looking forward to his contribution in that forum going forward.

Thank you. And the final question is, are Vitura looking at any acquisitions of other similar wholesale companies to significantly boost numbers on top of the current Canview product?

Great. Thank you for that question. As we mentioned when we announced our strategy reset in May of this year, we will look at M&A where it's consistent to deliver inorganic growth, which is aligned to our 4 strategic pillars. One of the areas that we announced as part of our reset strategy is increasing the number of doctors or clinics throughout our network that, therefore, expands our reach and our ability to, therefore, put more products in the hands of patients. So we'll continue to explore opportunities as and when they arise on the basis that they're consistent with what we've announced strategically.

That concludes our questions.

Thank you. Thank you for those shareholders, investors who've taken the opportunity to dial into the webinar today, and we look forward to your support and continuing the discussion in the coming months.