Alcidion Group Ltd
ASX:ALC
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Alcidion Group Ltd
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Well, good morning, everybody. And a warm welcome to this morning's presentation of Alcidion's 4C quarterly cash flow and business update for the first quarter of FY '23, which was released on the ASX this morning.
For those who don't know me, my name is Kerstin Wahlqvist, and I am the Investor Relations Manager at Alcidion. I'd like to begin by acknowledging the traditional owners and custodians of the various lands on which we work and meet today and to pay my respects to their elders past and present.
I extend that respect to Aboriginal and Torres Strait Islander peoples who have joined us on the call today.
Today's webcast will feature a short presentation by our Alcidion Managing Director, Kate Quirke, who will take you through the numbers and an accompanying business update. This will be followed by some time for Q&A.
Joining us on today's call, we also have Matt Gepp, our CFO, who will also be available for questions as required. [Operator Instructions] We have also received a number of questions in lead up to today's session, but we will hold all of these questions until the end of the webinar.
With that, over to you, Kate.
Thanks very much, Kerstin, and thank you for everyone joining us this morning. As Kerstin said, I'll give you a bit of an update from a business perspective on how we're traveling in the first quarter and alongside the numbers that we released today from the Appendix 4C. Let's move through the slides.
So many of you will have already had a look at the cover note and the appendix this morning. So I'll take you through some of the highlights in a little bit more detail, a bit of an outlook and then over to questions.
So in the first quarter of FY '23, we collected $12 million in cash receipts, which is a very significant quarter of cash receipts for us, an increase of 83% on the prior corresponding period. We also recorded in Q1 negative operating cash flow of around $500,000, which is a solid result in that it presents -- it represents an 85% improvement compared to the same period last year because in Q1 historically, there is a period of larger operating cash payments. So to deliver a modest cash outflow for us validates the financial long-term stability of the business and our ability to continue to drive material cash flow generation perspective well into future.
We added $1.8 million in new TCV sales. We do typically do what's typically a slow -- the slowest sales quarter of the year being Q1. What -- included in that, though, was a 3-year renewal from University of Hospitals of Derby and Burton for -- it was a renewal for IPFM, which is the ExtraMed product that we acquired last year. And for us, it underscores the quality of the business that we acquired -- in acquiring ExtraMed and also demonstrates the long-standing endurance of some of our customer relationships, particularly with someone like Derby and Burton, who, in fact, our Patientrack customers who have extended IPM across both trusts, the trusts that have merged in the last couple of years. And further to the end of the quarter, so at the beginning of Q2, Derby has signed on to add Smartpage to the list of modules acquired for their trust from Alcidion.
And so whilst that's smaller in nature, it continues to demonstrate how we're executing on our strategy to enter into a relationship with a customer then on sell our additional modules as we demonstrate value from that success. And I think this validates that strategy and continues to demonstrate how we've been doing that across all of our geographies.
So although Q1 new TCV sales were below recent strong quarters that we had, obviously, we're extremely confident in our pipeline of opportunities, several of which are well progressed through the contract negotiation stage and expect to see some of them come through Q2 and into Q3.
We also note that our contracted revenue stands at $29 million, which is up significantly on the same time last year. And when coupled with the expected renewals that we often talk about in each quarter and several of those near-term pipeline opportunities, we absolutely remain confident in our ability to meet our expected target of being cash flow positive and EBITDA positive for the full financial year FY '23.
So just giving you a little bit more detail, and much of this also was in the cover note released this morning. But Alcidion generated new TCV sales of $1.8 million in Q1, as I said, with approximately $1.3 million of that able to be recognized in FY '23. New sales -- of the new sales, $1.6 million or 89% of the new sales were for recurring product revenue and around $200,000 or 11% would fall into the nonrecurring services revenue, which covers our product implementation as well.
Q1, as I said, is historically a quieter period for new sales. And so Alcidion usually expects -- we're certainly expecting a stronger results from new sales in Q2 as we have historically. However, it should be noted that major contracts can be signed at any time. And the truth is timing is something that is somewhat out of our control. We can certainly try to influence it, but it requires other parties to be equally active in moving these contracts through their process. And Q1 just typically tends to be -- needs a little bit of momentum behind it.
We reported negative operating cash flow, as I said, of about $500,000 for the quarter, which was a significant improvement on the prior corresponding operating cash flow period -- prior period of operating cash flow as in Q1 FY '22, which was actually negative $3.4 million. So that's a very significant move in respect of that.
Comparatively, cash receipts for customers in Q1 were $12 million, which is 83% higher than at the same time in the prior year. We had an operating cash flow outflow of $0.5 million, which reflects -- which also starts to reflect the full quarter impact of new hires in the second half of FY '22. So as I indicated, we have had increased operating expenses from Q4 because we had hired people that hadn't been there for the full quarter or full half.
But if you add the increased head count, what also reflected in that is a payment of the FY '22 staff bonuses in August, which was accrued for in the FY '22 results. So the actual impact from P&L is seen in FY '22, but the payment is done in almost in respect of those bonuses. And also, a large net GST/VAT payment of $2.2 million, which had to go out in that quarter. And the good news about that is that as a result of the strong sales receipts that we had in Q4, where the payment is actually made in Q1 of the activity in Q4.
And at the end of the quarter, we had a healthy cash balance of $16.2 million with no debt. So as noticed previously, at the end of the quarter, total contracted revenue able to be recognized in FY '23 stands at $29 million, which is an increase of 69% at the same time last year.
Just to point out that, and we just wanted to indicate that -- to explain this so that people who are comparing what we put forward in the half year can actually reconcile it. On a constant currency basis, the contracted revenue to be recognized in FY '23 is actually $29.3 million. But as we increasingly generated greater portion of our total revenue from the U.K. market, the Australian dollar reported figures will be subject to, obviously, foreign exchange rate changes, and they're quite fluctuating at the moment.
We report the current year contracted revenue using the prevailing foreign exchange rate for the quarter. However, if we use the same foreign exchange rate that had been used when we did the FY '23 contracted revenue at the end of Q4 or at the half year, the revenue would be approximately $300,000 higher at $29.3 million. So just for anyone who is reconciling those 2 figures back to each other.
We also have a further $2.6 million of scheduled renewal revenue from existing customers renewing their current subscriptions and license periods, which is expected to convert to contracted revenue in FY '23, so taking that to the $29 million plus $2.6 million, with the contracted revenue up significantly on the same time last year, and several near-term pipeline opportunities well progressed through contract negotiation and expected to convert certainly in -- some in this quarter.
We remain confident in our ability to meet the expected target of being cash flow and EBITDA positive in FY '23. We continue -- we will look forward to continue to keep the market updated as those contracts move to a final closed phase. So thank you for your attendance. That's all I really wanted to cover in the update. I will stop sharing the screen now. And we will answer some of the questions that are coming up in the Q&A but also some that were previously sent through. So Kerstin?
Thanks, Kate, and thanks to those of you who have already submitted questions. Just note that any questions that are of a similar nature, we'll aim to group by theme to have a greater breadth of discussion. And any questions that we don't cover today, we'll aim to answer in writing separately.
All right. To kick off, we've had a couple of questions around the U.K. Kate, could you advise how the turmoil in the British government is affecting our ability to grow in the U.K. health sector or just any implications for our U.K. operations?
Thanks, Kerstin. I always expect to get this question at the moment when there are so many things going on in the market. To be fair, I think it's -- first, it's important to understand that the new Prime Minister, in fact, was the Treasurer who was behind approval of the funding for the frontline digitization program. So at some point in the cycle of what's been going on, he's been very supportive of the program of work in the U.K.
The current turmoil, I think, seems to have impacted the speed at which the money is being spent and the speed at which negotiations are progressing. But we're not seeing any signals at all that the program is under threat or that spending to the NHS in this area is being impacted. And I think we -- it remains to be seen. Rishi has only been there a little while in that role. But as I said, he very much was the Treasurer when these funds were approved.
So according to the latest U.K. data, I think, which is also important, approximately 7 million people are now on waiting lists looking for elective care, and emergency department wait times are increasing to unprecedented levels. And our technology solutions supports some of these challenges. And we can play a key role in alleviating some of that future strain on the health care system.
So whilst timing, as I said, is out of our control, we are active -- in active negotiation. And we expect to see some of those concluded. And obviously, we remain confident in respect of our strategy around the NHS.
Okay. Thanks, Kate. Next question. What is Alcidion's current staff retention level like across geographies?
Thank you. We follow staff retention very closely. And obviously, as in all companies, there's been a whole lot of things impacting that. And one of the things that we've done certainly in the last 6 months is really look at our employee value proposition. And we're seeing retention and attrition remain about the same certainly in the last few months.
And if you look at the people that are left in the last few months, the highest percentage was in people who started and left within the probation period and generally for a higher-paying role, which is a bit of a feature of what we're seeing at the moment. People come and particularly in those technical roles, join us. And then a week later, another role that have been applied for comes along and offers them more funds to take this. And so I think we're seeing a bit of that across the whole industry.
But our long-term valued staff pool remains with us predominantly. And also, we're increasing -- we have been increasing our numbers during that time. So I'm very comfortable with where we're at, but we like to always keep an eye on ensuring that the Alcidion as a workplace both culturally and in terms of what we offer in terms of benefits is a really attractive place to work.
Thanks, Kate. Perhaps a follow-on from that. Aside from replacing the leaving staff, what other areas does the company expect to be hiring more staff in FY '23?
Yes. So I think as we've said, the sort of we're leveling off in terms of the numbers and percentage of numbers of new staff that are being added, but we are obviously replacing some. But the new staff have been added. Real focus for us has been in the area of product management as we scale and deliver on the growth in product deliverables. And that's not necessarily development staff.
There are a lot of staff involved in the delivery of product and the management of product and the number of customer releases and so forth. So we're really focused on ensuring the product team has deep health care knowledge as our solutions are increasingly clinical in nature. And we have a few technical roles open as well that we're continuing to look at filling.
Great. Thanks, Kate. Okay. We have a few questions around Silverlink. Are you starting to see the benefit of Silverlink in TCV pipeline contracts? Just some general comments around the status of the Silverlink acquisition program.
Yes. I remain very confident in the strategy and reasoning behind the acquisition of Silverlink and some of the opportunities in the U.K. that we are having clients at the moment, both from a contract negotiation and more so from a pipeline opportunity, would not have come our way. And we would not have been able to be competing with them without the Silverlink acquisition.
And I did say at the time of the acquisition, it would take time to demonstrate the value in that. And also, I said the timing is somewhat out of my hands and that there is a little bit of a slowing around that frontline digitization program but not to the point that is concerning me significantly. There's no indication they're pulling back.
If anything, what we are seeing is they're less inclined to spend on the large electronic medical records, the sorts of funds that have been let to the trust much more within the gamut of what Alcidion does in respect of modular in nature, delivered over time capitalizing on existing investments they've already made. So not having to rip everything out and replace it and effectively at a more cost-effective price. So I remain absolutely committed to the decision we made around Silverlink and the position and the opportunity it's providing us in the NHS.
Great. Thanks. Is there any possibility the software could be used outside of health, such as in the prison system or schools, et cetera?
It is focused on health. So therefore, I'm not sure I would see it playing out from a school's perspective. But certainly in adjacent areas, I mean, in some of what we're seeing in respect to the Australian Defense Force program of work. But also aged care and some of those types of engagements and environments where we're looking at consolidating data across a number of encounters with a system or service. I think certainly, in the area of care in particular, Alcidion will be keeping an eye on how our longitudinal health record can actually play a part in that sector as well over time.
Thanks, Kate. And next question, could you please provide an update on why there are no new contracts in U.K., Australia, New Zealand? Had the current reduced health budget in the U.K. and Australia impacted this? And if yes, what's the one line impacted on the revenue? .
I guess I explained a little earlier that timing is somewhat out of our control, but we are in active negotiations with contracts across all our existing territories not just the NHS. So to be honest, I don't see any evidence or announcements related to a reduced budget that should impact our anticipated FY '23 revenue. With something to change, obviously, substantially, we would update the market. But -- so at this point, I'm seeing no impact on our revenue. It is about timing. And I think, as I said, I remain confident that the discussions that we're having will come to fruition in time.
Next question. Thinking beyond FY '23, should shareholders expect to see operating leverage in the business as expenses grow more slowly than revenue from FY '24 onwards?
Yes, most definitely. If we continue to create and produce revenue at the rate that we have and anticipate doing in this year. As I've been saying for a little while, we're coming out of that accelerated growth phase that it requires some expenditure to build the business to levering -- leveling out in our operating expenditures. And therefore, as we increase revenue, you'll see a larger portion of that revenue be demonstrated as bottom line profit.
Great. Next question. Is there any update on New Zealand market now that the new health authority is in place after consolidation?
So what's happened now is they've -- from the IT perspective, so that we've got the actual One New Zealand in place that they're operating across 4 regions. They've appointed the equivalent of a digital health lead for each of those 4 regions and all of whom are known to us. And they're now starting to look at what the priorities are for those areas.
So I'm feeling quite positive about a lot of what we're seeing in New Zealand and our engagement there. And with our Director of Business Development, Florian being based in New Zealand and having a lot of relationships there, I'm hopeful that we'll start to see activity pick up in that territory as well.
Great. Next question. What would you say is Alcidion's most important competitive advantage? And do you think this will allow the company to make sustainable net profit margin in the future?
I think the competitive advantage comes in a couple of areas. We have come at this as a platform play. So we're not a software solution or commercial off-the-shelf solution that has to replace something that is already deployed.
We actually are looking to add value to those existing deployments. I think that's a real differentiator for us. And in an environment where they're looking to get the biggest bang for their buck from the customers -- from a perspective of customer, I think that's a real advantage for us. I think where we're taking our modules. So modular in nature is, again, a very significant advantage for us and that the modules that we're creating off that platform, in my precision, are really focused addressing some of the key challenges in health care today, being able to deploy clinical decision support to help more efficient, better decision-making at scale on top of existing EMRs is something that's uniquely in Alcidion proposition.
Thanks, Kate. Now this one's a bit long, so much to break up to 3 parts. I think they tackle different areas. Can you please provide some insights on the following: First, falling TCV new sales in Q1 FY '22 of $1.8 million to get to $2.7 million in PCP?
I mean, that's just the vagaries and the differences of the size of contracts in any quarter. If you compare quarter-on-quarter PCP when it's around the same, there'll be some contracts that are larger, some that are smaller. I don't think that signals anything other than it's been timing issues on contracts in Q1.
Great. Okay. Next part of this. Is the procurement process as in the time required, getting longer because Alcidion is no longer offering standalone and smaller value products to customers, but more of a integrated high-value product including Silverlink?
There's no doubt that the bigger contracts, the more modules that are involved, the larger the size of the contract, typically it takes longer to sign those contracts.
But as we've seen in Q4, we can still generate significant TCV with a number of contracts where we're taking some of the individual modules or groups and modules into those opportunities. So I think there's a combination of those things impacting, and we will continue to see our contract spread across a number of smaller engagements and some larger media chunkier contracts as well and where they fall will not necessarily always be consistent in terms of which quarter.
Thanks, Kate. Okay. And finally, is Alcidion looking to manage its risk to volatility in the British pound due to the political turmoil [indiscernible]
Now, I'll let Matthew.
Sure. Thanks, Kerstin. Look, interestingly, in Q1, the sterling was much stronger against the Aussie dollar, and we saw that play out a little bit in the contracted revenue and a little bit in the cash flow.
Since the beginning of October, that's completely turned around and it's now in our favor. In terms of the question, if we have a material FX risk, we'll take action to mitigate it. But like in terms of the British P&L, you have to remember that the as the revenue goes down because of the FX, so true to our costs. So there's a bit of a natural hedge in place there. So that's really not a concern to us at the moment. But if there is a material risk identified, we will take action to mitigate it.
Great. Thanks, Matt. And I think we've got time for one last question. Can you please explain the revenue breakdown by region, Australia -- ANZ and U.K.
I'll let Matt answer that one as well.
Look, at the moment, it's not that different to what we reported in the full year accounts. We're running at almost 50-50 in terms of ANZ versus the U.K.. I think it was 53 ANZ, 47 in the U.K. I suspect the U.K. will overtake us this year, but we'll have to wait for the half year accounts to see exactly where we land for the half on that one.
Thanks, Matt. Well, that brings us to the closure of our questions and today's update. For those of you who are interested in joining us, Kate will be presenting a further business update at next week's Bell Potter Virtual Healthcare Conference. If you like registration details and haven't already received them from us, please don't hesitate to get in touch via e-mail at investor@alcidion.com. It just remains for me to hand back to Kate for closing remarks.
Thanks, Kerstin and Matt. Thanks, everyone, for joining us. I hope we answered any questions that you have and look forward to keeping you updated. Wishing everybody a happy Halloween/trick or treat, if you're up to any of that today, and happy Melbourne Cup for those that follow the horses tomorrow. And just finally, thank you all for your continued support of Alcidion and wishing you a very happy day. Thanks.
Thanks, everyone.
Thanks.