Alcidion Group Ltd

ASX:ALC

Earnings Call Transcript 2020-Q2

[Operator]

Thank you for standing by, and welcome to the Alcidion quarterly results investor call. [Operator Instructions] I would now like to hand the conference over to Ms. Kate Quirke, Managing Director. Please go ahead.

[Kate Quirke, MD, CEO & Executive Director]

Thanks, Rachel, and good morning to everyone. Thank you all for joining us today. It gives me an opportunity to update you on Alcidion's business and financial performance for the second quarter of the financial year '20 as detailed with the appendix for the quarterly cash flow report and the business update that we launched with the ASX earlier today. You may note from the documents we've lodged, we've adopted the new template for quarterly reporting, which is mandated for use in Q3. So if it looks slightly different to what you've seen previously, that is why this is the new ASX guideline. I'm joined today on the call by Colin MacKinnon, who is our Chief Operating and Chief Financial Officer. And as Rachel said, we'll be happy to answer any questions at the end of the call. So to get it started, I'd like to say it's actually been a very important and strategic quarter for Alcidion in the second quarter. As you're all probably aware, we raised $16.2 million in an institutional placement, which was to provide funds to drive an accelerated growth strategy, which we presented to the investment back in October. This is the first capital raising that Alcidion has done. And since raising the funds, we've moved quickly to start implementing on that growth strategy. And I'm going to talk a little bit more today about that and how the market is shifting to our advantage as health care providers globally are increasingly looking to technology to help to improve the delivery and efficiency of delivery of health care. But first, I'd like to start with an update on the business performance for Q2. We've had a very good start to FY '20. In Q2, we've seen quarter-on-quarter growth with a number of new contracts signed, which added a total of $3.5 million in the revenue to the forward revenue projection of this $2.1 million will be recognized in this current financial year, assuming all projects meet projected time tables, which we expect they will. So we're feeling very confident about the growing business pipeline and sales pipeline. We're currently entering a period now where there's an increase in procurement activity, which is always in line with the public sector year-end for both the U.K. and ANZ. So normally, we see a stronger second half to the first half. In particular, though, we've got an increased focus on technology and technology and health care. And the market in the U.K. is particularly significant to our future aspirations of growth. At the end of the second quarter, we've actually got a total of $15.4 million of revenue already contracted and able to be recognized this financial year compared to a total revenue recognized of $16.9 million for the full financial year of FY '19. And additionally, that translates to a total sold revenue out to FY 2025 of $37.2 million. And the recurring revenue component of our sold revenue for FY '20 has increased 22.7% versus Q2 in FY '19. And we see these results coming from an increasing shift to annual live and subscription licenses, which, again, has been part of our strategic push to see more and more of our business be confirmed recurring revenue. During the quarter, really pleasing and we signed some sizable contracts and some very -- some contracts that are strategically important to us. And they were notably majority of them in the U.K. market, again, aligning with our desire to grow and focus on our capabilities to grow in the U.K. market. Firstly, we signed a 3-year $500,000 deal with Taunton and Somerset NHS Foundation Trust for Patientrack. And Taunton is Alcidion's first global digital exemplar, GDE Trust. And that is a program where the NHS formally recognizes Trust as early adopters of digital technology and allows them to establish blueprints that other trusts can follow. The really interesting thing about this trust is that their GDE program that they established was around the alternative approach to the big EMR. So the best-of-breed alternative leapfrog EMR strategy, which aligns really well with what our strategy is for the U.K. and Australia and New Zealand. Pleasingly, Patientrack is already live in the initial wards and has received very positive reception from our users. This is a really important factor for us. And this ability for us to rapidly deploy our solutions is a key differentiator in a market that's looking for early evidence of the positive impact that solutions like this can make. During the quarter, Dartford also went live with Patientrack as Phase 1 of the rollout of the full Alcidion suite. We also went live with the full rollout at Brighton and Sussex NHS Trust with Patientrack. Adding many hundreds of new users of Alcidion products and capturing millions of new data points around observations. The other thing about Taunton is also a user of Better's OPENeP solution, which we are a reseller of. And this synergy and partnership is really important because it's further demonstrated how working together with a strategic partner like Better, allows us to offer our customers an alternative EMR strategy. We also signed a $1.9 million contract with Dartford and Gravesham NHS Trust, who are an early adopter of best-of-breed solutions to implement Better's OPENeP solution, the one I just was talking about that is already implemented at Taunton. This is actually Alcidion's first contractual win with OPENeP since we were appointed as a retailer back in April 2019. And we're really excited about this milestone because it demonstrates, again, what I said earlier about the reality of one of our very important sales strategies, and that is that we offer an alternative option to the big integrated EMR by offering our state-of-the-art solution alongside these best-of-breed solutions that can give a total end-to-end EMR capability. We also signed an extension to the Patientrack contract that we had with University Hospital of Darby. They acquired about a year ago or would merge with another trust NHS trust. And they've contracted to add on roll out Patientrack position new trust that they acquired. That was contracted around $260,000 over 2.5 years. But what this contract demonstrates is the success of our solutions as we not only see consistent contractual renewals for Patientrack, but we also see sites that have already got our solution prepared to roll it out and to pay additional license fee to roll it out to new hospitals. And we also signed in the U.K., a 5-year $160,000 agreement with high-profile Queen Victoria Hospital for Alcidion Patientrack solution. And although this is a smaller contract, Queen Victoria Hospital is a highly regarded small specialist NHS Hospital with an international reputation for pioneering burns and plastic surgery treatment techniques. And this was won in the competitive tender against our standard competitors in the U.K. And so we're really looking forward to assisting this prestigious hospital with its digital strategy and improvements to patient outcomes. All of these contracts provide us with important reference sites in the NHS and the expanded customer base for Patientrack provides us with a footprint for continued and ongoing upsell success. Pleasingly, the customer activity onshore is also providing us with important reference sites that will enhance our profile amongst health care providers. I've often talked about the importance of successful implementations from an Alcidion reputation perspective and the opportunity that will give us to be further successful in this market in the U.K. So whenever we are live with sites and have positive results on those sites, it's very important that we promote those, and they also set us up for further uptake of our solution as we have evidence that we can release to our customers. And so during the quarter Miya Precision went live at 2 ACT Health campuses as part of the 5-year contract we signed back in Q1 of the previous financial year. Patientrack is already live and has been used for some time at ACT Health, and we're really pleased with the initial feedback, and we expect ACT Health will be promoting this in the near future. During the quarter, we also launched Miya Memory, a mobile electronic medical record. This app is the first locally developed platform of its kind to offer a mobile electronic medical record access. For those of you who are at our AGM or roadside presentations, this was the first product was a product that was demonstrating during that time. The product has the potential to greatly improve the efficiency and usability of EMRs around the globe. And we're increasingly incorporating more sophisticated clinical decision support capability into our products. Because we see health care globally is really looking to capitalize on this previous expenditure in IT. And the truth is a lot of the expenditures they've made to date hasn't delivered the measurable benefits in patient care outcomes that they had been anticipating. So they're now looking to add value to those investments and products like Miya Precision and Miya Memory are ideally positioned to do that. We see Miya Memory as a ground baking solution because it puts us in a position to capitalize on the demand for smart mobile technology in health care, not just the presentation of data, but actually functionally rich apps that use that data to drive better decisions at the point of care. The platform, as some of you will know, is currently in use at the platform that is Miya Precision and Miya Memory are being used as part of the previously announced proof of concept with eHealth New South Wales and at Murrumbidgee, LHD or [indiscernible] with the base hospital, the main hospital we're using it. And it would showcase also during Q2 at 3 healthcare industry conferences. There's a very strong focus in the Australian business on proving our proof-of-concept in key sites and getting a spread of pilot sites that demonstrate the evidence of the success of our products. Whilst I cannot as yet release results from the proof-of-concept as the evaluation report is still being completed. And ultimately, it will be released by New South Wales Health as it was their project. What I can say is official proof-of-concept has concluded. That is the official work finished before before Christmas, but an extension has been sought by the site to continue to use the product. And more doctors are joining a number of enrolled users on a weekly basis. To round out the financial update, I'll provide some commentary on the cash flow. We reported a net operating cash flow -- outflow, sorry, of $1.8 million. And this is in line with the increased investment we're making across the business. And I'll talk to the detail of that a little more shortly. But consequently, quarterly expenditure on staff and related overheads will continue to sort of trend upwards through to the financial year-end as we make some further incremental investments, and I'll talk about where that's going to be shortly. Importantly, though, these investments will ultimately have a direct correlation to an increase in revenue. As expected in these large enterprise engagements, where the sales cycle is typically 6 to 9 months, a lag between investment and the corresponding revenue increase is expected, but the strengthening pipeline we've got from this early investment is very encouraging. Cash outflow this quarter also included deferred costs from the prior quarter, which we headlined in the prior quarter announcements, which is including both payments to business partners. That is to our partners that we're reselling for where they may be linked when we receive the cash from the customers. And there was also a U.K. VAT payment that was deferred as a consequence of changing our U.K. company name. And we also had the final payment for the acquisition of the Oncall Systems which was $238,000 paid out in Q2, that Oncall, which is Smartpage, the owner is Smartpage. Cash reserves from customers were $4.4 million, and cash reserves were boosted by the $16.2 million placement in November. As at the 31 of December 2019, cash reserves consisted of $10.2 million in cash and cash equivalents and $7 million in cash deposits to a total of $17.2 million. Now with a stronger balance sheet that comes from that, we're moving forward with our growth strategy. We've raised the money as indicated when we made the announcement about the raise. We raised the money in order to increase the speed of growth and to grow the platform capability to capture the unique opportunity we have as the health care industry adopts new digital technology. And whilst traditionally, this sector has been slow to adopt, we're really seeing new technologies available and the capabilities that we've deployed, especially from a mobile perspective is providing us with a real opportunity to act now. And the U.K. is a perfect example of a market that's moving quickly. And for some time now, we've observed them to be an early adopter in this sector and in health care for technology as was evidenced when an early take-up of Patientrack back when it was released. But this is now gaining pace with active encouragement from the government and even more so since the general election. We're seeing policymakers probably seeing significant increases in investment to support the entire NHS achieving digital maturity rather than just focused on pioneer exemplar sites as recently was announced by the Minister for Health in the new government. In the short term, we're seeing the pent-up demand materialize in the U.K., where much out of that activity was on hold during that election period in times of uncertainty. In a case, the current policy backdrop and a March towards financial year-end. We're seeing a lot of that translate now into an improved sales pipeline for Alcidion. We've said in the past and continue to maintain our short-term strategies to expand in our existing markets of the Australia, New Zealand and the U.K. And this is now very much in play, where we've started an investment in sales and marketing activity. Namely, we announced the appointment of a U.K. General Manager for sales and business development. She started and is well underway. We've appointed a new sales executive for the southern region in ANZ, and she is based here in Melbourne has staffers. We'll also be adding 3 new salespeople in the coming quarter. Recruitment for these roles is underway, including the appointment of a General Manager for Sales in Australia and New Zealand, which aligns very similar to what we've done for the U.K. We'll also be making some additional staff appointments planned at the group level, which are really important to support ongoing growth and scaling up of Alcidion to meet what we believe is going to be our growth trajectory. And that includes Director of people and place and culture, additional marketing capability and additional IT, internal IT infrastructure to support the ten's growth. Finally, we have a planned marketing campaign in Q3 for the U.K., which is really focused on significantly increasing our presence and recognition in that market, which we'll focus on promoting our recent contract announcements along with the success of our projects. We really are investing -- we're also investing, sorry, in additional development capability, which is to keep the platform ahead of our competitors. Having seen the positive response to the platform from a precision and memory approach and the approach that we're taking to clinical decisions support this market, we're going to invest more in rapid development of these capabilities and making this available across the whole mobile platform. This has meant some additional investment in development resources, including those required to support testing and quality management. Expanding into new geographic territories is also on our agenda. And the exploratory work and assessments are underway for this having -- including some active support we're receiving from Allstate and we've been working with them in identifying market and market entry strategy. But our immediate focus is still the opportunity in our existing markets. So before opening up to Q&A, I'd like to finish by saying it's a very exciting time for us at Alcidion at this point in our development. We've proven this demand for our platform. We're building a base of our reference sites, which is really important. Our platform continues to evolve, and the market opportunity is definitely going post. As always, we're very grateful for the support of our investors, especially those that have invested to help us to have the funds for growth and aggressively pursue the expanding market opportunity that's ahead of us. I want to thank you very much for your participation in the call today and for your ongoing support. At which point, I seem to be very happy to turn over to questions.

[Operator]

[Operator Instructions] Your first question comes from [ Imad Nasa ], a private investor.

[Unknown Analyst]

My question is, do you think this technology could be integrated into the sector into nursing homes?

[Kate Quirke, MD, CEO & Executive Director]

Look, definitely some components of it have some -- sorry. One of the areas that we have been focused on, which I think is going to be an exciting opportunity is around out-of-hospital care. So our platform has a very strong monitoring capability. It's about assessing patient safety, assessing deterioration and early warning and identification of that, again, is particular risk. So I think what we're going to see is not -- is an evolution of less patients being treated in hospitals. So shall we say we can't continue to build as many hospitals and beds as we may need to support an aging population. So we're going to go to see a situation where there are more people treated out-of-hospital and aged care will be 1 of the sectors, but it could also be at home or it could also be in a community environment. So our platform is very much designed to be able to monitor those sorts of changes and get an early indication of patient in aged care maybe needs to be treated in a higher acuity area or maybe needs an intervention earlier. So I definitely see a possibility as we see health care evolve to the out-of-hospital care market.

[Operator]

[Operator Instructions] Your next question is from [ Brendan Ageas ] from [indiscernible].

[Unknown Analyst]

I was just wanting to ask about the proof-of-concept of Ehealth New South Wales. I'm just wondering exactly on the timeline to get an outcome as far as the contract is concerned and what has to happen from here?

[Kate Quirke, MD, CEO & Executive Director]

There's a number of ways in which you could go. But first of all, we need the evaluation reports from eHealth, New South Wales, and they will release that. When they're ready to release it, but we are hoping that, that is -- what we certainly expect that, that will be in Q3. So at that point, there will be analysis from both the site and from the Health New South Wales about what the next contractual form taste. So it's quite possible that one of the or more of the local health districts could decide to directly contract with us and then New South Wales look to see how that goes beyond that. So I can't predict what will happen in terms of contractual wellness. All I can say is that we need both evaluation report before that is known. However, as I said, Murrumbidgee, Local Health District are very interested in continuing to use the product in some way.

[Operator]

[Operator Instructions] Our next question comes from Peter [ Lim ], a private investor.

[Unknown Analyst]

First of all, I'd just like to congratulate the whole management for a great job that you guys have been doing so far. My question is really regarding you guys trying to explore expansion into North America, Singapore, et cetera. Have you guys considered seeking potential FDA approval or CE [ Mark ]?

[Kate Quirke, MD, CEO & Executive Director]

Good question, and it is certainly something we're considering and investigating. Makes probably some sense for us to do that in the U.K., first of all, whilst our products at the moment have not been identified as in the full memory and precision, it's a constantly evolving landscape in terms of digital devices as medical devices. So we are certainly investigating it. And the FDA haven't done anything around that part at this point, but I can see it as being quite advantageous for us if look at that from a marketing perspective, but it's not something that, at this point from our assessment is preventing us from doing work in those markets. So it's more -- it would be more a marketing advantage.

[Operator]

[Operator Instructions] There are no further questions at this time. I'll now hand back to Ms. Quirke for closing remarks.

[Kate Quirke, MD, CEO & Executive Director]

Thank you, Rachel, and thank you to everyone for joining us on the call today to hear an update on our progress for the quarter and for the continued support of Alcidion. Just letting you know, we are conducting a roadshow in early February, and I look forward to giving some more detail on the growth initiatives we have discussed today at that point when the presentation will also be lodged for all shareholders. Thank you, and enjoy your week.