Alcidion Group Ltd

ASX:ALC

Earnings Call Transcript 2022-Q2

[Kaye Hocking, Director of Marketing & Partnerships]

So thank you, everybody, for joining. Welcome to Alcidion's presentation of the results from the second quarter of the 2022 financial year. This is our first presentation for 2022, and we really appreciate you joining the call in what is a little bit of a different week with a public holiday in the middle. During this session, Kate will provide a short presentation, and we'll have time for questions at the end. [Operator Instructions]Joining us on the call is our Chief Financial Officer, Matt Gepp. And he will be available as required during the question session. So I will now pass it over to Kate to go through the presentation.

[Kate Quirke, MD, CEO & Executive Director]

Thank you very much, Kaye. Kaye would be new to many on the call. Kaye is member of the senior leadership team heading up Marketing Partnerships and Investor Relations. We have this year taken Investor Relations in-house, our Investor Relations Manager, Kerstin, is actually on leave. But you will meet her when we next do a presentation. So thanks very much for that, Kaye. Thanks, everyone, for joining us. Before I start, I'd like to wish you all the best for 2022 and a very happy new year. I think I can still say that as we're in January. It has started perhaps more challengingly than we all would have hoped, and the path ahead for this year looks -- continue to be one of adaptability and resilience, I think, in 2022. But we're very much, here at Alcidion, looking forward to getting stuck into it. Today, I will walk you through a short presentation that summarizes the Appendix 4C results, which were lodged this morning, also give you an overview of the business update and how -- the performance of the second quarter in FY '22. And at the end of the call, there will be an opportunity for questions. As Kaye indicated, I have already received some questions. So I'll kick off with those almost straight away, and then I'll pick the ones up that are lodged in the Q&A. So in terms of where Alcidion is at this point, we have had a very positive second quarter from both a financial perspective and very much in line with our defined strategic direction as outlined for the business. And I will come to the financial appendix results very shortly. But I really wanted to highlight very importantly that we signed our largest ever contract in Q2, which was with Leidos, as the prime contractor for the provision of a strategically important project. And to that project, Alcidion will be providing a critical component with our Miya Precision solution, which will, in fact, be the digital health record for a major component of services health services for the Commonwealth of Australia. Whilst this is, in fact, the contract that back -- we announced we were preferred provider for back in April 2021, we still needed to go through final contract negotiations, final scoping, approvals needed to be gone through. So we're very pleased to announce that this contract has been signed, and it was in early December, and that it was larger than we originally outlined. And so I think that's a very important part of the activities for Alcidion in the second quarter. In addition to that, we completed another very strategic component of our plan, and that was the successful acquisition of Silverlink. As indicated at the time, they're one of the last remaining independent patient administration solutions in the U.K. And obviously, alongside that acquisition, we completed the raising of $55 million in capital to fund that very, very strategically important acquisition for us. And these -- both these activities are very firmly in line with the company's strategic plan in terms of both timing and activity. So I will get into discussing the financials in more detail on the next slide. But please, I think it's really important for everyone to note that all indicators are progressing in the right direction for Alcidion in terms of how we've laid out the growth and maturity of the business and the plan for the business. In summary, for this quarter, we have delivered positive operating cash flow alongside our largest ever contract win and our most -- one of our most significant and strategic acquisitions to date. So looking here at the Q2 Appendix 4C results and some of the other commentary that we've provided in a little more detail. This was the largest quarter for new sales for Alcidion ever. And that's largely due to the Leidos Australia contract and demonstrates the growth and maturity of the company in terms of our size, the value of our contracts and the impact that our contracts are having in terms of delivering value to customers. And this continues to demonstrate the growth and maturity of Alcidion. We sold $27.7 million in new contracted revenue in Q2 with $6.2 million of that expecting to be able to be recognized in this financial year. That new contract revenue comprises $15.4 million in recurring revenue and $12.3 million in nonrecurring revenue, and that's probably a larger portion of nonrecurring revenue than you would have been used to seeing in recent contracts. And that's due purely to the reasonable component of the Leidos contract that involves the services required to deliver and implement a program of work of this scale. They are always very well funded. These types of programs have worked that involve a number of consortium providers, and the Commonwealth is funding through [indiscernible] through Leidos to deliver a significant component of the services required. So that is not typically the split you would see in all our contracts. But also, very important to note that any additional staff that we bring on is fully and comprehensively covered by that funding. At the end of the second quarter, we have $27.1 million in contracted revenue that we expect to be able to recognize in FY '22. That's without any further sales being made, obviously, in the second half of the year. That's comprised of $23.3 million of organic revenue, and $3.8 million of that total can be attributed to revenue that will come to us as a result of the acquisition of Silverlink. It's 25% increase on the prior calendar period. Also, please note that the contracted revenue, as we always indicate where we are at in each quarter, only includes the revenue that we've contracted to date. And it does not include any revenue we'd expect to recognize for contracts that are currently in negotiation or yet to be finalized and sold. During the quarter, Alcidion generated positive operating cash flow of $1.5 million for the quarter. The cash receipts from customers in Q2 were $9.9 million, which is 125% increase on prior calendar period. And this resulted in total cash receipts for the period of $16.4 million, 52% higher than at same time the previous year. Now obviously, a contribution to that is the Leidos contract, where we have been able to invoice some of that contract in Q2 as the project is actually underway and we have, in fact, installed software. We ended the quarter with $18.9 million in the bank, and that's after finalizing the acquisition of Silverlink. In terms of the operational highlights, the quarter was very significant for Alcidion, as I said at the outset, as it continued to demonstrate how we're executing against the strategic plan that we set ourselves in terms of growing and maturing the business. As I noted, we signed our largest contract. And we're really looking forward to delivering the foundational components of that, which will be a project for what is referred to as a longitudinal health record. And then basically, what that means is that we will be bringing together in our Miya Precision platform all of the data from a number of partner -- Australian health care IT partner organizations that we'll be collecting information for the Commonwealth to form the basis of individual health care records. Whilst it's significant, of course, because of the size, and the importance of this is that it also is our first contract with the Commonwealth. And it demonstrates that Alcidion's solutions are increasingly being seen as being able to scale and address some of the more challenging issues in health care of integrating data across a multitude of health care settings and bringing that single view of a patient's interaction with the health care system in an easy-to-use and easily accessible format for our doctors and nurses and clinicians. But it also sets up opportunity for future conversations in markets that are aligned to the direct hospital health care system where typically, a large number of our contracts have been to date. This contract is significant in size and duration, creating further recurring revenue for Alcidion, of course, for the -- initially for 6 years and potentially well beyond that. And it also has the possibility to increase in scope. As I indicated at the time we made the announcement, there is options to take up my observations and assessments at the time. And that should consider -- they will be considering that in the next 12 months or so. The project is already well underway. And as I said, we will expect to recognize some revenue from that in FY '22 as -- if the project proceeds as expected, so a reasonable contribution to this year's financial result as well. Ultimately, the contract is potentially worth approximately $50 million, 5-0 million, to Alcidion over the 15 years of its current contract term. Moving on to the acquisition of Silverlink. Again, a very -- another significant activity for us in Q2, contributing to our electronic patient record, or electronic medical record as we refer to it in Australia, the strategy for -- contributing to that strategy both in the short and the longer term. The acquisition provides us with core patient administration systems capability, which expands our overall product offering and positions Alcidion as being well placed to provide ultimately a cloud-native, modern and modular alternative to the electronic patient record solutions that we see in the market today, which we believe are going to rival some of the global incumbents, setting up a very different opportunity and a very different -- I hate to use the word narrative, but a very different offering in terms of what traditionally our health care systems have had available. In addition to that, it expands the market presence for us in the U.K. to having a presence in 38 of the acute NHS Trusts, and that's around a 26% presence -- a presence in 26% of the Trusts in the U.K. So it also expands our addressable market immediately. As many of you are aware, the acquisition price was $55.5 million with a further $5.6 million subject to earn-out conditions being met around the signing of new contracts. And that was funded both by an institutional placement to institutions and sophisticated investors and then an accelerated and nonrenounceable rights offer to retail and other investors, all of which was concluded prior to the end of 2021. So thank you to everybody who partook in that. Silverlink, at the time of the acquisition, forecast that for FY '22, noting that their financial year ends the 30th of April, they forecast annual revenue of $7.8 million from existing contracts, which is about -- means that 95% of that is recurring revenue and contributing an EBITDA of $4.8 million to our forecast results. The initial announcement has been well received by the health care industry and by our customers. We're certainly looking forward to further discussions with the Silverlink customers as to how -- what Alcidion can bring to them, can assist them to further their digital health ambitions. Some of those conversations have begun. And now that we're through the January -- Christmas period, I expect a lot more of those conversations to gather momentum. Also during the quarter, we signed a contract with one of the leading health services in Australia. It was a contract that we won in a competitive market. It is an extension in the sense that we already contracted with Miya Precision at Sydney LHD and have been supporting them as they support COVID-positive patients at home. And this is to extend that capability. And it allows Sydney LHD to use Miya Precision across Royal Prince Alfred but also in all remote care settings. Initially, this will be very much focused on the management of diverticulitis patients at home, and then we will continue to add more and more cohorts on. Of course, over the last 4 to 6 weeks, we've seen a significant increase in activity around the COVID work, and we've been working very closely with Sydney LHD and rpavirtual to support them as they support patients at home. We also saw additional contracts signed for ExtraMed, which was the solution we acquired back in April of 2021 with a 3-year renewal at NHS Derby, which is an existing Alcidion customer who use Miya Observations or also known previously as Patientrack. And we had a new contract to then extend ExtraMed to their sister trust, Burton. And this is important because it confirms our strategy of looking at acquisitions such as this as being a foundation for providing further cross-selling opportunities into these new customer bases. Continued interest in our services capability, it's remained consistent with a number of new contracts being signed during the quarter that are signed generally as part of the normal course of business. Looking forward, our pipeline remains strong, supported by solid contracted revenue of $27.1 million already contracted we expect to recognize this year, plus a further $1.9 million of scheduled renewals expected in the second half. We then obviously anticipate converting opportunities from the pipeline. That pipeline continues to grow. It's been bolstered by some further opportunities since the acquisition, albeit take in mind that those new opportunities will take their time to work through the sales cycle. We already have a number of Miya opportunities in contract discussion phase, and they've progressed since into last quarter. We continue to pursue cross-selling opportunities for ExtraMed and into the Silverlink sites, and we have new opportunities for our Miya platform and a number of the modules. Whilst we're seeing the size of full suite Miya deals increase, it's important to note and really pleasing that we're seeing an increase in the number of opportunities for Miya and Miya Flow. You would expect this in the current environment post-COVID. Miya Flow, which was actually our original initial suite of modules from the Miya Precision platform, is really focused on how we efficiently move patients through the health care system, from ambulance to ED into the health system and through OR, through elective and surgeries. And most people on this call, I think, would understand that we have a 2-year backlog of surgery patients. And those patients can't be treated at home. So the hospital system is going to be very focused on how it can be efficient. And the result of that is that we're seeing a lot of emerging interest in Miya and Miya Flow. And in the U.K. recently, there's been some special funding put to that as opportunity. So we're continuing to focus our salespeople team on those activities as well. As our shareholders would probably be aware, the second half is traditionally a stronger half for new sales. Notwithstanding that, we had the largest sale ever in Q2. So we'd expect to see increased activity for the U.K. in the second half, although I think it's important to note that the health care system more than ever around the world is under immense pressure. And it is having an impact on the speed at which procurement progresses and which contractor you can move. And that just makes sense. We've got staff off sick. In every industry, I'm hearing numbers the likes of 30% to 40% in iso or unwell at any particular time. And that is probably even more challenged in the health care sector. And so we just need to be aware of possible impact on timing of contracts and project progression. Not seeing any dampening of interest and enthusiasm, but certainly an impact on speed potentially. As indicated, the initial feedback from the Silverlink announcement has been very positive. As we come out of the Christmas period, we're now engaging with a number of our sites about the synergies our solutions can offer and the road map that we have at Alcidion for a modern, modular EPR. And we look forward to sharing further progress with you with our half year results towards the end of February. I'd personally like to take this opportunity to thank our loyal shareholders for your ongoing support, in particular, those that contributed or took up shares in the recent capital raise. There's no doubt Alcidion is on a very exciting journey in a market segment that will continue to grow and be supported even during uncertain times. As you would well understand, the majority of our payers are, in fact, governments. And the need for health care and efficient delivery of health care has never been stronger. So I look forward to keeping you updated as we continue to execute on our long-term strategic plan.

[Kate Quirke, MD, CEO & Executive Director]

Thank you for your time. Now we did have a few questions logged and raised before the call. So I'm going to take those first, and then I'll have a look at what's being logged in the chat. Look, one of the questions that came up was in relation to the acquisition and the price at which the acquisition was done in terms of the share price. I did answer this and addressed this at the call in terms of when we talked about the capital raise. So I'll just reiterate the positioning around that. The acquisition of Silverlink was very important to our strategy, and I think I've probably outlined it at the said call. And that strategy is to capture greater market share in the U.K. and elsewhere. We have been working that acquisition for some time. And we were doing very solid due diligence, which I think our shareholders would expect us to do. And that duly diligence takes the time that it takes. It was -- therefore, we were ready to do that acquisition at a time when the market became more volatile. And as a result, we found it necessary to raise at a price that was lower than what the share price -- the value of share price was at the time. We couldn't delay the acquisition. It was very important to us in terms of future success. I expect that to be demonstrated through the course of 2022. And so the decision to proceed with the capital raising was made. I firmly believe it's the right one. It is also worth noting, I think, that we created -- we're very conscious of creating a structure that allowed our retail shareholders to apply for an additional allocation so that they could ensure they were not diluted by the fundraising. I understand some of the sentiment around this, but we just don't have control over market volatility. What we do have control over is our ability to build a business that has long-term significant shareholder value, and we're confident that the acquisition of Silverlink is going to contribute to that. So I'll leave all the questions now related to that. Some other questions I received. What's the company's capacity at this point based on trained staff? For example, if 10 trusts signed up tomorrow for Miya Precision, how many of those could concur concurrently? And how long would you need to then schedule the remainder? I usually tell my team when these things come up that, that would be a good problem to have. But the truth is we don't model hypotheticals. But what we do regularly do is review the pipeline and the stages of where the deals are at in the pipeline and then when the potential for those projects to start are and then we map that onto our resource availability very regularly. And that allows us to plan who will be available and which team and when they'll be required. In addition, we have established an implementation partnership with a firm in the U.K. to assist us with flexing the workforce as required. So I'm confident we're well placed to manage those sorts of challenges. Another question was, people not adhering to medication posthospital are a major source of hospital readmission. Do our clients have an incentive to lower readmission rates? They certainly do. Typically, you will see KPIs for the hospital management team to include reduced readmissions, certainly within 28 days of discharge. And also, it is generally a requirement of costing and funding agreements as well. So they do have incentive.Turning to some of the questions that are in the chat at the moment. Looking at interest from customers, which modules are seeing the highest level of interest? At this point in time, as I indicated during the presentation, we're seeing increasing interest in the core modules of Miya Precision, and they are around bed management flow and the journey board. So really being able to manage that, how many people have I got in the hospital at any one time, who could go home, who's blocking up the system? And it makes absolute sense given the way the health care system at the moment is at that, that's the sort of interest we'll be seeing. Question: in the recent Commonwealth contract, is the $23.3 million the total contract value or just Alcidion's share? That is just Alcidion's share in the consortium. It is far more significant than that. And I expect in the next few weeks, we'll see more information come out in the details around that consortium, the partners' and the Commonwealth's plans for it. Is Alcidion expected to be cash flow neutral to positive going forward with Silverlink onboard? What moves this around? Thanks. I mean, look, I think what I have stated to the market is that in this financial year, we're looking to be breakeven, obviously, Silverlink contributing positively to that. Each quarter can still move around a bit depending on the receipts and where those contracts land. So yes, I think you'll still see some movement quarter-on-quarter. Then given current inflation trends, particularly tech, wage, engineering, inflation, what inflation escalation clause does the lowest contract have? All our contracts are well covered around inflation. We have, at a minimum, CPI, ability to adjust for CPI. But we often include in our contracts wage index, IT considerations as well. So we're very aware of those potential fluctuations, and we keep across those. There's a question around Alcidion products having greater success in the U.K. compared to Australia. Are there any structural factors in this? Look, I think that -- well, there's lots of reasons behind some of those things, a lot of funding going into the U.K., strong emphasis at the national level in the U.K. on digital health. What we have in Australia is obviously that a lot of the digital health in the area that we work is often funded by the states, and the states at the moment in Australia are very much focused on dealing with COVID. So I think in the U.K., we've got a very national view to health reform, a lot of funding going into it. And Alcidion has an opportunity there that we've seen and decided to go after because of the size of that market. Still continue to get significant interest in Australia and New Zealand in our products. But the last year, it's fair to say, the 2 biggest states in New South Wales and Victoria have been very consumed by the situation with COVID. And there still, the interest we are seeing out of this market is very much in patient flow and remote patient monitoring. Lots of questions. Okay. There's a question -- a few questions around cash flow, which I think I've answered. There's a question around -- and this might be the last one as we come towards the end. There's a question around a lot of M&A in the digital health space over the last few months with the recent Oracle acquisition of Cerner and many, many others, I think, in the preceding year or 2. What impact does this have sector-wide from consolidation perspective on our growth plans? Any unique opportunities for Alcidion to benefit? Look, there has continued to be a consolidation in this sector. And I actually think we'll continue to see it throughout the course of this year. Digital health, as I've said many times before, has been behind other -- or health has been behind other industries in terms of the deployment of digital assets to improve the efficiency and delivery of health care. We are now seeing, as a result of COVID, increased investment in this area, increased need, increased focus. And that, as a result, has spurred or lit a flame, I think, under the industry, in particular. So I think we'll continue to see that. As I've called out many times, I think the large EMR vendors, of which Cerner is one, are very challenged in terms of being innovative and responsive to these changes in the market. They were struggling, I think, in terms of continued growth with what I consider a legacy platform. And so there was -- they needed to do something, and Oracle is in a very similar position. So I think it would be very interesting to see what comes of that. I think the unique opportunities there for us is that we are a very modern platform. We have actually built the solution. It is available, and we have a very flexible and innovative front end that people find extremely attractive. That positions us quite differently to any of those existing incumbent suppliers in the market. I think probably, that exhausts a large part of the questions. I want to thank you very much for your time today. Thank you for your continued interest in Alcidion. We are very positive about the outlook over the second half of the year, notwithstanding some of the challenges in health care. We will continue to keep you updated, and I look forward to giving you a presentation on the half year results later in February. Thank you.