Alcidion Group Ltd

ASX:ALC

Earnings Call Analysis

Earnings Call Transcript 2024-Q4

[Kate Quirke, executive]

Okay. Let's get started. Good morning, everyone, and welcome to Alcidion's Q4 FY '24 Appendix 4C and Business Update for the 3 months ended 30th of June 2024.

I'd like to begin by acknowledging the traditional owners on the land on which I'm presenting to you today, which is that Wurundjeri People of the Kulin Nation and the lands from which all of you are joining me today, and I pay my respects to their elders past and present and I extend my respect to any indigenous persons joining us on the call today.

I'm also joined on the call today by our Chief Financial Officer, Matt Gepp, he will join us for Q&A, at the end of the presentation. So I have a short presentation on the key commercial and financial highlights followed by Q&A. All attendees will have an opportunity to ask questions at the conclusion of the presentation.

If you would like to ask a question, please use the Q&A facility at the bottom of your screen, and we'll aim to answer as many as possible in the time available. We have received some questions prior to the call. And any other questions that come in, we'll attempt to address. But if there are similar in nature, we will combine them to avoid repetition. And if we run out of time or unable to answer any at this point in time, we will get back to you. Certainly, if you have any questions, please send them through to investor @alcidion.com. Just a reminder, that the webcast is being recorded today and will be available on our website later today.

So I will get started by starting with the positive news, and I'm sure many of you who follow Alcidion will already be aware of, and that is at last Wednesday we announced that we've been selected by North Cumbria, Integrated Care NHS Foundation Trust, big mouthful, so I refer to them often as NCIC or North Cumbria. We were chosen as their preferred supplier for their electronic patient record system. And as indicated in the announcement, whilst the contract details are to be finalized in the coming months, this is a very important win for Alcidion with an estimated contract length of 10 years and a total contract value in the range of $30 million to $40 million, which will depend on the number of modules that are included in the final negotiated contract. I'll touch on this a bit further in the webinar, but certainly a result of the business, a strong validation of the positioning of Alcidion as an EPR provider into the U.K. market.

We also recently announced a new 5-year partnership with Hume Rural Alliance, which is a regional Victorian health organization covering some 15 hospitals including Albury Wodonga and Wangaratta and some smaller hospitals, and they're going to use Miya Precision as an enterprise-wide digital platform across those -- across initially predominantly Albury Wodonga and Wangaratta with a focus on patient flow and virtual care.

Hume like several other of our flow contracts we've won over the last months highlights. That value proposition Alcidion has around Patient Flow. And it's a very important offering across all of our key markets as we see hospital administrators are increasingly looking at technology to alleviate the blockage of beds, streamline patient journeys and support increasing throughput in the hospital system.

During the quarter, we went live with Hampshire Hospitals with our first site using our new emergency department module of Miya Precision, and I will talk a little bit more about that. It's not a major contract from a value perspective, but it's really meaningful to us in terms of demonstrating the capabilities of Alcidion.

Looking at the Q4 financials, we reported positive operating cash flow for the quarter of $5.6 million, which also resulted in a second half of the year positive operating cash flow of $4.3 million.

We finished the year with a cash balance of $11.8 million and no debt, which provides us a very strong balance sheet as we head into FY '25.

Over the last few months, we've seen the flow-on effects of the increased market activity that we saw in our -- in the half year Q3 results with several opportunities now progressing into the selection stage of the procurement cycle.

Overall, we feel at this point, where we can demonstrate referenceability across our core products in all our key markets is really important, and it is important part of the selection criteria that health care organizations will use when choosing who their provider is going to be.

During the quarter, look at the financial highlights. Now during the quarter, we signed contract sales of $5 million new contract sales. with approximately $900,000 of that being recognized in our financial year '24. This included a $1.7 million renewal of the New South Wales eHealth contract, where we look after and provide services for their integration environment and have done now for a long time. And whilst it's an annual services contract, it's been a recurring partnership that we've had for nearly 10 years.

FY '24 revenue reported today is expected to be between $37 million and $37.5 million, noting this is unaudited and subject to any minor year-end adjustments. Approximately 74% of that is recurring product revenue with the balance related to services. The predominance of which is services related to implementing our products.

As I indicated at the half year results and probably again at the Q3 webinar, it's been a challenging year for revenue growth with a slower-than-expected progress against tenders and new opportunities across all territories but particularly in the U.K. which, as you will all know, has been impacted by political upheaval, leading into the election and change of government and also lengthier procurement cycles than they published than we anticipated and then and looked at. So regardless of that, we do continue to sign new customers, and some of those very significant long-term renewals. They continue to underpin that very long-term financial strength that we have with these contracts that are lengthy in nature or sticky as I have often referred to them in the past and talk a little bit more about that in terms of the overall financial performance at the full year results when we release those next month.

Cash receipts from customers in Q4, which is historically our strongest period were $18.6 million, which is a record high for the business. And that helped obviously drive the positive Q4 operating cash flow of $5.6 million with positive cash flow across the second half of the financial year also reported.

And whilst that positive Q4 cash flow result was in large part due to the record Q4 cash receipts, also evident in the Appendix 4C was the impact of the tightened cost base that we implemented over the course of Q2 and Q3, with annualized cost savings of $6.4 million.

And just to give you illustrate an example of the impact of that, in Q4, our staff costs were $6.3 million compared to $8.1 million in Q3. The cash balance is $11.8 million at the 30th of June 2024.

We always provide these graphs to give you an illustrative example of the trends in relation to sales and cash receipts. I won't go into it in a lot of detail, other than to point out that, that quarterly new sales graph demonstrates the nature of our business in terms of quarterly fluctuations. It always has been the case. And I'm sure it will continue to be so.

As I mentioned in the introduction, we recently announced that we've been selected by North Cumbria as the preferred supplier for their new electronic patient record system, which was following a competitive tender process. At the core of the EPR system that they selected will be the Miya Precision platform, which provides -- we'll be providing a full suite offering, including PCS, which is the patient administration system, it's already live at the trust and has been for the last 8 years or so.

Some of you will recall, PCS is the product name for the Silverlink business that we acquired a few years ago. And this demonstrates and validates our strategy, which was that in order to be able to bid into these electronic patient record opportunities, we needed a full suite offering, and the PCS application is a very important part of that.

Our EPR solution, which is modular in nature, will provide the clinicians at NCIS with real-time access to patient records whilst focusing on the streamlining of patient flow and supporting clinical decision-making processes.

Really importantly, it will also allow North Cumbria build on their existing digital footprint, which protects their existing investments that they want to keep and allows them to get speedier return or value on an investment in EPR by adding in additional clinical capabilities like in noting observations very quickly without having to go back and replace all of their underlying systems, which is the case when you look at some of the more monolithic EPR providers.

Whilst we're still finalizing the details, the contract is anticipated to be 10-year term with a total contract or in the range of $30 million to $40 million, which we which modules are finally included, not only from ourselves, but from our partners who are part of our modular EPR offering.

Upon finalizing the contract, we'd expect to begin deployment in Q3, so January of 2025, with revenue flowing immediately once the contract is signed.

Just to point out, we wouldn't normally announce a contract that's yet to be signed, but the procurement processes in the NHS always include a notification to all suppliers as to who the successful bidder has been, and that information nearly always ends up in the public domain. So obviously, with our continuous disclosure obligations, it was important that we share that information. But it is important to note that the tender process for these large EPR deals is really detailed, and it does include a review of contractual obligations where we comment in the process about those which we are prepared to sign up to. So we're confident that we'll reach an agreement with North Cumbria. Following which, there is then an approval process of NHS England to release the funds from treasury. And that's why we expected to take until later this calendar year to get a contract in place with the project starting immediately thereafter.

This is the second U.K. EPR contract that Alcidion has in terms of being earmarked as an EPR contract following the 10-year $23 million extension of the South Tees contract, which we signed in December 2023. And we've already announced that contract and indicated at the time that there's optionality for additional modules in that South Tees contract, for example, such as PCS and so forth and where some or all of those to be taken up that contract could become a contract in similar size to North Cumbria. And I referenced that really because it just illustrates the size and shape of the types of EPR contracts that we're tendering for. It's important to note that we do not tender for all EPR contracts and that we don't expect it all in all of the ones that we tender for.

The NHS electronic patient record market is just one market segment that Alcidion targets and represents an opportunity in time. Our strategy has always been to have a platform approach that will allow us to be responsive to all the changing market dynamics across health care, and that we need to provide a solution that can address market needs as they change, also with the ability to build on additional modules and capabilities over time.

Illustrating that is that we've recently announced a contract sign with Hume Rural Health Alliance, which is an alliance that provides digital support to 15 hospitals across that area of Victoria, which comes from the Albury Wodonga down through Wangaratta, and through some smaller regional hospitals. The contract -- the initial contract value is for a digital enterprise digital platform across all of those 15 sites, allowing some sharing of information. But with Patient Flow in virtual care very much focused on Albury Wodonga and Wangaratta initially with the ability for additional modules to be upsold over time. And the implementation and use of our technology is really focused on increasing visibility and availability across the region and helping that region to more efficiently use that availability and get better patient throughput. And we look forward to that project is now kicking off with a fairly fast implementation plan mapped out.

From an operations perspective, we recently went live at Hampshire Hospitals Trust in the U.K. with our first site using our new emergency department module, which is a new module of Miya Precision and illustrative of the busyness of emergency departments is that they created 2,700 individual documents against patients across 3 emergency department locations in the first 12 hours, which demonstrates our ability to support high-demand health care. An emergency department operates in effect as a mini hospital within an ED system with the whole full range of services being provided in a pretty high volume, high stakes environment. So our ability to demonstrate our capability to support that is important as a milestone that demonstrates to all of our market that we can bring innovative new functionality to market fairly quickly.

During the quarter, we also went live with Flow at Bolton NHS Foundation Trust which was replacing the ExtraMed Patient Flow solution that we acquired several years ago. And this creates another new Miya Precision site in the U.K. We also went live with medication management and Miya eNoting at Dartford, and that is supporting electronic prescribing and electronic discharges across the Dartford hospitals. And that adds to the footprint that is already deployed there from Miya Precision. They're already using Miya Flow observations and assessments.

So it's been a very busy quarter for us with a lot of customers going live, and those deployments adding to our referenceability and creating even more opportunities for us to demonstrate the benefits of our solutions.

As we head into the new financial year, we remain confident in our product offering and market positioning. We were several recent contract wins, coupled with procurement processes moving through the selection stages, helping to support that belief in the optimism for the years ahead.

As of the 30th of June, there's approximately $130 million of contracted and renewal revenue able to be recognized through the next 5 years, which we know represents very significant long-term value in this business. What's really important to note though that, that $130 million doesn't include any upside from existing customer expansions nor does it include the proposed North Cumbria EPR contract, which will obviously add significantly to that forward booked revenue.

As I highlighted in the last quarterly webinar and when I started off the conversation today, whilst the U.K. EPR opportunities are very important because of their individual value potential, internally, we are really also focused on the several opportunities across all geographies for modular sales like the Hume regional health sale. And we've demonstrated that over time. Conversion of those opportunities from the pipeline can build significant recurring revenue, and we'll continue to do so for Alcidion. So thank you for your time today, and I'm happy now to take any questions that you have.

[Matthew Gepp, executive]

Good morning Kate, and good morning to everybody who's joined us. We'll start going through the questions that we received in advance.

So the first question, Kate, is what is Alcidion's learning around providing electronic records and data to primary care providers in the U.K. where primary care is provided under the umbrella of the NHS? Are these transferable to the more dispersed Australian market?

[Kate Quirke, executive]

Thank you. Look, as you pointed out, the way in which GPs are funded and managed is very different in the U.K. versus Australia. And there are about 2 predominant providers of GP systems in the U.K., and we integrate with them where it's appropriate. Certainly, the work we're doing at Hampshire requires us to integrate with GPs. But similarly, we integrate with data here in Australia as appropriate, but we're not targeting the general practice market or primary care market. for our solutions as there's others that are more specialized to that type of market. And it is a fairly low-margin market as well.

[Matthew Gepp, executive]

Thanks, Kate. There are several questions in relation to open EPR bids and the progress on those bids. Would you like to comment on that?

[Kate Quirke, executive]

Look, I think I've said this before. We don't comment on which bids we've tendered for or how many are currently in play. We see that as very much commercially sensitive information. And of course, we'll continue to update the market in accordance with our continuous disclosure obligations as they arise, but I think the progress of those bids is really something that is probably best kept within Alcidion at this stage.

[Matthew Gepp, executive]

Thanks, Kate. The next question is, have you noticed any change in dealing or optimism with the -- sorry, with your NHS counterpart since the change in government? Do you think this change will have an impact on Alcidion in relation to the speed of future procurement or digital adoption?

[Kate Quirke, executive]

Look, it's too [indiscernible] so to say what impact the new government will have in the U.K. They are conducting a review into the NHS at the moment. that's expected to report in September. But they have spoken often in the lead up to the election of the role that digital will play in supporting the NHS during what is a pretty challenging time when there's enormous pressure on it. So the positive is that we have a period called [indiscernible] in the U.K. where no announcements are can be made during the election process post the election process, the North Cumbria decision was related to us fairly quickly. So I can only say that demonstrable that things are moving in some quarters.

[Matthew Gepp, executive]

Thank you. Any one of our favorite questions. What does the Alcidion contract pipeline look like?

[Kate Quirke, executive]

As I've reported in other quarterlies and webinars, we have seen an increase in sales and tender activity in the first half of 2024 when compared to the prior year. There's no doubt about that. And that has translated to increased pipeline activity, which is pleasing, but it will take some time to get through the processes. There was a complete stoppage, as I just said, during the recent new U.K. election, but that started again as evidenced by the announcement, so we will continue to [ prosecute ] the pipeline and it will take its time depending on where the deals are at and what the procurement process is applying that territory.

[Matthew Gepp, executive]

Thanks, Kate. And now we have a number of questions that relate to the guidance on future financial performance.

[Kate Quirke, executive]

Yes. Look, we're not going to get into that today other than to say we are committed to being a profitable business as evidenced by the decisions we made during the year in respect of reduction in head count reduction in costs. We remain committed to that. And at the full year, we can talk a little bit more about what will be important for us to measure our success in the coming financial year.

[Matthew Gepp, executive]

Thanks, Kate. And there's one question -- one last question here from the early questions we got and this one is for me. So the question is with the sterling nearing multiyear highs, how does that impact your results? And are you hedging all of your GP exposure?

This is a good question. We operate entities out of the U.K., Australia and New Zealand [indiscernible] you see loans and each has bank accounts, that means that we can settle our costs, including our payroll currency from local currency receipts. The Australian business does not fund the U.K. business, for example. And the fact that we can fund our expenditure locally, substantially reduces our transactional sterling exposure.

There is residual risk around conversion of results, a stronger Aussie dollar against sterling will have a positive impact on the revenue, conversion and conversely, a negative impact on the cost conversion. But overall, those net impacts have been and are expected to remain relatively immaterial. And of course, when we do identify large cross-currency exposures, which we have done in the past, we will take out a hedge to lock in rates. So that's the pre-questions. There's a couple of other questions that have come in.

So the first one, which I think is a good question is how long was the North Cumbria contract tender from start to now or start to end, I guess? And is this typical of these types of EPR tenders?

[Kate Quirke, executive]

None of them are completely typical. But North Cumbria released their tender documentation late November, and we submitted it mid-January, and they had indicated they would make a preferred provider announcement late in June, and I think the slowed that -- and so it was just. So I have to say they're running pretty close to their timetable compared to others. So I certainly said that appear to have taken longer than that, but that's about the process that we're expecting.

[Matthew Gepp, executive]

Okay. This is a question on our definition of recurring revenue. Does it include annual recurring revenue or ARR? Or does it also include other revenue that may be considered recurring but only recurs, let's say, every 3 to 5 years?

[Kate Quirke, executive]

You can answer that one.

[Matthew Gepp, executive]

Yes, I can answer that one. So yes, it's the latter. So that's why we're very careful not to refer to our recurring revenue as ARR because there are instances in that revenue where it will recur every 3 to 5 years potentially, and we do have a number of those customers on the books. South Tees being one of them.

[Kate Quirke, executive]

It wouldn't be the norm though. So yes, it is dependent on the customer, and it's generally the U.K. customers where that may occur.

[Matthew Gepp, executive]

Okay. So -- sorry, just, is Alcidion now in a position to offer the Silverlink pass in the ANZ region? If yes, what progress has been made?

[Kate Quirke, executive]

We're not considering providing it in the ANZ region at this point in time. We do not see there are significant opportunities for patient administration systems in this region at the moment, predominantly because a lot of decisions have been made across Australia around patient administration systems purchased with an EPR, but we remain open to it, but we're very focused on demonstrating the value in the U.K. market for now.

[Matthew Gepp, executive]

Thanks, Kate. And this is a little bit of left field, and I think it's the may it's a balance sheet question from December.

As of December, you had unearned revenue of $8.9 million. Can you please explain what this relates to very simply this relates to revenue received in advance from our customers that we carry on the balance sheet?

Especially as we come up to period ends, we'll often see quarterly or even annual bills go out to our customers. And depending where they land in the period, we'll recognize a chunk of that on the balance sheet and the unearned revenue.

I think this could be for either of us, Kate, is revenue recognition from contracts front weighted due to license revenue recognition at first product use. I think I'll take that one.

[Kate Quirke, executive]

No. I mean, it just depends.

[Matthew Gepp, executive]

Yes. It depends exactly. So it's more common in the U.K. where we'll see up-front license revenue for multiple years, and this kind of relates to that question we touched on just before. So very rarely, if ever, do we see that in Australia. But yes, we do often get the TCV front-weighted. And that's also due actually to the implementation revenue which is typically recognized in the first, depending on the length of the project, but the first kind of year typically of a deployment.

[Kate Quirke, executive]

Again, the feature of the U.K.

[Matthew Gepp, executive]

Yes. So this is definitely for you, Kate. How much funding is left to be allocated by the U.K. government for the digitization program, specifically for EPRs?

[Kate Quirke, executive]

They don't publish that information. It's not something I would have access to. They certainly haven't allocated at all.

[Matthew Gepp, executive]

Okay. This is another interesting question. Can you give a really quick summary of Alcidion's blackout policy for share purchase?

[Kate Quirke, executive]

It is actually on our website if you wish to read it in detail. But in effect, you cannot buy shares post the end of the financial reporting period until those results are released. So at this point, we are in blackout because there is full year results to come out at the end of August. Also, obviously, there are periods where there are blackout related to information that is in the hands of directors or staff that would influence share purchasing.

[Matthew Gepp, executive]

Thanks, Kate. So look, the rest of the questions are...

[Kate Quirke, executive]

I think you should take those ones. Yes, just let me answer those ones that are still there. Did we see positive EBITDA in the second half and confirmed in renewal revenue?

Just to confirm that we will talk about that at the full year. Financial results were quite purposely focused on the cash and quarterly results. We will report our full year results towards the end of August, and then we will have the fully audited information available to share.

I think there is a question about renewal revenue. We have very low churn around renewals, but where there would be a renewal that wasn't that was going to make a significant or material impact, we will make that known and available.

[Matthew Gepp, executive]

I think that's the end of the live questions.

[Kate Quirke, executive]

Yes, very good, right on time.

[Matthew Gepp, executive]

Right on time.

[Kate Quirke, executive]

Thank you very much, everyone, for joining us today. Very much appreciate your time. And of course, thank you to all shareholders for their continued support and interest in Alcidion. We look forward to giving you a further update in a month or so's time. Thank you.

[Matthew Gepp, executive]

Thank you, everyone.