Craneware PLC

LSE:CRW

Earnings Call Analysis

Strong financial performance and strategic growth on track

The company reported a robust year with a 9% increase in revenue, reaching $189.3 million, and a 6% growth in EBITDA to $58.3 million. EPS also rose by 9%. With careful cost management, the company maintained a 31% EBITDA margin. Highlighting its strong cash flow, 90% of EBITDA converted to operating cash. Despite a high-interest environment, the company reduced debt by 58%, leaving $35.4 million outstanding. Robust deferred income growth of over 30% signals strong future sales, while continued investment in R&D, with 30% of revenue capitalized, underscores the focus on innovation and long-term growth.

Steady Growth in Revenue and Earnings

Craneware Group has reported notable financial performance, achieving a 9% increase in revenue, amounting to $189.3 million, and a corresponding 9% growth in adjusted earnings per share (EPS). This growth is bolstered by a strategic focus on expanding their footprint in the healthcare software sector, particularly targeting operational improvements within hospitals, which are increasingly viewed as commercial entities. The company aims to reestablish double-digit growth shortly, driven by a resurgence in strategic planning among hospitals post-pandemic.

Operational Efficiency and Margins

The company maintained an impressive EBITDA margin of 31%, in line with its target of over 30%. Craneware effectively navigated its cost structure, leveraging high visibility revenue streams to carefully time investments while controlling costs. With an adjusted EBITDA of $58.3 million, demonstrating a 6% increase, this strong operational performance aligns with the company’s long-standing model of high cash conversion, which reached 90% of EBITDA converted to operating cash. This consistency in cash generation underscores the solidity of Craneware's business model.

Acquisition and Debt Management

Craneware's strategic acquisitions, including Sentry Data Systems, have expanded its operational capacity and client reach. The company has successfully reduced its overall debt by 58%, bringing it to $35.4 million, which includes $20 million from a revolving credit facility. The management has utilized cash reserves to offset higher-interest debt, subsequently decreasing interest expenses by over $2 million. This proactive debt management strategy not only alleviates financial pressure but also enhances profitability as reflected in the growth of adjusted EPS.

Annual Recurring Revenue (ARR) Insights

Craneware’s ARR stands at $172 million, providing a stable foundation for future growth. Although the company expects a lag in ARR growth compared to revenue due to new platforms and innovative offerings currently being developed, initial estimates suggest a conversion rate of around 50% from new sales to ARR. This capability is essential for sustaining long-term revenue streams as the company continues to build out its product offerings from the Trisus platform.

Market Position and Future Potential

With a client base encompassing 40% to 50% of U.S. hospitals, Craneware is well-positioned to penetrate deeper into the healthcare software market, suggesting significant growth potential. The current sales strategies involve 'land and expand' tactics, which indicate strong potential for upselling existing clients while attracting new business. The management projects a seven and a half times revenue opportunity from existing client relationships, an ambitious yet achievable goal owing to their comprehensive optimization suites, which cater to hospitals' operational needs.

Positive Market Outlook and Strategic Intent

Management expressed confidence in a market revival as hospitals shift from tactical operations back to strategic growth, aided by increasing political and economic support for healthcare efficiency reforms. Craneware's continued investments in R&D, constituting approximately 30% of revenues, aim to enhance their product offerings further, ensuring relevance and capturing greater market share. The landscape suggests a transition towards stable and strategic growth, allowing Craneware to potentially leverage emerging trends in healthcare finance and operations.

Key Takeaways for Investors

Craneware stands as a resilient player in the healthcare technology space, showcasing strong revenue and EPS growth, robust operational margins, and effective debt management. While ambitious targets for ARR are being set, current metrics indicate a solid base to build upon. Investors should note the substantial growth potential backed by a strategic market position and significant investment in innovative solutions, making Craneware an attractive prospect for those looking for opportunities in the healthcare software sector.

Earnings Call Transcript 2024-Q4

[Keith Neilson, executive]

Thank you, and good day, everyone. Thank you for joining us for the Craneware Group's Financial '24 Full Year Results Presentation that reflects our numbers and the strategy of the group through to June of this year -- June 30 of this year.

My name is Keith Neilson. I'm CEO and Co-Founder of the Craneware Group. And I'm joined today by Craig Preston, our CFO, as well. The Craneware Group is a software company, and we write software to improve the financial and operational performance of hospitals across the U.S. I stress that because we don't really tackle the clinical side. And although much of what we do can actually brush up against the clinical side, there's no bedside decision-making, and we're not trying to steer anyone's care pathway or the way that they're actually treated.

We have a data gathering platform and on top of that data gathering platform. We have a number of solutions which allow a hospital to operate more efficiently and more effectively on the commercial side of the hospital. And that's quite a key. In the U.S., as those that have got exposure to that market will know, hospitals, by and large are commercial entities in their own rights. The trade that they do is obviously treating patients, and that is the main part of their mission, but there's a whole business operation behind that, that drives them forward and allows them to be able to stay commercial and be able to make money that they can reinvest back into future patient care.

Typically, we would expect to see roughly 40% of our hospitals cost to be spent on that operational, administrative and financial side of they are the commercial aspects of that. And historically, it's been very difficult for hospitals to be able to understand how they are doing compared to their peers and elsewhere because there's always been a very strong fear of anticompetitive behavior and be worried about dealing with that.

Craneware Group has been in operation for 25 years. Through those 25 years, we've built a client base up of roughly -- or north of 2,000 hospitals out of a U.S. population of 5,500 hospitals. And then on top of that, we have another 10,000 clinics and contract pharmacies or community pharmacies that are affiliated with those hospitals and are part of the hospital ecosystem.

As part of that work over the 25 years, we see ourselves and have seen ourselves very much as a data gathering company. And that data is gathered for the benefit of our customers to allow them to both understand what good looks like, but also to make improvements and make recommendations to them on how they can drive both their revenue and their commercial operations.

To do that, we have somewhere in the region of about 200 million patient lives or patient encounters within the data sets that power our solutions. And we would contend that, that's some of the largest data sets in U.S. health care and definitely one of the most fiercely independent data sets as well. So we are not selling our data to insurance companies or elsewhere, and I'll come back to that.

Still a relatively small company. We have about 900 team members globally. That's about 260 to 280 in the U.K., about 550 to 560 in the U.S. and then some people spread across the rest of the globe with about 130 in a small flex development team -- contract team across India or in India as well.

The business has always operated in a SaaS world. We have $172 million ARR as of the June 30 under contract, which goes forward into there and equates to roughly 90% of our total revenue. And through those 25 years, we've always remained profitable from that first year onwards and deliver and manage to about a 30% EBITDA margin. U.S. health care is so huge that we believe we should still be investing in the business for growth, and that's what we are attempting to do.

So what's the health care landscape itself? Well, unfortunately, the health care landscape from a patient perspective and from an insurance perspective in the U.S. means that they get very poor value for health care. The U.S. spends somewhere north of $4.4 trillion a year, which is greater than that 50% of the global health care budget, yet it has some of the fastest declining life expectancies that we would see with the average life in the U.S. being 76.4 years now, down from even a few years ago at 79-plus years. On top of that, the cost per capita is very expensive and almost double that of the other developed nations. And when you bring that all together, that results in very poor value.

Thankfully, that poor value is actually recognized by most of the population and definitely by the 2 main political parties and both of those parties are striving to increase and improve that value. They may have slightly different ways of doing that. But pleasingly, all of those ways are about increasing the amount of data and increasing the amount of flow of data back to hospitals so that they can survive and they can be there to treat both patients, people on the call and their loved ones in times of crisis when only the treatment and the scale of the treatment of a hospital will be able to suffice.

With this, not only is it bipartisan support from the political parties, but we're also seeing it from most of the stakeholders and a recognition of this from most of the stakeholders in the health care. So we're seeing that from the large insurance companies, from the government itself who administer the Medicaid and Medicare programs, the government and then equally seeing it from the patient and the patient demanding better value from the health care as well.

Craneware believes it's uniquely positioned to be able to help that. I mentioned that 40% of the overall budget being operational and financial and administrative costs, and that's where we look to target. We look to make it more efficient and by making that more efficient, we free up investment that can then be utilized for better care, for better staffing practices and better infrastructure for the hospital to be able to deliver that care to their patients.

How we go about that is to perform digitalization with the hospitals. It does sound like I'm being either a little bit pedantic or a little bit semantic when I say digitalization and not digitization, but this is really important. Historically, within hospitals, there has been a long-term move, and particularly over the last 14 years to digitize the information within health care. And by digitizing that information, that's taking those individual patient encounters and recording that information digitally taking the x-rays or scanning, imaging and recording that as well. And all of those are very, very effective in being able to help and grow, be able to help with speedier diagnostics and better clinical paths for the patients.

But unfortunately, they do because they're very transactional in nature and rely on an individual patient encounter, they tend not to do much to be able to improve the trends of the hospital and the commercial side. And that's where digitalization comes in. Digitalization allows the accumulation of all of this data to go together not only across the scope of an individual hospital, but across the ecosystem of almost 50% of all hospitals, and from there, be able to drive real sustainable change in the business practices of the hospitals for improving and making them more efficient.

So hopefully, I've given you a very high level overview of some of the market need that's there. So we have this very poor value for care. We have some really passionate caregivers and operational and administrative people in the hospital but are hamstrung by the administrative processes that are required to be able to sustain the quite cumbersome insurance practices within the U.S. Hopefully, I've illustrated a little bit about some of our strong competitiveness from the breadth of our platform and the products we have, and I'll go into more detail on that a little bit later on.

We also have that extensive customer base that represents almost 50% of the hospital base and that in the U.S., and that gives us a very unique insight that we can then utilize to be able to improve the outlook of our hospitals to ensure they understand what good looks like and then start to change their behaviors to model better performance and that going forward. We do all of this through our SaaS model, which allows us high visibility of our revenue for the future and allows us to target our investments very specifically on growing the available marketplace but growing that in a way that returns better improvement back to our customer base.

And lastly, for those of you that are monitoring from an ESG component, not only are we a software company that's very light touch on our environmental footprint and in many cases, very close to net-zero with regards to that. But from a governance perspective and particularly from a societal impact has an impact on society, far bigger than the sum of the parts. I'm very proud to say that the team here at the Craneware Group has delivered something north of $1.5 billion back to our customer base. And that $1.5 billion, as I say, has been reinvested back into better care.

It's been a very good year for us in terms of what we've seen as our underlying market is gone from a year ago in May being in -- still in the pandemic and the health care emergency and that public health care emergency coming to an end and that was really what -- when hospitals were acting very tactically and really just trying to keep their doors open and work on day-to-day tactics to survive.

Since May of last year, we've started to see improvement and almost monthly improvements in both the outlook of hospitals, the financial performance of hospitals but also them converting and looking towards strategic resilience and looking for long-term strategic planning again as well.

And that's resulted in us being able to deliver a performance in the business. It was above market expectations across the board, continue to build the strength and the resilience in the company as well by building on the platform that we have and on the revenue sources that we have and the opportunities ahead of us and continue to see those strategic actions of hospitals resulting in growth opportunities for us in the company.

And with that, I'd like to hand over to Craig for the financial review and a quick run-through of our numbers.

[Craig Preston, executive]

Thank you, Keith, and good afternoon or good morning wherever we find you in the world today. Thank you for joining us here today. This slide, I think hits many of the highlights of our financial KPIs this year. As Keith has already mentioned, it was a performance of the business ahead of market expectations. So I'll take you through some of the highlights. We've already talked to the improvement we've seen in our end mark.

I mean it's fair to say that hospitals globally in the last few years have had a tough time but they are now moving back away from the tactical thinking back to strategic thinking and looking for the long term. That, combined with the investments we've made in prior years, and those investments include moving our products to cloud by the Trisus Platform, we've adapted our go-to-market strategy through the optimization suite. And Keith will take you through what that means in a slide or 2's time. And we're also -- we've been collecting -- we have this data asset within the Trisus Platform. And we're consistently looking for new and innovative ways we can use that data to help return further contribution back to our hospital customers.

Where appropriate, on our platform program, we will work with third parties of different shapes and colors and forms. But ultimately, it's all about delivering return to our customers. All that has come together in our revenue for this current year. We've increased our revenues by 9% to $189.3 million, very much knocking on the door that double-digit growth we've been talking about returning to in the near term.

Within our cost base, we carefully manage our cost base. We've been always talking to delivering a 30-plus percent EBITDA margin and that will fluctuate 1% or 2% every year. But we do this by careful controls over our cost base. We have a series of investment projects that we're looking to do in the course of any 1 year. But because of the really high levels of visible revenue we have booked from our business model, we can time the release of those investments so as to deliver that margin. As to this year, again, we've delivered a 31% EBITDA margin. So our adjusted EBITDA has increased 6% to $58.3 million.

Our EPS though has increased further. That's actually increased by 9%. We have always been a highly cash-generative business. This year, you'll see just below that we converted 90% of our EBITDA into operating cash. We've been doing that for many, many years. So we've built quite a significant cash reserve on the balance sheet. However, when we did the June '21 acquisition, the Sentry Data Systems, we did take debt on our balance sheet to help fund that acquisition at that time in a very low interest rate environment. That obviously has changed. The macro environment is very different. We're now in a high interest rate environment. It no longer made sense to us and to our Board to hold significant amounts of cash on the balance sheet whilst paying interest on our bank facilities.

So what we've done over the course of the last 2 years is pay down our RCF. So we have $100 million revolving credit facility. We've drawn down $80 million of that to fund the Sentry acquisition as well as taking out a $40 million term loan. But what we've been able to do is continually pay down our term loan, paying that at $8 million a year, but use our cash reserves to offset our RCF whilst keeping the facility in place, but that is now sitting at $20 million. Net result of those actions through the course of this year is we have seen our net interest rate charge drop by over $2 million, and that has very much played its part in delivering this 9% growth in our adjusted EPS.

To ARR. So ARR is $172 million. We shouldn't ever lose sight because that's a really solid foundation on which we can build from, and we can build our future growth. We can rely on that as we go into next year. And then new sales as we deliver them, will only add to this ARR number. It hasn't grown in the period as much as our revenue number, and we knew this was going to happen. We trailed that our -- in this year, our ARR would be a lagging indicator compared to our revenue growth. The reason for this is with the platform program being new, we have deliberately held back on what we call ARR from that platform program.

New innovative ways of doing it before we consider that to be recurring, we want to see a pattern almost on a customer-by-customer basis of what that recurring element will be going forward. Initial expectation is we're seeing a good rate of conversion from our initial findings with at least 50% of that converting to ARR, and that will help build our ARR growth in the future. So we expect to see that bring more in line with revenue growth in the future years.

Operating cash conversion, I already talked to, 90% is across the group, so all sides of the group is generating at 90% operating cash conversion and that truly speaks to the quality of our underlying earnings. And finally, for me on this slide, I've talked to our focus has been on reducing our debt balances as a result, we brought our debt down 58% in the current year, but have $35.4 million of outstanding debt, $20 million relating to the revolving credit facility and the balance then being the term loan itself.

If I could move to the next slide, please. I think I've hit most of the headlines here. So the 9% growth on revenue and the 9% growth on EPS, combined with a 6% growth in our EBITDA. However, the graphs on the right-hand side truly represent both our progression towards that double-digit growth rate that we intend to achieve in the near future, but also give you an idea of the underlying scale that's involved. The acquisition of Sentry Data Systems back in fiscal '21, doubled the size of our group, and we've managed to bring both sides of the business to -- back towards those double-digit growth rates.

I can move to the next slide, please, Keith. Capital allocation is probably more of an art than it is in a science. So different stakeholders have different objectives and different needs they're looking for from capital allocation. So what we've tried to do here is just outline exactly the decisions we've made. We've -- I've already talked to our decision to use our cash reserves to reduce our loan amounts. So we've actually paid down $52.6 million of loan and interest payments during the period. That's -- we have very good healthy relationship with our banking partners. So that stays in place there.

We also must do the right thing for the business. So we must be investing for our own future. We need to keep that software state-of-the-art, looking fresh and developing new and innovative products that our customers can use. So we do invest in future product development. We've capitalized $15.8 million in the period. Approximately 30% of our R&D spend, we capitalized. Here, we are very, very focused on future economic benefit. Everything we capitalize will have a future benefit to the group. We monitor this to monitoring the contracts we signed for our new Trisus product. Very pleasing to say that we already have more than 100% contract coverage of everything we've capitalized to Trisus to date. Therefore, everything in the future -- all future sales are now further returns on that investment.

We're also very conscious of meeting our shareholder needs. So we've completed a GBP 5 million share buyback over the last 2 years. That was the original mark allocated to, and that completes in the period. We are also a dividend-paying company. So we paid $12.8 million of dividend in the year. Further to that, we have a progressive dividend policy. So with a final dividend of 16p per share, we are giving a total dividend fee of 29p. That's up from 28.5p this time last year.

If I could move to the next slide, please. Keith has already talked to our SaaS business model. It's a SaaS business model built on underlying long-term contracts. With those contracts in place, we have really high levels of off-balance sheet contracted but yet to be recognized revenue. So really high levels of future visible revenue. On top of that, we have the prudent revenue recognition that comes with SaaS, so once for every month, the customer is using the software. But we often are able to break our contracts down into annual license fees. We're able to invoice those annual license fees in advance, collect the cash almost before the start of that financial year. So we have really high levels of cash generation associated to it.

We do have an element of transactional revenue that's involved on our 340B side of the business. And again, that is actually through software, we supply to hospitals and then how they interact with the contract for all the local pharmacies. Here, it is a transaction revenue. So it does vary month-on-month, but there's an underlying core of it that's tied to the contract that was very much recurring in its nature.

Professional Services, we have both recurring and nonrecurring professional services. Actually, on professional services, but if you have a look into the detail of the revenue note, you may notice that our professional services are actually slightly down in the current financial year. However, underlying professional services sales are significantly up. What that means, we simply ran out of time in the year to deliver those 2 revenue. So it means we're entering fiscal '25 with a very healthy backlog of professional services that we have plans in place to see that being delivered in the first half of the year.

And our platform revenues. I've talked to our platform revenues. Here again, we are looking for new and innovative ways to leverage the data and leverage -- that's sitting within our Trisus platform. that initially, we're calling nonrecurring, and that's why it's in the blue section of the bars on the right-hand side, but it will -- as we see those programs succeed and we see the conversion to recurring revenue, it will convert to future ARR in future years. Ultimately, as a business, we have approximately 90% of our revenue in any 1 year is very much recurring in its nature. You'll see from the graph on the right-hand side, we actually dipped slightly below that this year, and that's solely down to the success of the initial stages of our platform program.

I can move to the next slide, please, Keith. Next 4 slides for me are the primary statements themselves. I think I've covered a lot of the headlines here, but just to give a bit more color on some of the detail. 9% revenue growth, 6% EBITDA growth, we talked to R&D spend, we spent approximately 30% of our revenues in R&D. Again, expensing anything that's about refreshing or the data side of the products themselves will capitalize new product enhancements and new products that have yet to come to marketplace. And here, about 30% of our spend -- R&D spend is capitalized.

Margins. We delivered consistently a mid-80% gross profit margin and target a 30-plus percent EBITDA margin. So 31% of the period is exactly in line with our guidance. Our effective tax rate in any 1 year, we do have a mix of U.K. U.S. profits. So our effective tax rate will be influenced by that fact. Also, we have a little bit of fluctuation year-on-year just depending on the level of share options that are exercised and how we can utilize our research and development credits.

Ultimately, though, we've talked to double-digit growth rates. When we get to our final profitable figures of profit before tax and profit after tax, both those profit measures are up over 20% in the year.

If I can move to the next slide, please. Thank you. Talk to EPS. So EPS at the adjusted level is up 9%, at the unadjusted level is up significantly in excess of those levels, but we do talk to an adjusted metric. Here, though, there's no unusual adjustments that are put through. We solely adjust for amortization of the acquired tangibles that arose on the Sentry acquisition and any exceptional costs. You can see on the right-hand side of the slide, there's nothing that's really influenced those adjustments. They're very much in line year-on-year.

The number of shares we have an issue hasn't changed during the course of the year, but we do hold 223,000 shares in treasury as a result of the buyback program. We hold those in treasury to make sure we can utilize them as our employees exercise their options, and that avoids any future shareholder dilution as a result of those option exercises.

If I can move to the next slide, please. I believe we have a very strong, healthy software company balance sheet. There's a lot of resilience built into this balance sheet. We have very healthy cash reserves of GBP 34 million. That's even after paying down a significant amount of debt, which we talked to. The revolving credit facility stays in place. So we have $80 million of further revolving credit facility that we're able to draw down should we find the right reasons to do that. All our covenants associated to our loans, we have plenty of headroom in. And I've already mentioned, we have very good relationships with our banking partners.

It is worth talking to the one thing I haven't talked to you yet is underlying sales, and Keith will give more flavor on this. But to really give you a good indication of how strong those sales have been during this year, I'd ask you to focus on the deferred income line within the contract liabilities. So deferred income is where we have seen sales happen in the second half of the year. We're able to invoice those sales, hence our trade receivables go up, but we're not yet able to recognize the revenue because of the prudent revenue recognition. That deferred income balance has gone up by over 30%, and that's a good proxy to give you an idea of how strong our underlying sales will be in this current year.

Trade receivables do naturally go up as a result of that. However, we've already collected over 50% of that ledger. So we have very, very good cash collections coming in post year-end.

If I can move to the final slide for me. Thank you, Keith. We've talked to 90% conversion of our EBITDA to operating cash, again, reconfirming the quality of earnings across the whole of our group. I've already talked to all the different capital allocation decisions we've made as a Board this year. The one slightly unusual standout number on the cash flow statement, there's the tax payments. It is unusually high at $12 million. It's just a fact that last year being unusually low, and that's just the timing of the payments on accounts. So you'll see that normalize in fiscal '25.

And with that, I will hand over to Keith. Thank you.

[Keith Neilson, executive]

Thank you very much, Craig. Really appreciate that. So our strategy, I hope, is reassuringly straightforward and is also very consistent in terms of where we are. It's very much land and expand. So we want to get into as many hospitals as possible. I think we have proven over the 25 years that we are actually applicable to all hospitals within the U.S. We've grown to somewhere between 40% and 50% of the hospital marketplace, which gives us a really good starting point from that going forward. And we maintain our long-term target and ambition of being in all U.S. hospitals and being able to really make a societal impact across the value of health care delivered in the U.S.

On top of that land though that once we're there, we're continuing to develop new products and invest into innovation, which will both increase our total addressable market. and continue to improve our customers' experience, as Craig discussed. Over the life of the contract, we've seen us really go from somewhere around about $10,000 per annum per hospital to somewhere in the region of $90-plus thousand now, all delivering a greater than 5:1 return on investment to our customers. As we mentioned -- as I mentioned earlier, $1.5 million (sic) [ $1,5 billion ] so very comfortably delivering for them so that they can prioritize this software to get these efficiencies coming through.

If we look at just some white space analysis within the customer base as of June 30, and if we were to then sell the SKUs and the products that we haven't currently that we haven't currently sold within that customer base to them, we would have a revenue run rate somewhere in the region of about 7.5x where our current revenue is. Now I'm not suggesting that we're doing that overnight, but we will be looking to do as much of that as we possibly can going forward, and there's some really good evidence about that cross-sell and upsell opportunity that we're delivering.

On top of us selling our own products though, Craig has touched on how we can then leverage the platform that we've got. And that's really to leverage it in 3 different ways. The first is we have a very robust platform where we've spent and invested on behalf of our shareholders, a significant amount of money and a lot of time from the teams into making it very robust and suitable to be able to gather the data in from our customers.

The second thing is that data itself has value when repurposed on behalf of our customers to give them greater insights into their operations and new ways that they can actually correct or run their operations more effectively or more efficiently.

And lastly, the size of the customer base we have is valuable in its own right, and there's a number of companies out there that are wanting access into that hospital market. And we believe that on all 3 of those areas, we can be a really good channel for them to take them out to our customer base and in some way, benefit from that commercial relationship between the customer, where they are -- the customer is benefiting, the third party is benefiting and we're benefiting through leveraging our platform, the data and that customer base there as well.

For all of that to work, we believe that, that comes through with the investment that we're making and being consistent with the investments that we're making and we can carry that all through with our target financial model, which is long-term contracts to our hospitals with very strong stickiness because of the value that we actually provide to them. To do that, what we've done is we've actually taken something in excess of 24 SKUs, so 24 individual products or product codes and we built them into our optimization suite.

The optimization suites are very deliberately packaged offerings, which address real-world problems that hospitals will identify with them and areas that they want to improve from. There are a mix of both strategic and tactical areas that the hospital may be considering taking on. And on top of that, they also have each of these optimization suites, have different profiles to them as well.

If I look at, for instance, Trisus pricing integrity and Trisus Revenue Protection on the left-hand side, typically, these are either going in a software offerings to replace consultants or heavily tech-enabled services with our software offerings and bringing our platform in. If I look at data integrity and charge capture in the middle, these tend to be more tactical solutions here. And in those tactical solutions, they have small elements of competitors within software vendors, but there's no software vendors that cover the breadth in each of these optimization suites and the debt of each of these optimization suites. And so therefore, we believe we're taking significant market share. And while we're growing our new sales at a faster rate than the underlying market is growing from there.

And then if I go to the right-hand side to the business of pharmacy and value-based margin and productivity, we're starting to touch on new areas within the hospital that either technological advances are allowing us to go far further than it's ever been possible to go before. But by and large, with the exception of our 340B software, which I'll come back to in a second, are going into new areas where either previously, there was no need or no desire for the hospital to go into.

So for instance, pharmacy is a great example of that. Up until very recently, pharmacy was seen as a clinical department or as a cost center rather than being seen as our revenue opportunity and as a business area that needs to perform well because if not, it can literally sync a hospital or figuratively sync a hospital financially from there. Thankfully, there's not many of them going under water and Venus from there. Trisus, value-based margin and productivity is where we're then concentrating on the cost side of the hospital, and we're giving hospital real insight into that so they can understand and then manage that cost and productivity component to their operations.

If I go on to then how that's translated into new sales in the period. Well, first of all, our new sales are significantly up, as Craig alluded to, of greater than 30%. This has actually been consistent across both volume and across quantity of sale with roughly plus or minus a few percentage points, 20% of our sales being brand-new pins on the Board. The remaining 80% of our sales are cross sales or upsells. Cross-sells being to customers midway through their contract, looking to purchase more of our applications and upsells being when customers come to the end of their contract, then adding on new applications whilst they then renew and they drive forward with that.

In that range, there's been modest movements up and down between the different categories of these 3 kinds of sales. But actually, nothing material other than the fact that we're seeing customers over last year and this year, returning to buy more products far quicker than they ever were. And that allowed us to build the next slides forward from here.

And this is us looking at all of the commercial contracts that we've written with hospitals for new products or new services that we've supplied through the course of the last year and break them down in 2 different ways. On the left-hand side, we're looking at it by the number of product suites or individual product SKUs that they're purchasing on each of those contracts that are coming through. And on the right-hand side, we're looking at by dollar value and the mix and the range of complexity and size of actual contractual commercial arrangements that we've built in our new commercial relationships that we've added on to hospitals.

So if we start with the orange graphic on the left-hand side, those with very keen eyesight will see that the boxes vary in size and have 1 of the 3 categories from before listed on them either cross-sell, new or upsell within there as they go. In the top left-hand corner, we have -- and for roughly the first 4 columns, we have complete optimization suite sales going from 7 products being sold all the way through that range. And then in the top 4 bars to the right-hand side and going down the next 4 columns vertically, we then see where people are -- hospitals are filling in the balance of their optimization suites to complete out solutions that they've got.

If we look at the last 9 or 10 columns, in there and about 9 or 10 columns high on the bottom right-hand corner, we then have individual product sales coming in, and down in the far bottom right-hand corner, we then have the amalgamation of lots of individual product sales coming in as well. So just to give you a flavor and a heat map really of the numbers of products and the diversity of the product ranges we're selling.

Pleasingly for me, when we were constructing these graphics is the number of different SKUs who has really selling all of the SKUs that we have out there and that we're currently taking forward and getting penetration from them. So there's no one dependency on any one heavy product area, which was really pleasing.

If we look at exactly the same data, but we organize it by contract by dollar value, we get the blue graphic on the right-hand side reaching from the bottom right-hand corner of an accumulation of deals that are small add-on reference materials, all sub-$10,000 to the next level of boxes just above that of greater than $10,000 sales all the way up to the top left-hand corner or the top 2 boxes on the left-hand column, which are our multimillion dollar first year value.

It's interesting to see that actually, about 68% or 2/3 of our sales were optimization suites and that corresponds with a whole mix of different values because some of those optimization suites sold on the orange graphic also went into either individual hospitals or went into multihospital systems. That then corresponds with roughly 50% of our sales coming from about 15 deals there, which is actually significantly higher than the large deals we've been able to report in the past. But also a very significant number of smaller deals coming in, roughly 250 to 260 smaller deals coming in that we're then giving us that volume and resilience in there as well.

So a really healthy mix between large systems and large deals for multiple products through to individual product sales to rural hospitals or smaller hospitals as well. So very pleased that the resilience that gives and also the proof point and the comfort that were relevant for all sizes and all strata of hospital.

And lastly, before we hand over to questions, and we finalize out, those that have been following us will have seen that through the very last day of the fiscal year, which was actually a Sunday this year, getting through on that, we managed to sign our alliance with Microsoft and get that across the line there. This provides many commercial benefits to us that are quite common, where we're being able to achieve volume discount for the quite significant computer spend that we're projected to need to use to service our customers over the next 5 years. But on top of that, go-to-market strategies, co-marketing strategies and very much co-development strategies that we have with Microsoft.

On top of that, we have some significant support commitments from Microsoft as well, where we get technical resource and some of the best and the brightest minds from Microsoft and their partner ecosystem to be able to help us drive and scale the Craneware business faster, better and smarter as well.

And then lastly, being able to -- some real examples of that would be our new agreement with Oracle that involves both technical capacity and involves us migrating our Sentry database systems that we acquired in 2021 from Oracle Cloud infrastructure over to Oracle databases in Azure and we'll continue to be able to report back to the market on the success of that, but are expecting that to be hugely accelerated by the fantastic partnership that we're receiving from both Oracle and Microsoft to make that transformation actually happen with lots of benefits to come from that as well.

And with that, just a reminder on that confident outlook as we pass across to Q&A. Joe, could you do the Q&A and see if there's any questions for us, please?

[Operator]

[Operator Instructions] Our first question is, do you anticipate any impact from the elections coming up in November?

[Keith Neilson, executive]

I'm going to split this into 2. I'm not going to comment on the political impact or anything like that. But I will comment on how both I believe the health care landscape will be affected by the elections. And this is feedback from a number of different sources. I was very fortunate through July to spend 2 weeks in Washington, D.C., partly with the 340B Summer Conference with lots of our hospital customers and potential customers, understanding the real on-the-ground importance of 340B. And because of that, that allowed us to get access to Capitol Hill and to get access to politicians of both political parties, both in publicans and Democrats and actually some independents as well to understand on the ground their thinking of -- their view of health care going forward.

And it was really pleasing to see that reaffirments from both political parties and also some people from what would perhaps be deemed the extreme left and the extreme right of those parties that value is such an important thing to them and driving that value through is really important.

As I said at the beginning, the way that they look to achieve that is slightly different, but just about everybody was mentioning the importance of hospitals in that health care ecosystem in many of the states, if not the majority of the state, and definitely in the majority of the states, hospitals are the largest employers in those states. And particularly across rural states and either high dense urban populations but also in those rural populations. Some of the programs that we help support are absolutely fundamental to the success of health care and therefore, many, many jobs. And as I say, that drives the politicians on both sides of the house to respect and want to help to be a factor of improving that.

On top of being at Capitol Hill and in the White House discussing -- having the great honor and privilege of discussing health care there, we've also, as some of our existing holders may know, we have 2 of our long-standing nonexecutive directors that are due to rotate off of our Board because they have now been with us for more than the 9 years. And first of all, I'd like to thank both Colleen Blye from Montefiore Health systems and Russ Rudish from Rudish Healthcare, previously global head of Deloitte Healthcare practice for their amazing value that they've brought to create the Craneware group over the years of service that may be with us. And we hope we will all be able to continue on understanding and learning from them because I have learned so much and the group has benefited so much from them.

But in the process of us looking for worthy replacement of -- for Russ and Colleen to come in post our AGM this year -- in November of this year, we've been -- we've had the real privilege and real honor of speaking to many hospital executives across the landscape from some really important health care systems. And actually, since the week I was -- the 2 weeks, I was in Washington, D.C., the middle weekend happened to be the weekend that President -- former President Trump was -- there was the shooting attempt on him. And obviously, through the week post that, oh my goodness, for a changing political landscape, Vice President, Harris, both President Biden, confirmed that he was not going to seek reelection and Vice President, Harris stepped into the ring in between on that. And my goodness is a politically charged week there through that. Very exciting to be there.

But with -- through then the conversations with health care executives, very surprisingly, but really pleasantly they are very strategic in their outlook. They believe that because -- regardless of who comes in, it is going to be a change of administration coming in, whether it's Vice President, Harris is successful in her bid for presidency or our former President Trump wins a bit for reelection. It's going to be a change of administration.

And so they believe that for the next 4 years through to the next election cycle, particularly with where the midterms come and the changeover of many of the committees that's going to come in the midterms, 2 years after this that very little is going to change in the legislative landscape for health care. So they're planning a long-term period of stability where they can be strategic and grow and deliver more for their communities.

So very excited about that opportunity coming through as well. I'll keep my political views to myself elsewhere on what would happen with either of those potential candidates coming in and winning their bid for presidential election. But I do think from a health care perspective, this could be a really good period for them to be able to get back to a really solid footing and be able to impact that value of health care. So thank you for that question.

[Operator]

Our next question is looking into the current year, how do you expect your sales to be split out between upsell to existing customers, new customers and platform revenue growth?

[Keith Neilson, executive]

So that's a slightly different way from us looking at it normally. So I'm going to have to just take a couple of minutes on that. One thing it is worth seeing on the platform revenue growth, we are looking to invest modestly to start with, but then to build that out and be a meaningful revenue area for us in the future.

At this stage, we would expect that to at least have the kind of quantum that it has just now and we would like to see growth that we're seeing in the rest of the group, which is -- looks like it's returning quite comfortably back into double digits, where we'll see that flow through at least at that level of platform revenue and perhaps that accelerate beyond that going forward.

The initial investment in that is going to be some realignment of some of our teams with regards to that. Behind a new SVP of strategic partnerships, which is going to -- who actually joins us on Monday of next week, so very new to us but very exciting opportunity for us.

Of brand-new sales, I still think next year, that will be somewhere in and around that 20% mark of our sales. So roughly 1/5th will be brand new sales and then roughly 80%, 4/5th will be expansion sales from us. But at this stage, we're not actually forecasting what that platform revenue piece will be. And equally, we're not forecasting the drive that Microsoft will give us with their go-to-market -- with our go-to-market strategies and our co-marketing strategies from there.

But we do think there is potential -- a significant potential upside to where the analyst numbers are just now. But we're not quite at the ability to be able to say exactly where we would guide for that yet.

[Operator]

And just as a follow-up to the previous question, as platform revenues grow, will your margin profile change?

[Keith Neilson, executive]

The opportunity for margin profile will change and will improve. We will start to have some options generated because of operational gearing. However, as it stands just now, we believe we are still growing the total addressable market and accelerating growth at this stage. And we believe as a management team and as an executive team, we should be investing in that. And that's where, as Craig said earlier, we can continue to deliver that 30% margin but invest in better products to better delight our customers. And actually, for the long term, we believe that, that will be a far better option for our shareholders.

So there is operational gearing that will come through that will give us both capital allocation and investment decisions on how we continue to grow and accelerate this business.

[Operator]

Great. And our next question is, what has happened to the length of the sales cycle? Presumably, it is helpful having preexisting relationships with so many hospitals. Is this a major barrier to other vendors trying to come into the market?

[Keith Neilson, executive]

So I say it's a good question. There's actually there's about 3 dynamics to that. First of all, the sales cycles overall have definitely come down, and we saw that on the -- on what we call the doughnut graph, which was the breakup of cross-sell. Cross-sell being 70% of our new sales coming through is definitely new for us. Now there is a part of that because that's not just ERR, that's all of our sales. There is a part of that is the platform revenue coming in as well. But for both this year and last year, as I mentioned, we've actually seen people buy a product in the beginning of the year and then come back to us to look to buy more product, if not that same year, very shortly after that. And that's great to see that acceleration of that piece coming through.

It's certainly because we've already gathered the vast majority of the data for a customer, not only is it easier to implement and get them up and running and getting value out of new products but it is also easier to demonstrate that value, and that in itself over time, will continue to drive faster and faster sales opportunities for us as we create more and more products and can back that up with the data and the evidence to the hospital on the benefit that they will get from them.

So we definitely think the medium-term and long-term trends for that to continue to come down, and it's definitely impacted by the move to the platform and the improvements that we see operational gearing for doing that by going on to the platform.

[Operator]

There are no further questions at this time. I'll now hand back to Keith for closing remarks.

[Keith Neilson, executive]

Thank you very much, Joe. Thank you very much, everyone, for taking the time to listen to us today. I mean it's really just to leave the slide up. We have a very confident outlook, which is -- which I believe is backed by the performance through the course of this year being a very strong building block taking us forward. That's the combination of the $172 million ARR, but that's supportive market backdrop and what we believe should be a relatively neutral to positive backdrop for hospitals because we believe there'll be less change in -- over the coming periods than there's probably been in -- certainly in the recent past and maybe over the last 2 or 3 or maybe last 2 or 4 election cycles.

The team has been very good at not only being very disciplined in that capital allocation to both drive shareholder value, but also in balancing that off with investment in innovation. And I think that has done nothing but grow the opportunity in front of us. And as I mentioned earlier, that 7.5x revenue opportunity is a real number that comes from what we can deliver at some stage in the future. And it's very much we've invested this year on and continue to invest in both how we can grow and channel the sales and marketing effort to be able to execute on that and align the back end of the business to be able to deliver that product to delight the customer through both the product and through the professional services in there.

And with that, I think we're in a really good position right just now. It's super exciting to be involved with the Craneware group on a daily basis, always in these situations, nothing is without its challenge. If it was too easy, it wouldn't be as much fun. But there really is, I think we're making real world difference out there and impacting the ability for hospitals to be able to deliver on their mission, and at the same time, I believe we are in a very strong position to be able to benefit from that ourselves and for our stakeholders to be able to benefit from that as well.

And with that, I'd like to thank both my team and also the Board and all of our shareholders and everyone on this call for listening in and taking the time today to join us. Many thanks, and thank you very much, Joe.