Mach7 Technologies Limited

Good morning to those of you joining from Australasia and good afternoon and evening to those of you in North America. Welcome to the MAC7 results presentation for the first half of fiscal 23. My name is Rebecca Thompson and I look after MAC7's investor relations. Today, MAC7 CEO Mike Lampron will give an overview of the first half result highlights, after which he'll be joined by CFO Diane O'Hearn for Q&A. With regard to the Q&A, if any attendees have a question, please submit it via the Q&A text box at the bottom of your screen. Alternatively, you can email me your question on rebecca.thompson at mark7t.com. I'll now hand over to Mike for the first half update.

Thank you, Rebecca, and thank you, everyone, for joining today's call. We'll do a brief business overview for those of you who are new to the business and then we'll jump right into the first half year results. Mach seven is a what we consider ourselves to be an enterprise imaging software company really essentially what what that means and what differentiates Mach seven is that our software. We'll consolidate images from across an enterprise throughout the healthcare ologies, store that data, organize that data, and then we have the ability to display that patient data across the enterprise. Key things for Mach 7 are interoperability, connecting systems, essentially EMRs to imaging solutions. Our product suite either works with existing technology, such as an existing PAC solution, or it can replace technology like an existing departmental PAC solution or an image exchange solution or existing archive solutions. Our product solution really breaks down to three major components. The heart of our solution is the vendor neutral archive. That's really where the enterprise data management is done. We collect that patient data in the image capture data. We index it, we manage it, we store it, we distribute it. And we allow that information to be usefully served back out to clinicians once we've stored that data. The second component of our solution is our enterprise diagnostic viewing. So essentially, this is our eUnity zero footprint viewer. And this allows our clients the opportunity to view any of the data that's either stored within our VNA, within a third-party VNA, within another PACS solution, or any other solution that the customer may have that they'd like to integrate a universal viewer with to give all of the conditions outside of radiology the opportunity to see imaging. Typically, that's done through the integration of our universal viewer with an electronic medical record like an Epic solution. So they integrate our solution into that so that when the physician is looking at the patient's medical record, there'll be an opportunity for them to notice that they have images, click on that button, and then that will automatically launch the eUnity viewer and the clinicians can view those images. Although it seems like something that should be really common, it's really not. Departmental radiology PACS solutions were meant with radiologists in mind, not meant with clinicians outside of radiology in mind. So this really gives a new feature set to clinicians outside of radiology. It's also clearly used for radiology as well. But the highlight really is the ability to use it in a zero footprint integrated fashion for the remainder of the clinicians outside of radiology. The third component we have is what we call departmental workflow applications. And really, this is specialized workflow that is developed. It's very personal to the department and personal to the institution of what it is they want to achieve, whether it's creating appropriate workflow for point of care ultrasound, where you can create chargeable entries and image data to make it a chargeable event. It could be routing to advanced visualization platforms. It could be lifetime cycle management for an IT organization. There's a number of tools that are built in that can be used across an enterprise. And then there's a number of customizations that can be done with our adapter technology that really arouse for custom workflow, whether that's You know, data manipulation or the curation of data, depending on the needs of the hospital, those things can all be used for machine learning, for AI, for operational analytics, or for clinical tools. So that's sort of the third part of our solution. So as we look at sort of the third party evaluations of our software, we turn towards class as an organization that's sort of the consumer reports for healthcare IT. This year, for the second year in a row, our universal viewer placed second overall. We did hold the number one spot for most of the calendar year, but unfortunately in that last month, we had another vendor that came in and took that number one slot. We are once again at the very moment currently ranked number one in live data in class, but that changes constantly, but just an indicator that we continue to make progress. And I think one of the things that we got out of class this year for the universal viewer segment was 96% of the respondents said that they would buy our software again, which kind of points to the stickiness and the reliability of our software. So one great data point on that universal viewer segment. On the V&A segment, we placed number five overall. And compares to number four last year. So we slipped by a rank and actually we're making progress on that now. But we're still very proud of these results where we're competing with much longer, much more established vendors who have been in the market for a much longer period of time than we have. Some of the things that we had to make improvement on on the V&A side was availability of new feature functionality. We did just release our version 12 software, which was a long time coming. And that was not rolled out in time for customers to really be able to make a comment in the class ranking. So we do expect that as people roll on to version 12, they see the new feature functionality that we're offering that will help to drive our scores up over this coming year for class. And you see a comment that we put down here just around the configurability. We do really believe that one of the true differentiators of our VNA versus other competitors is that we have a clinically focused VNA, which means we're not just a bit bucket. We're not just a device that's used for the management and archiving capabilities of data. But it truly has clinical value. It truly has the ability to do tag morphing and to manipulate the data and get that data back out to these clinicians in a meaningful way where it can help them clinically. A bit different than some of our competitors who really use the VNA as nothing more than a long-term storage device. So our market segment, some of you will recognize this chart to the right and redress to the total addressable market. What again is a differentiator for us is the type of customers that we have. We have many examples of IDNs, Sentara, Advocate Aurora, Trinity, Adventist are examples of IDNs that we work with. But we also have examples of more government facilities such as the Hospital Authority of Hong Kong. We have regional and community hospitals, which are these smaller hospitals, smaller beds, smaller volume, but have the need to share images and use the sort of the advances we've made and having remote radiologists present and available to help them read their studies. Academic institutions, imaging centers, we really sort of run the gamut from the breadth of types of customers that we have, which really opened us up to a broader spectrum of the total addressable market than some of our competitors. Now we may not have deep tentacles into some of these, but we'd certainly have tentacles into some of them and it's growing every year in different ways. I would say that our partnerships continue to grow this year. Our IDNs continue to grow this year. Our imaging centers and outpatient clinics, what we consider to be the ambulatory space, is continuing to grow. So we certainly are continuing to stay broad and continuing to have ways that we can address the TAM. This page just goes on to just describe some of our partners. We do have a growing and I think pretty broad spectrum of partners that we work with in a lot of different ways. Whether it's Nuvodia, which is a new partner who is reselling the full breadth of our product, the V&A, and the viewer to create a Pax solution for their customers. Essayote is a cardiology solution out of Italy that continues to resell the eUnity product. Abydox is a risk company in the US, a cloud-based risk company who again continues to resell the Pax product from Mach7. Lucid Health has got an incredible worklist orchestration tool that they put out into the market. Biologics is an analytics company that we work with. So you really can tell the spectrum of different types of partners that we have. We do have a dedicated channel partner this past year that we brought on. And we expect this to continue to grow both in number of partners that we have on board, but also in contribution to revenue and sales orders as that starts to grow. So we'll jump right into the first half year results. So once again, for the first half of the year, we've had a record sales order growth of 25.8 million, growing around 17% over the prior corresponding period. We've had record revenue of 16.4 million. Now that's also seen good growth on the prior corresponding period. We'll go into a little bit more depth of what that revenue number is, but it's lower than the 18.1 million that we previous disclosed for our Q2. There was a discrepancy in the financing component that we need to include in how we recognize that software revenue. I'll go into a bunch of detail on that here in a minute to just describe that to everybody. But our contracted annual recurring revenue, our car number is growing at a great rate of 19%, almost 20% there. And our ARR also continues to run at 16.4%. We had some new contract wins that I highlighted earlier. Novodia and Acumen are great examples of access to that outpatient market. Many of you would have seen the Acumen contract. They own a number of imaging centers. They own a number of mobile devices. So that mobile market and that imaging center market, that's the ambulatory market. Navodia also plays into the outpatient market, that ambulatory market. They also have small community-based hospitals and some larger hospitals that they work with as well. They offer more of a managed service. So again, it's offering more breadth with the Mach 7 solution by offering that managed service that Mach 7 traditionally organically doesn't offer standalone. Our EBITDA is continuing to grow at $3.4 million. And our net operating cash flow this year so far is a little low, but we're expecting that to come back in the second half of the year, as we discussed back in January for a positive operating cash flow on the year. And we continue to have a strong financial position of 20.6 million cash and no debt. We talked a little bit about sales orders. So 25.8 in total contract value. So that is the software license, the professional services, and support maintenance costs over the period of the contract. Typically, again, our contracts are five-year contracts. Good growth over last year at the same period of 22.1 million. And for us, I've said many times, sales orders are really the The best way to judge progress from our business, there's a lot of different revenue recognition rules and timing that makes revenue lumpy for us, but you always know if we continue to grow our sales orders, the revenue is going to continue to come in, and that means the cash is going to continue to come in. So really at the stage that we're at, sales orders continues to be a great metric to measure whether our products are resonating in the marketplace, whether the customers are happy, and whether we're making progress towards our goals. Our ARR is also continuing to grow. Now, if you'll remember, we've, you know, we discussed over the course of the next four years or so, we're looking for our ARR to cover our operating expenses. So every half year, every year that we make progress on our ARR, every time we bring in more car, we know we're going to recognize it as ARR eventually. And that all helps us get further to our goal of covering our OPEX. Some other great things that are happening on the sales front is just some brand recognition. Whenever we sign another big customer, it's very, very helpful for us to have more and more users using our software. The network effect is a very, very real thing in our business. And we continue to improve and increase our work with the consulting network and business. and as we have good results with class that's always very helpful too and getting us at least in the door from an rfp from a tender process perspective this year for sales we're on track to exceed our fy 23 sales order target which was 36 million and more more news to come on that but but looking very very strong this year and looking to have a great overall year for sales orders These charts to the right give you a good idea. You see the inset chart giving you an idea of how that is breaking down, that sales order is breaking down, and where the capital software is coming in on that as well. So some other highlights just to give you some more context. New customers for us, and at the beginning of this fiscal, we discussed how in FY23, much of our revenue was going to be coming from new customers. That does remain the case at the moment. Sales orders for new customers around 21.6 million, representing three new logos, which are Acumen, Novodia, and St. Paul's, which is a sister hospital of St. Teresa's in Hong Kong. So new customers, you know, create the platform for our future sales order growth. And you can tell with the expansion and add-ons how that has helped our numbers over the years. We continue to have good add-on orders. We continue to have good renewals. Our existing customers continue to expand the use of our software, whether it's through additional licensing or whether it's through new product licensing. And our partnerships are growing as well. You'll see to the right, the bottom right specifically, we added a new element here to help everyone understand from a renewal profile in years out how it looks. You can see for FY24 is a great example where we stand with renewals next year. Now, that number is reflective of both subscription and capital license renewals. So that doesn't mean that it's necessarily $11 million in net new revenue. Some of that is subscription revenue, and much of it is new revenue. It gives you an idea of what that renewal profile looks year over year. Some years are slower than others, and those numbers are subject to change as we bring in different term contracts. We might bring in a three-year contract or a five-year contract, and in some cases, it could be a two-year contract, or like in the case of Acumen, a 10-year contract. So contract length continues to vary, but you can generally count on a five-year contract with the occasional three-year contract. We highlighted three new logos that we're adding to our customer base. St. Paul's is a private hospital in Hong Kong. Again, sister hospital to St. Teresa's. We're really looking forward to working with these guys. And this has been in our pipeline ever since we signed St. Teresa. It's been in the pipeline for a couple of years now. Again, one of the most exciting things about the Novotia partnership is that they're able to bring a managed service to the offering for our clients. We have some customers who want a managed service, meaning they want to be able to buy hardware and software from someone and have that hardware managed. Mark seven is a software only solution. We don't manage hardware. So through this partnership, it does allow us to continue to play into that market who does require the managed services. So we're very excited about Novodia and very excited about what they can do for us. And Acumen, of course, was a very large contract that we signed in December. Again, ambulatory related with many outpatient studies being performed. versus inpatient hospital studies. In the acumen contract, we've talked about extensively and we're very much looking forward to rolling out our solution across their entire enterprise. From a revenue perspective, we'll talk a little bit about this 16.4 million. Now, we had indicated earlier in January 18.1 number for our revenue. When we looked through the Acumen contract with our auditors and we looked at the way we recognize revenue, we recognize revenue for a capital agreement. We recognize the value of that software upfront upon delivery for a capital license. And that's what we expected to do for Acumen, the same way we do for every other contract we've ever signed. However, with the Acumen contract, because of the length of the term, a 10-year term, And because of the length of payment milestones, this particular contract, we applied an accounting treatment that implicitly applied a percentage, an interest rate, and that calculated out to be about 1.7 million. So the total contract value for this contract remains the same. The total amount of revenue that we will recognize because of this contract will remain the same. The difference is that this $1.7 million that we'll now consider a financing component will be recognized over the course of the contract, not upfront from a software revenue perspective. So the amount that we recognize from a software perspective goes down by 1.7, but the overall revenue over the length of the contract remains the same. So it's just a matter of timing for that 1.7 million and a little bit of a different accounting treatment than what we've done in the past. Something that we've not come across before, this is our first 10-year agreement, and so we've had to make some adjustments for this truly kind of one-off contract. On the car front, again, good growth on the $20 million, and you see in the chart on the right, The gap between ARR and CARR, which is once we reach first productive use, that's when we can begin to recognize support and maintenance, as an example. It's also when we can begin to recognize subscription fees. So that first productive use is a very important component of that revenue recognition between ARR and CARR. The comment here, we're still covering around 65% of our operating expenses by ARR, and we're targeting to have that OPEX covered 100% within four years, as I mentioned earlier. And similar to what we expected as we go into this year, we are seeing sort of a 60-40 subscription capital deal split and expect that to stay the same for some time now. So when you look at our overall EBITDA and operating cash flow, I think that we're on target this year as we close out the first half of the year. We continue to feel really good about where we're going to land for the full fiscal year. We're looking good on revenue. You'll see a slight dip there in distributor fees. As we've explained in the past, these distributor fees are associated to fees that we need to pay when we sell the eUnity software. And it's to a third party. So as those eUnity software fees Sales numbers go up, those fees go up. So it's really just a factor of that. Our OpEx is slightly higher than first half year of FY22. But don't expect the OPEX to stay the same in the second half of the year. So just taking 13 and doubling it to 26 is going to be high. Don't expect the OPEX to be that high. There's more expenses for the business in the first half of the year than there is in the second half of the year. The biggest kind of, I'll say, expense that's varying is T&E for us. And we have... you know, traveled quite a bit in the first half of the year. We have more of our trade shows in the first half of the year. We have more of our team meetings in the first half of the year. Those sorts of meetings slowed down in the second half of the year. And just by and large, you know, travel has become more expensive. And in, you know, 2022, 2023, travel expenses remain pretty high. But from a cash perspective, we're still sitting at 20.6 and fully intending to be cash flow positive by the end of the fiscal year, as we have indicated. And just to remind everyone that no capitalization of R&T and the amortization relates only to acquisition costs. So as we start to think about the outlook for the rest of the fiscal year and some notes for everyone to think about, we have found that more and more healthcare organizations are starting to look at these enterprise solutions and replacing their traditional single departmental PACS solutions for more of a best of breed enterprise solution. We feel that we're at the top of that market. We think that our products have been made from the ground up for that market. We do not have a traditional radiology pack solution that we're trying to repurpose for the enterprise. But we have a solution from a back end and a front end perspective that was made for this. We think that that's the direction the industry is going and we think that our products are well positioned to for the future as we start to think about how important that interoperability is and how important it is to have modularity within your product and how important it is to have zero footprint and easy integration. We also see a growing tendency, not just us, but the industry, to take advantage of remote reading services. And this comes in a couple of different ways. It's teleradiology in the sense of teleradiology groups that are contracting with hospitals to do remote reading. But you also have physicians who work for a hospital who want to be able to do their work remotely. So it's not even necessarily an outsource. It's more of people working outside of the four walls of the hospital. And both of those situations have grown over the last couple of years. And having the flexibility within your software to allow for that kind of workflow is becoming increasingly more important to organizations. And again, it's a custom-built workflow for the solutions that we offer. And we really see the industry growing in a way that complements the software that we've built over the years. Our brand awareness continues to grow every time we bring in a new logo is another opportunity for our brand to grow. Every time we're successful with a client, it's another opportunity for these end users to get familiar with our name, get familiar with our logo, and get familiar with the products that we offer. And people talk and it's a small business. It's a small industry in the way that imaging is very well networked. And the more we grow with our customers, the more success we have, the better our brand awareness grows and the more opportunity we have to get in the door and participate in tenders and participate in sales offerings. As we start to talk about sales opportunities, our pipeline continues to be replenished. Even though we've had some great sales orders over the last couple of years, that pipeline continues to replenish. And we're on track to achieve our FY23 targets of at least $36 million in sales orders, 20% revenue growth, and again, cash flow positive again. So I think with that, Rebecca, I'll turn it back over to you and I can take some Q&A.

Thanks, Mike. We've got about four questions online and one via email. So I might start with the emailed question, which comes from Jules Cooper of Shoreham Partners. Do your typical five-year contracts skirt around the need for a financing component? And is it over a certain duration that triggers this treatment?