Mach7 Technologies Limited

just waiting for everyone to join. I can see participants ticking up. Okay, good morning and good afternoon to those of you joining from North America. Welcome to the MAC7 third quarter business update. My name is Rebecca Thompson and I look after MAC7's investor relations. Today we have Mac7's CEO, Mike Lampron, to give an overview of the quarter highlights, after which he'll be joined by CFO Diana 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 questions on rebecca.thompson at mac7t.com. I'll now hand over to Mike for the Q3 update.

Thank you, Rebecca, and thank you everyone for joining our call today. I'll first start off with some highlights from Q3. This quarter, we are announcing that we have exceeded our FY23 sales order target of $36 million. I have said throughout the fiscal year that this was more of a floor than a ceiling, and I'm happy to say that we have exceeded that goal and hit $37.1 million, with another quarter of sales yet to come in this fiscal year. Our contracted annual recurring revenue is up to $20.6 at the end of Q3. moving us closer and closer to recurring revenue covering our OPEX on an annual basis. If we stay on this path, we would expect that our recurring revenue would cover OPEX over the course of the next two fiscal years, which has been a goal of ours for the last three or four years now. Our ARR is at 17.2 on a run rate basis, up from 16.4 in December of 22. And we have cash on hand of 19.4 million. So we'll cover the good news first on the sales orders front. It's been a tremendous year for us to date. In Q3, we had sales orders of 11.3, up strongly from Q3 of FY22, where we had 4.4. But I think if you look at the chart below, you see that there isn't really any seasonality to our sales. And although we had a slow Q1, we did make up for that in Q2 and Q3 was strong and we suspect the Q4 would be the same. Our Q3 sales order is comprised of 6.2 million in recurring revenue sales. And what that is, is that represents sales orders from a support and maintenance perspective, as well as any subscription fees. So those are deals where revenue is coming in on a recurring perspective rather than a capital license. These deals will not have an immediate impact to the revenue line and will be recognized over the term, typically five years from first productive use. On the capital software side, we did have 3.6 million of capital software sales that will be immediately recognized as revenue upon delivery in FY23. And with the professional services line of 1.5 million, That will be recognized as revenue on a percent complete basis over time as we deliver the services. That's a little in contrast to Q2 where the bulk of our sales orders came from new clients and the bulk of our sales orders in Q3 came from existing customers. 95% of the sales orders were from the customer base that does include Adventist Health West, which did start off as an eUnity-only customer some years ago and is now committed to the entire Mach 7 product suite across their hospital system. From a partnership perspective in Q3, partners accounted for about 11% of total sales orders, and that's broadly in line with our expectation this year. of partner contribution. We've said in the past and continue to believe that our partnerships will play a bigger and bigger role in contributing to our overall sales and our overall revenue. I think 10% is probably about right for this year. From a revenue perspective, our annual recurring revenue is currently at 17.2 million. This has increased from 16.4 million at the end of December. And our contracted annual recurring revenue continues to grow and currently sits at 20.6. This number consists of ARR plus 3.4 million of subscription maintenance fees that have yet to be recognized because for productive use is still pending. Again, very important to keep an eye on that car number. We want to see good growth on the car number. It's slow growth, but good growth. because we, again, want to make sure that our recurring revenue can cover our OPEX here in the near future. From a cash flow perspective, cash receipts for Q3 were 5.4 million. There was a net operating cash outflow of 1.3 million in Q3. With our scheduled cash collections and a strong sales order outlook, we still feel very much like we will remain cash flow positive on an annual basis. as we have for the last three years. We have a big quarter ahead of us in Q4 from a cash collection perspective. And we remain debt free and have $19.4 million cash on hand. From an outlook perspective, again, The highlight really is the sales orders overcoming that forecast of 36 million with another quarter left to go is fantastic news. We have a healthy pipeline from which to add to that number in the final quarter. From a cashflow perspective, the fourth quarter is typically really strong for cash collections and the company continues to expect positive operating cash flows on an annual basis. And as FY23 draws to a close, Mach 7 remains focused on new customers, either from a deployment perspective, so we can continue to get first productive use and continue to get these new contracts deployed, or from a sales perspective, continuing to bring in new customers from the sales side throughout Q4. And we are also focused on release of new product versions for each of its core products, the VNA and the Enterprise Viewer. We do have one more major trade show coming up this fiscal year. It's called SIM. It's during the second week of June. We look forward to showcasing our product along with meeting many of our great partners at that show. It is very much a partner show. Usually a very, very good show for us. One of the two major shows that we attend every year. And usually a good precursor to building up our pipeline going into next fiscal year. And the other thing I would draw attention to for everyone on the call, We're often asked from the community for educational opportunities, so I'd just like to alert you to a customer-driven webinar that we're hosting on May 9th with the topic of critical steps for success in your AI journey. please feel free to attend that. You can register through our LinkedIn page. We'll have a registration page up on our website tomorrow. But that's a good opportunity to hear about Mach 7, hear from a partner, hear from some of our customers, and hear their steps around AI and how that's affected by Mach 7 and the Mach 7 products. So, It won't be a lengthy webinar, but could be educational. I know many of you have asked me in the past to alert you to any educational opportunities that we have. So I think back with that, I can hand it back over to you for some questions.

Thanks, Mike. I have a question from one of our institutional investors with regard to the acumen contract, asking whether we have received any cash from that contract as yet?

Yeah, look, we've sent two invoices out on Acumen. Both of those invoices have been paid in full. So they are up to date. And I would not expect to send any further invoices out to them until probably around the December timeframe, if memory serves me, according to the contract milestones.

Okay, thank you. And then in regard to cashflow, we have a question here from Stella Wang. Can I confirm the cashflow seasonality, please? Does most annual recurring revenue get billed and received in December and June quarters?

Yeah, like it's hard for me to say that we really have any seasonality, but I will say this, Q4 has traditionally been a very big quarter for us from a billings and collections perspective. not necessarily because of seasonality, but just because of the contracts we have and when they've signed currently with our current customer base. But April, May, and June are big months for us for cash collection, yeah.

And then, Diane, I'm wondering if you could help to clarify in terms of the calculation for annual recurring revenue, what's included and what is the month that is annualized for the calculations?

Okay. So for the month that was annualised was the month of March. We went through annualised March. There weren't many true-ups. So it was appropriate to annualise March to calculate it. And sorry, Bec, what was the rest of the question?

Oh, yes. And look, there's a follow-on question just referring to the Adventist announcement as well. We mentioned that there was $3 million of revenue expected in FY23 and and just wanting to know, will we expect that in the June quarter?

We have recognised the software revenue for those deals that were signed in this quarter, and we have got cash that we are expecting to receive before the end of June. So obviously, according to the payment milestones, we invoiced what we could when those contracts were signed, and we are expecting the cash in this quarter.

Terrific. And then a follow-on question from Stella. Earlier in the financial year, we made a note that we were expecting more Asia-Pac sales. We've seen the St. Paul's sales in Hong Kong. Are there any more substantial APAC or Middle East details, deals in the pipeline?

Yeah, there are. There are many in the pipeline, actually, and we're still very bullish on the impact that they may have. I suspect we will still see orders coming in in Q4 for APAC and will definitely contribute to a much larger percentage of our Q4 overall sales orders than has happened in the last three quarters. So, yes, the pipeline is still very healthy over there. And, yes, we still have deals that we're expecting to bring in.

Okay. And now I've got a question from Ian Wilkie from Morgan's. He says, well done on the sales order beat with a good amount of time to spare. Is it that some orders have been brought forward out of the Adventist Health, which you'd previously expected in FY24? And how should we look at the fourth quarter sales orders?

Yeah. You know, like I've said from the beginning with our sales order number this year of 36 million, you know, I've always looked at that like it was a floor order. Um, and, and so my hope was to exceed that number. I could see that we had a possibility of exceeding that number, but, um, but, but, but not enough certainty to call it. Um, so I was more comfortable with 36, but, but yeah, I mean, getting the Adventist orders all in and one big chunk was, uh, was a great effort by the sales organization to turn them around from, from what they were doing, which was giving us one order at a time, one hospital at a time. So certainly that was a welcome change and not something that was necessarily expected. And, you know, when we develop our sales order number, we look at it from a weighted perspective throughout our funnel. And every year we realize that some deals that we expect are going to come in aren't and some deals that we didn't expect are. So we just look at it from a weighted perspective rather than necessarily from a named deal perspective. But we generally have a pretty good feel for where we're going to land. And in Q4, I think that Q4 is still going to be a strong quarter for us. I think we have a number of deals in the pipe still that we're working on. Whether or not all of those deals fall into Q4 or whether they push into Q1, that's difficult for us to project. But I would say that we'll still have a pretty healthy Q4.

Okay, and just on Q4, a follow-on question from Ian. Picking up on the operating cash flow in Q4, a fairly large year-to-date deficit, can you give just a bit of color on the shape of where this is coming from? Sounds primarily driven by higher cash collections, but can you speak to the seasonality and operating expenses for the period?

Yeah, and I might have you jump in on this a little bit too, but I'll just say that, you know, when you think about, when you look at our OPEX right now, I think we're We're about 18 million into our OPEX of a budget of around 25. So we're pretty much on track from an expense perspective. We might come in a little low, actually, if we have some luck here in Q4 on the expense side of things. And then from a cash collection perspective and a cash flow perspective, You know, it's just a matter of collections here in Q4 for us. You know, I think that we've got a number of support and maintenance agreements who've got invoices that are due here in Q4. So we have a large degree of the gap from where we are today to where we need to be that's covered through deals that are already in the door. None of it's going to be driven from net new deals. And then we have a little bit of just flat-out collections and first productive use to get through this quarter.

Okay, thank you. And then it looks like this is the last question from Ivan Tanner. Has the annual cost of running the business now stabilized, i.e., wage inflation, increased marketing, and FY23?

Yeah, look, I think it has. Our budget went up a little bit this year to $25 million. I think last year we were at like $23, if I recall. So it went up a couple of million, you know, and I think that as we look to next year, you know, we're probably looking at, you know, 26-ish, you know, somewhere between 25 and 27 is sort of what I've thought of for FY24. So it goes up incrementally, but some of that may not actually occur, just like this year. So we still have some expenses that still may not occur. We could come in at 24 instead of 25. It's right in that range, though, right? And I think the same thing is true with next year. So we're starting to see leverage in the business for sure. When you start to look at the sales order number and you start to look at a healthy Q4, you end up with a really healthy sales book, which is going to drive revenue in future years. And, you know, and we've got the staff now to maintain that book of business. So we shouldn't see a lot of change in the way we manage our optics in the coming years.

Thanks, Mike. That is it for the questions. So over to you now to close the meeting.

Hey, look, everyone, thank you so much for joining. I appreciate everyone taking the time and the interest in our business and happy to announce a very positive third quarter for us and happy to follow up with everybody as we close out the fiscal year here in June.