Mach7 Technologies Limited

Good morning, everyone, and welcome to the Mark 7 third quarter FY24 business update. My name is Françoise Dixon and I'm Head of Investor Relations for Mark 7. Today, our CEO, Mike Lampron, will provide an overview of our Q3 result. We will then open it up for questions, which will be answered by Mike and our CEO, Diana Hearn. If you have a question, please submit it via the Q&A text box at the bottom of the screen. I will now hand over to Mike for the Q3 update.

Thank you, Francoise, for that. Hello, everyone, and welcome to our FY24 Q3 business update. Today I'll cover a general business update as well as the results for our third quarter of this fiscal year. So starting off with some highlights for the quarter. So sales orders for the quarter are 7.4 million, which was a great addition to what has been a great year to date with 56.9 so far this fiscal year and a little bit of time left to go in Q4. Our contracted annual recurring revenue rose to 28.2 million. That's up slightly from the end of Q2. And our annual recurring revenue run rate has grown to 22.3. That's up from 18.6 from end of Q2. Cash on hand, 24.8 million at the end of Q3, which is a great result for us this quarter and end up about 9% or so from the end of Q2. And you will hear some more about this, but we definitely will be reaffirming our FY24 guidance with a strong outlook on sales and cash flow for the year. So normally what I do is I go through some of these metrics first, but I'm going to go a little out of order this quarter, and I'm going to start off by giving you guys a general update in our outlook, and then we'll move on to the metrics. I just think it's important as we look at the end of Q3 and as we start to finish up the fiscal year. So earlier this year, as everyone would be aware, we updated the market with our growing transition from capital sales to subscription sales. That transition has been really important for our customers, but I really feel like it's been super healthy for Mach 7 as well. And we've delivered another strong result this quarter, like I said, with 20% growth in ARR and a record car of 28.2 million. We were able to reduce our backlog, and that is our car to ARR from 8.2 to 5.9. That represents really what are achieving first productive use for diagnostic imaging associates and recognizing some additional revenue from renewal dates for several customers. But that conversion of CAR to ARR was really pleasing for us this quarter. And it's a reflection of a great job by our services team as well as a quick transition with our renewals that reflect some of that upside volume that the sales team was able to capture. So despite, though, the ongoing subscription transition and what I felt was sort of an associated short-term disruption of revenue growth, our operating cash flow is great this quarter. Mach 7 is at a strong financial position, closing cash at $24.8 million. Again, that's driven by an increase in receipts through Q2 of FY24, and then grew by about 24%. Many of you will recognize that our FY24 sales orders have been filled with both renewals and new customers. The composition of those orders every year is very important, and it helps for us to really secure our foundational book of business into the future, giving us better visibility to revenue in years to come and giving us some confidence in the sticky nature of our business. At the same time, bringing on significant new orders like the VA has helped us grow our overall book of business. So think of it like this. The renewals have sort of created the foundation and long-term outlook for our book of business, right? And it's... secured our ability to look into the future and sort of focus a little bit more on Q4 for this year and into FY25 and really take a look at our strategic priorities and make sure that they're really reflective of the purpose of Mach 7 and why we're here every day. And really that comes down to where we want to make a difference. And for us, we want to enable exceptional patient care by empowering healthcare providers to make better informed decisions. That's it in a nutshell. That's what we're doing, right? And today we do that by making sure we do our part in making imaging data available to anyone involved in the care of a patient. And we will continue to invest in our people, our processes, our tools to further differentiate ourselves from our competitors. The first step to that, honestly, is for us to keep an eye on customer success. and our ability to have meaningful and long-lasting relationships with our customers. That's why the renewals in FY24 have been so powerful for us, from my perspective. And our employees work every day to continue to focus on customer intimacy and customer success. And at the same time, we have this really great product and development team. And from a product perspective, they've been working really hard at establishing you know, where we need to go into the future with our product. And we've sort of boiled that down to three major strategic anchors for the business as we continue to invest around innovation. The first anchor is cloud enablement, which is sort of a nebulous word, right? But just last week, I was at a class enterprise imaging summit. And I'll say that the customers there were sort of split between those customers who are ready for the cloud and those that aren't. But the one thing everybody had in common was that over the next few years, it will become inevitable that it will be a part of their strategy from an IT perspective moving forward. Our focus is to meet our customers' needs as their strategy becomes more in focus. So cloud enablement and working with both of our product lines across the cloud will become more and more acute over the next several years. And we continue to innovate around that from now and continuing forward. The other thing that is another anchor for us is the service and supportability of our products. We need to have a scalable business, right? Scalability comes by having good product. It comes by building the tools that we need to make sure that our product can be deployed easily and supported easily. We want to provide an exceptional customer experience and the interaction of our software, the deployment cycle, maintenance upgrades, all of that. Every step of the way, we want to innovate on the best ways we can make this experience the best in the industry. And the last anchor really for us is interoperability. Super important for an enterprise imaging vendor. No vendor can do it all. Partnerships and integration are paramount to us being successful in the business. And building the most flexible and feature-rich integration we can, that's what we're going to continue to focus on. So that gives you an idea from my perspective of where I think we came through the quarter. The good news about our sales orders numbers, the sort of the composition of those sales orders, what it means for the business and what I'm looking at moving into FY25. Now that we've really come through the other side of what was a really phenomenal renewal year that really helped solidify that customer base moving into the future. So that being said, we'll move on to the metrics and sort of the meat on the bones, I guess. Start off the way I always do, talking about sales. Our sales orders have been fantastic this year. I've often said that this is the most important metric to measure our success against. And honestly, I continue to think this is true. But I also know that as we transition to subscription-based sales, Our contracted annual recurring revenue will have an equal place in importance to everyone. And so you start to think of that sales order number and start to think of that car number two as a number that's important as we start to grow going into FY25. Sales orders for the third quarter of FY24 were 7.4 million. The majority of those were subscription style sales. And again, just highlighting that transition to a subscription revenue model. Our ARR type sales were about 5 million representing that subscription fees, maintenance and support fees, which will be recognized as revenue over the contract term. And that's, of course, after our customers achieve first productive use. Our capital software sales were 1.7 million. We know that's low because we know that we've been selling a lot more subscription than capital. And I don't see that changing into the future. Professional services of 0.7 million recognized as revenue on a percent complete basis. And our renewals were 6.2 million of the total sales number for the quarter. So transitioning from sales and sales orders into revenue, breaks down into this R and car, right? And from an ARR perspective, we're generating about 22.3 million from a run rate which is calculated by annualizing the revenue earned from subscription and support maintenance fees. That run rate has increased by about 3.7 or 20% on 18.6 that we disclosed at the end of Q2. And we see ARR will continue to grow as new customers achieve first productive use and existing customers renew at increased rates and increased license volume and achieve first productive use for add-on products as well. So we talked about our contracted annual recurring revenue. Again, a very important metric for us. Car was 28.2 million at the end of March. It was at 26.8 at the end of December. The car consists of 22.3 of ARR. That's for clients that have achieved first productive use and then plus another almost 6 million, 5.9 of subscription and support maintenance fees that have not yet been recognized as revenue, right? The gap between CAR and ARR, that represents that future revenue once first productive use is achieved for new customers. It also can be additional revenue from existing customers from the effective date of their renewal, right? Especially if they have license expansions and that sort of thing, right? So CAR is based on contracts in hand at the 31st of March and includes revenue associated with Q3 contract wins. So from a cash flow perspective, cash receipts for customers in Q3 were 8.9 compared to 5.4 in Q3 of last year and 7.2 in Q2 of this fiscal. So despite the ongoing transition to subscription sales, we have very positive operating cash flow of 1.4 million in Q3 of this year and for the year to date of 1.1 million. So with that, of course, we're reaffirming our guidance. Mach 7 expects to be cash flow positive in FY24 like we've said we would be. And we're getting there through careful cost management, increased fees for license renewals, and improved receipt predictability from subscription contracts. And finally, on that side, the financial position of the company remains solid with no debt. 24.8 million cash on hand and looking very good for the fiscal year. So just a couple of last words around around guidance and outlook. You know, I've said this before, but I'll just reiterate it. You know, we feel that we're well positioned to take advantage of a highly fragmented market in medical imaging. And there's an ongoing shift in demand from acute care to ambulatory care. And we're seeing that. And the shift when I say ambulatory that includes teleradiology which we're seeing as a big factor there. The company has a strong sales pipeline which reflects opportunities with new and existing customers across various different regions care settings and product combinations. We are a business that is maturing. We've proven that we can grow organically and inorganically, both of which will continue to help shareholder value and bring value to our customers. And we've seen that through our increase in sales orders. We've seen that through our acquisitional client outlook. We've seen value in both of those pathways. And we're committed on that path to provide the best possible customer experience for our customers. and we will continue to have a focused product roadmap to help meet our customers' growing needs. So with that, we're reaffirming our FY24 guidance, sales orders of 60 million, revenue between 27 and 30, OpEx growth of less than 15%, and of course, the company expects to be cashflow positive in FY24. So I think with that, Francoise, I will hand it back over to you, and maybe we have some questions I can answer.

Oh, great. Thanks, Mark. Our first questions have come from Madeline Williams at Wilson's via email and I'll start with a couple then we'll go back to them at the end. First of all, can you provide any more colour on the additional sales orders in the quarter? Penn State accounted for $3.1 million. Any other renewals of note?