Mach7 Technologies Limited

Good morning everyone and welcome to the MUC7 first quarter FY25 business update. My name is Françoise Dixon and I'm Head of Investor Relations for MUC7. Today our CEO Mike Lampron will provide an overview of our Q1 result. We will then open it up for questions which will be answered by Mike and our CFO Diana Hearn. If you have a question please submit it via the Q&A text box at the bottom of the screen. I'll now hand over to Mike for the Q1 update.

Thank you, Francoise, and welcome everyone to the Mach 7 FY25 first quarter business update. Tonight, I'm going to start off with some highlights, and then I'll add in some detail on some of the more important components of the update. As I said in our FY24 update, the story of Mach 7 is really best told through the lens of revenue. Contracted annual recurring revenue, which tells you what to expect in the future. Annual recurring revenue, which gives you a baseline for business as usual. And of course, total revenue, which can include any fluctuation that might occur through our contract mix, essentially subscription versus capital. This is really important to us and probably the greatest measure for how the company is doing as we've sort of migrated from a capital intensive, sales order intensive business to a subscription business, which is really geared towards our customer install base and net new customers. We'll talk a little bit more about that here in a few minutes. But in the numbers I'm about to talk about, just as a reminder here, they're in currency. Really, we did that this quarter just to give you the best picture for true improvement for the business. In Q1, our car that contracted annual recurring revenue ended at $27.5 million, which is up 2% for the end of FY24. The ARR was $22 million, or up 3.5% from FY24. Sales orders were $2.2 million compared to what was a huge Q1 of last year, so likely not a valuable quarter-over-quarter comparison. And of 2021. And this is really a process tool in QWAL. And importantly, we are reaffirming our FY25 guidance for 15 to 25% growth in car and revenue. And we also guided to OpEx growth to be less than revenue growth. So we'll move on first to sales. And in Q1, sort of in accordance with our strategy, we targeted investment in people, process tools, improved scalability of our business. And as I stated, as we move to a more highly concentrated subscription model, keeping our attrition low and maintaining a happy customer has become a top priority for us. This investment reflects that focus. And part of that strategy includes an increased focus on cloud enablement, service and supportability, integration and interoperability. And you've heard me talk about these things from our strategic pillars in the past. These are really important from a product strategy perspective, representative of the feedback we've received from customers and our own anticipation of market trends. But above all, the focus there. So with that in mind, as we talk about sales orders in Q1, bear in mind that our sales cycle, it remains long. It's a 12 to 18 month sales cycle. We do have a team that's working tirelessly on winning new logos, which is important to us this year, and converting a substantial pipeline of opportunities. Similar to last year, we would expect to sign at least three to four net new logos in FY25. At the same time, we'll continue to grow ARR through expansion and add-ons, with our existing install base. And although in Q1, we signed some significant expansion renewal agreements with customers that sort of highlights the success of that land and expand strategy that we always talk about. So sales orders consisted of ARR of 1.4 million, a capital software sale of 600K, and some professional sales of 200K, giving us the 2.2. And we included a chart this quarter. which kind of highlights our sales orders by the quarter since 2021. And this chart really shows sort of the lumpiness and maybe the lack of seasonality in our sales cycle. So comparing, you know, PCP is not always the best view of the quality of the quarter. And I think you can tell by looking at that chart, the volatility we've had quarter over quarter, which makes it really difficult to use that as a good measure of progress from a sales orders perspective. So as we think of revenue and we think of ARR, which is currently generating 22 million, the run rate increased by 700K since the end of FY24, since the end of June. And it's important to note that that ARR will continue to grow as new customers achieve first productive use and existing customers expand their licenses, add on new features, renew it, increase price points, all of which are equally valuable to the overall revenue number, right? So that's important to think about that and think about where we said revenue would be for the fiscal year, right? We said 15 to 25% growth. And we're looking at 22 million in revenue right at the moment at the end of Q1. Our car number is 27 and a half, an increase of about 500K. That includes the $22 million of ARR plus $5.5 million of subscription and maintenance and support fees not yet recognized as revenue. So some of that CAR you can expect to convert to ARR throughout the year as well. We'll talk a bit about cash flow, and then we can come back to revenue too. Cash receipts for customers in Q1 were $6.3 million. That's compared to 8.3 in Q1 of FY24. The 2 million flux there is primarily due to Q1 FY24, including a $2.5 million fund transfer. I'm sorry, 23, including a fund transfer remitted by a customer. Everyone would remember that we actually received an electronic payment on the 30th of June, but it wasn't processed until the 3rd of July. That kind of threw off the balance there, quarter over quarter. And so when you're looking at that Q1 of 23 versus Q1 of 25, you see that fluctuation there. We had 1.6 million of operating activity payments in Q1 over Q1 of FY24, and that's what reflects this strategic investment in people, process tools that we undertook over the quarter, as well as the fact that September just in general is a very expensive quarter for us. Q1 and Q2 are both expensive quarters for us, and we make up for that in Q3 and Q4 traditionally. In Q1, we paid an annual fee of about 600K for tools that directly correlate to that service and supportability strategic pillar around proactive support tools. Additionally, around 300K was paid for R&D expenses that relate to the cloud enablement program and integration interoperability pillars. And the remaining increases related to staff costs and team initiatives that just align with the company's three pillars. So we're reporting operating cash outflow of 3.6 million compared to a cash outflow of 100K in Q1 of FY24. But that being said, the cash position of the company remains strong with 21.9 million of cash on hand at the end of the quarter. And I'd like to remind everyone that we continue to aim to be cashflow positive in FY25. Again, understanding that Q1 and Q2 are both traditionally very expensive quarters for us and we make up for that in Q3 and Q4. So as I think about an overall outlook for the business following up on Q1, some of you may have seen the announcement that came out earlier this week. We've signed two and a half million in license expansions with existing key customer. We also signed two smaller renewals with a combined TCV of 1.8 million. That all happened in the early part of October. The license expansion is for additional eUnity and VNA licenses. And that will contribute 1.3 million in software revenue in this quarter, Q2 of FY25, increased to ARR by an additional 240K. And again, that's net new for an existing customer. And Then we also signed two renewals, a five-year capital license, which we actually achieved a 94% increase on TCV for that renewal to 1.2 million. Software rev of 600K will be recognized in Q2 for that. The second renewal was a conversion of a capital to subscription license. And I've said in the past that that's infrequent, that that happens, and it is infrequent, but occasionally it does happen. This is an example. This was a smaller customer for us, but nonetheless, we still saw a 13% increase in pricing for a total TCV of $600,000. So, you know, in thinking about that, I think the important part is to recognize that, you know, we are going after increase in fees on these renewals. We're oftentimes asked for a percentage. You know, what percentage do we get when we do a renewal? These are two examples that make it difficult, right? One got a 94% increase, one saw a 13% increase. So a big variation there in what can happen in these renewals. But nonetheless, we're looking to increase the value every time we renew. So, you know, my view is Mach 7 is poised for more growth than FY25. We continue to see demand and increase in volume from our existing customers, which leads to those expansion of volume. The company is well positioned to take advantage of these opportunities for both the new and the existing customers. And we expect to see growth across each of our regions this year, APAC Middle East, as well as North America and You know, we have a pretty diverse approach to our product offerings and we have clients that are finding value in all of our components individually. And we look forward to continuing the enablement of our healthcare providers to make more informed decisions, sort of the purpose of Mach 7. And we know that the value we're bringing is helping them in a meaningful way. And we look forward to continuing to have good results for our customers over the remaining three quarters of the year, two and a half quarters of the year. So I think with that update, Francoise, I'll hand it back over to you and we can get into some Q&A.

Great. Thanks, Mark. We received several questions earlier via email from Mark Goodson, so I'll start with these first. The first question is, you have highlighted customer intimacy as a differentiator from your competitors. Do you see Mark7 being able to maintain its customer-centric slash intimacy approach as it grows in the years ahead?