Craneware plc

good evening ladies and gentlemen and welcome to crane rare plc's full year 2026 results presentation at this time all participants are in listen only mode later we will conduct a question and answer session if you wish to submit a written question you may do so by using the ask a question button on the spark live page i would like to remind all participants that this call is being recorded i will now hand over to keith nielsen chief executive officer to open the presentation please go ahead

Thank you very much Leila and thank you very much everyone for joining us today on our fiscal 26 results. First slide please. Thank you. So we're going to handle today's results by really doing it in three parts. First of all a brief introduction and overview of the fiscal 26 results. followed by an update of our cyber security incidents that happened post balance sheet date in early July. I'll then hand over to Craig who will then continue with a bit more of a deep dive into the financial review itself for fiscal 26 and then we'll come back to review some market opportunities and updates in both the 340p market and the revenue integrity market as well as getting an indication of our beliefs on the growth strategy and the outlook as we go forward it is worth starting off by saying we are obviously deeply disappointed by the fiscal 26 results however um what we would like to remind people is not to throw the baby out with the bath water and we will go through some of the positives that we have for We do want to remind everyone that we operate in one of the largest, if not the largest B2B software verticals in the world of u.s health care um u.s health care is greater than 60 percent of the global health care spent and as such it is a incredibly dynamic marketplace and a very exciting marketplace to be be part of our role within that is non-clinical those who are not impacting on the clinical side but we are working on the operational side of the hospital to make sure that it runs effectively and our role is really in helping hospitals take forward and transform the business side of those hospitals and transforming the business of healthcare our business and our business models are very financially resilient and have proven to be that we continue with long-term relationships and long-term software operations and tech tech enabled services for our customers with a view to be able to complete that transformation for them the underlying financials of the business are strong with strong arr long-term relationships as i say and very high consistency of customers over that period. Next slide, please. Through the fiscal 26 performance itself, we did see a disappointing slowdown in our 340B transactional revenue towards the end of the second half of the period very much due to manufacturers unilateral restrictions on the on honoring 340p pricing and supplying drugs at 340p pricing to the hospitals themselves Having said that though, we did have a very resilient ARR through the period. The recurring revenue was $185 million and then our NRR was sitting comfortably at the 100%. We saw healthy customer retention of greater than 90% by all of our measures and a strong EBITDA performance and cash generation through that period. as I mentioned earlier we did have a cyber security incident very early on into the new year which was July coming in I'm pleased to say that that is moving into the remediation phase and I've got more details of what will happen in that incident and where we're at today that though combined with some of the uncertainty that we saw towards the end of last period in 340B which is still working its way through the system has Thank you very much. As such, we'll also be undertaking a comprehensive review of our cost base so that we are cutting our cloth accordingly across the business to reflect those changes in our revenue line as it's expected. And then also to set out a plan of investments at the time when we then start to see that revenue growth come back again and step up as we go forwards. pleasingly the business continues to work strongly with microsoft as a very good partner that has brought both technology ai resources and people resources to us as well as helping us accelerate new customer wins through through the period and continuing through into this year and that gives us a great deal of confidence in being able to return to growth at least into the period of fiscal 28 through a number of different angles one by that stage we are expecting to see a lot more certainty through the 340 b program at both state and at a federal level we're also expecting that our earlier investments that we've made in our products across both 340b and revenue integrity will result in further sales coming through and that combined with our cost initiatives and our cost-based review will result in us returning back to far more positive margins by fiscal 28 as well as we see going forward Next slide, please. So I've mentioned the cybersecurity incidents, and this has created certainly some short-term and potentially medium-term uncertainty for the business. What happened was we became aware in early July that some threat actors had access to our system, excavated um some files from our system uh with the threat that they would publish the details of those files onto the dark web um and it turns out the vast majority of files that were taken from our systems were from or all of the files that were taken from our system were from non-operational uh servers they were from non-work service and non-production servers but they did include some working servers that were used by members of our team to be able to do day-to-day work some of those servers and some of those files did include elements of both internal staff details within there and some of our employees details but also included some of our customer details and some of our customers patient details within there and we're currently the process of working with our customers to notify them of exactly what information was leaked and working with our staff on those just now what i am pleased to be able to say is our teams were able to very quickly verify and with the and then have third-party verification that the threat actors were no longer in our system within a matter of within a number of hours and within the first certainly well within 24 hours of the threat actors gaining access to our systems and that there was no ongoing effects from the threat actors on our systems otherwise so as such operations have continued through the period in between and the data that was taken was a very small subset of our overall data we have on behalf of our customers and was and that data was not breached in in any way um uh we have moved into the remediation phase as i say so we are now in the process of working with both third parties and through our own data teams to analyze downstairs detail at the patient level exactly what data was taken and what data has been published onto the dark web and we'll equally be moving into understanding what the financial impacts will be of the business. We are cautioning that although we will get better clarity through the course of this year through fiscal 27 with regards to some of the impacts of this, it may be a number of periods, so maybe going into future financial years where the full impact of of this will be seen I am very pleased and thank our customers and our staff for their understanding in the meantime I know that they have been very supportive and have been very appreciative of the efforts that we've taken so far with regards to this incident and we do treat this incident with the utmost seriousness in terms of both remediation but also making sure that we're as protected as as any organization can be going forward on this. Next slide, please. So, looking at fiscal 26 overall, I want to just highlight some of the positives from a sales performance. In the performance, the lower sales were comparable to the prior year of fiscal 26, as Craig will go into our revenue numbers were very comparable with that as well. One of the benefits we did see was an increase in the number of new customers, net new wins that came to us through the period. And those net new wins pleasingly came through a mix of competitive takeouts and competitive displacements, as well as a significant number of expansion sales within our existing customer base. and pleasingly some of those competitive wins and expansion sales have continued through into this first quarter of the new year and we will be hopefully reporting or we will be reporting on this as we come through through to our intros into the new calendar year as it goes and with that and that overview I'll hand over to Craig for the financial details of fiscal 26.

I could move the next slide please Thank you Keith. In the next few slides I will step you through the financial results for fiscal 26. The fiscal 26 year was a year of some really good positive operational progress but ultimately we do recognise and are very very aware of the fact that the financial outcome was below our expectations. A significant factor in that was the headwinds we experienced in the 340b marketplace. A good example of that is our shelter program. Here we were able to identify significant opportunities for our customers. We saw high levels of customer engagement, but due to the restrictions that were being placed on them, they were unable to take advantage of these opportunities, and that had the knock-on effect that the expected transactions we expected to see did not materialize at the rate we anticipated. Clearly this is disappointing but I think it is worth us reminding ourselves the underlying financial characteristics of the group have made strong. We retain a substantial recurring revenue base, long-standing customer relationships, healthy margins, strong cash generation and significant financial flexibility and I will demonstrate that in the next few slides. If I could move to the next slide please. Looking first at our headline financial measures. Revenue was broadly unchanged at $206 million. That generated an adjusted EBITDA of $67.1 million with a corresponding 33% EBITDA margin. Ultimately, we delivered adjusted basic earnings per share of $116.8. Our ARR, as Keith mentioned, our annual recurring revenue remained steady at $185 million and our operating cash conversion was 98%. Looking at our bank debt, Our bank debt did increase in the period from $27.7 million to $43.5 million, and that was a deliberate capital allocation decision we made. We decided to draw some debt down alongside our own cash resources to fund the $25 million share buyback we performed in the year. Overall, though, we do acknowledge and we are very cognizant that these results were below our expectations, especially for revenue growth. But they also do demonstrate the resilience of this of this business during this more challenging year. A good example of the underlying resilience of our business is our IR annual recurring revenue. So let's have a look at that base of our sponsors. It's really important as we go forward. Within our IRR, no individual customer represents more than 8%. Our 10 largest customers account for less than 30% and their average contracting relationship with ourselves is over 21 years. That annual recurring revenue foundation gives us meaningful visibility, diversification and a dependable foundation against which we can plan the future of the business. As we enter fiscal 27 and in light of the post year end cyber incident that Keith has talked you through, we have adopted a prudent planning basis. we've reset our revenue expectations to approximately the level of our current ARR and that's to provide certainty to all our stakeholders and allow us to make sensible planning decisions as we wait for various factors to work their way through the system against that we've talked to a comprehensive review of our cost base here again the objective is to align the organization with that revenue framework we've set ourselves we'll do this whilst protecting customer service cyber security regulatory compliance, and the product investments that will be the foundation for our future growth. Our approach to capital allocation remains disciplined and unchanged in principle. If I could move to the next slide, please. I've already covered the headline metrics. So on this chart, I think it's the graphs on the right-hand side, the five-year charts, they really provide a useful context to the underlying strength of the business. They demonstrate the continued progress we've been making across revenue and adjusted EBITDA. And actually, if we took those graphs back, you'd see that continued progress all the way back to our IPO back in 2007. A strong business has to be able to adapt to difficult market conditions and unexpected events such as the cyber incident. Acting to preserve margins without containing investment will be what ultimately drives our future growth. We honestly believe that the actions we continue to take we are going to meet those objectives which will cause short-term pain we understand that but will ultimately benefit all our stakeholders if i could move to the next slide please turning to cash and cash is obviously really important as you navigate this this period of the company's history five-year charts again gave appropriate perspective While cash holdings have varied as we've made various investment decisions, we've reduced debt, we've returned capital to shareholders, we have always maintained substantial liquidity. And that really reflects the cash generated nature of our Newsy SaaS model. Operating cash conversions, 98% of the just leave at dark, again confirms the quality of our underlying earnings that we did over the year. We did see a $10.4 million movement in the funds held on behalf of customers. Those funds fluctuate as part of normal customer operations. What we do, consistent with prior years, is we always exclude these from our operating cash conversion measure, that being a true measure of the cash generated by the business itself, rather than how we deal with our customer cash. After investments, dividends, and share buyback, year-end cash remains strong at $54.8 million. We have a further $56 million available to us under the RCF, and then we have a further $100 million for the facility pre-agreed I've talked about increasing the bank debt and it parts on the $25 million share buyback. After all these factors, the board is proposing to maintain the total dividend for the year of 32 pence, resulting in a final dividend of 17 pence per share. We believe that balances the appropriate return to our shareholders against the importance of retaining liquidity and investment capacity as we reset our medium-term objectives and assumptions. If I could move to the next slide, please. I've mentioned our annuity SaaS model. It really is the foundation of our financial resilience. It's underpinned by multi-year contracts with software subscription revenue recognized over the contractual term. Contracting and repairing revenue is $175.1 million, approximately 85% of our total revenue. SaaS software revenue was $130.4 million. Transactional revenue, which is billed on a monthly basis but is supported by long-term underlying contracts, was 38.9 million dollars and finally our recurring professional services contributed 5.9 million dollars software license revenue did reduce in the year but that primarily reflects an ongoing trend we've seen again in the 340b market where hospitals are preparing to move from the license to recurring transaction revenues and that allows for more transparency tying the actual benefit and the transaction cost to the individual patient to counter and their appearance at the pharmacy