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[ Thank you ] all for attending today. We might get started given it's just past our allotted time, and most of our attendees are joining the meeting. It's -- Alcidion's presentation of our Appendix 4C quarterly cash flow and business update for the third quarter of the 2022 financial year. This update was released on the ASX this morning. And today, our Alcidion CEO, Kate Quirke, will take you through the numbers and the accompanying business update. My name is Kaye Hocking, I'm Director of Marketing and Partnerships at Alcidion, and I'll moderate the call today.
The layout of the today's session, Kate will provide a short presentation, and we'll have some time for questions at the end. [Operator Instructions] Thank you also for the questions locked prior to the call. These will be addressed at the same time at the end of the session. Joining us on the panel today is Matthew Gepp, our Chief Financial Officer. He will also be available for questions during the session at the end. We will post the recording of this session later today. So the information will be available for you there. And given that, I will pass over to Kate. Thank you.
Thanks very much, Kaye, and thank you, everyone, for joining us this morning. I'll get straight input. We have had a strong third quarter, and I'm very pleased just wanting to take you through the business update that was released alongside the appendix for same numbers that we released this morning. As I said, it was a very strong quarter. We delivered positive operating cash flow in Q3 once you take into account the $1.6 million -- sorry, it's a positive operating cash flow of $1.6 million once you exclude the settlement of the one-off M&A costs related to the acquisition of Silverlink. As many of you have probably seen during the course of the quarter, Alcidion has announced several new contract wins and renewals with U.K. customers, including new Miya Precision customers. We've had upsell of additional modules of Miya to existing Miya Precision customers. We've had renewal of Silverlink contracts. And subsequent to the quarter end, we also announced an upgrade of an ExtraMed customer to Miya Flow, so again, another new Miya Precision customer. And these contracts from the U.K. perspective demonstrate the benefits of the recent acquisitions alongside our growth strategy.
Here in Australia, again, subsequent to the quarter, and we entered into a new $5 million 5-year agreement to upgrade the Northern Territory to Miya Precision with additional options to sell -- option to sell further modules over time on top of Miya Precision. So initially, they're taking Miya Flow, which is in line with what they were using on our previous version of Miya. They have also opted to take Miya Access and Command, which looks at bed management across the territory and then an option to add on another additional modules over time without needing to go to procurement. So this active start to the calendar year demonstrates Alcidion is executing on our strategy to attract new customers, upsell additional modules and upgrade existing customers to Miya Precision. So all of those contract wins that we have announced demonstrate those elements of our strategy. As I indicated on the last call, there were a number of opportunities in the U.K. that we're going through the procurement process. And some of these have now been converted as that has been evidenced by some of those announcements. But the pipeline continues to strengthen both in the U.K. and in Australia and New Zealand.
So to take you through in a little bit more detail. The quarter results, as announced today, highlight, as I said, the execution of our strategy with new sales to customers for Miya along with the renewals and upgrades to existing customers. And you can see that well demonstrated throughout the financial highlights, particularly when you look at the new sales for the quarter and the year-to-date new sales, taking into account that year-to-date new sales are for 3 quarters only and don't include anything that we announced subsequent to Q3 closing. So if you look at it from the new sales perspective, for the quarter, for this quarter alone, they were equivalent of $12.5 million in total contract value with about $4.3 million of that to be recognized in this financial year. And the new sales comprised 74% of that or $9.2 million was recurring product revenue and $3.3 million or 26% nonrecurring services revenue, which includes revenue that we get for implementing our products, which, obviously, every sale we make there is a component of services related to implementation and integration of data into our platform.
So 3 new contracts and 2 renewals, all material were announced, and they contribute to that new sales figure. It is worth noting that Alcidion material contract announcement threshold does increase as our revenue increases. And therefore, not all contracts signed during the quarter are actually announced in the way those contracts were.
So with those new sales, that takes the total contract value of new sales year-to-date up to the end of Q3 to $42.9 million, which is 93% up on the prior year TCV sales. 62% of the new sales relate to recurring product revenue and 38% to nonrecurring services revenue. It also includes $4.4 million of revenue that came to us as a result of the acquisition of Silverlink. Just important to note there that the contract with the Commonwealth Department had a fairly sizable chunk around $10 million related to services that are to be recognized over the first 3 years of the program of work, whereas the license there will be recognized over 5. So as at the end of the third quarter, we have $31.7 million expected to be recognized this financial year. So the revenue at this point that we -- with no further sales, we'd be able to recognize -- would be $31.7 million, but there's still a quarter of sales to go and we would normally expect some of the sales in the first quarter to contribute to revenue in this financial year. And that's 28% up on the prior calendar period. There's also a further $1 million of scheduled renewal revenue expected to be converted to contracted revenue and considered part of the FY '22 revenue. So if that's converted, obviously, that would take that to around $32.7 million without any further new sales. So really, that puts contracted revenue just shy of $33 million with as I said, the possibility of new sales to contribute further to that revenue. Obviously, the amount that new sales contribute when you get to the final quarter depends on how the contract is structured and when that contract is signed.
So then turning to cash and the flow of cash. The Q3 operating cash outflow was $400,000. However, when you exclude the settlement of the M&A costs related to the Silverlink acquisition, we actually generated $1.6 million of positive operating cash flow. On a year-to-date basis, Alcidion is operating on a negative cash flow of $2.3 million. But if you remove the M&A costs, we are currently cash flow breakeven, which is where we have indicated we expect to finish the financial year as well. Please note that we have allocated the costs related to M&A activity in the Appendix 4C in the actual document that we've actually allocated the cost to line at 3.7 in the Appendix 4C, and that is historically how we allocated them. But on reflection, they're more accurately allocated to Line 3.4, which is transaction costs related to the issue of equity. It makes no difference to the overall numbers, but it would -- I just wanted to clear up any suggestion that we have any debt because we don't, and that could be indicated by looking at those costs at 3.7. So in future, we will move those 2, the Line 3.4, where they more correctly sit. Cash receipts from customers in Q3 were 3 were $11.1 million, which is the highest quarter of receipts for this financial year. And the total year-to-date cash receipts of $27.5 million is 23% ahead of the cumulative cash receipts at the same time in the prior year.
And cash balances at the end of the third quarter was $78.5 million, noting that subsequent to the end of the quarter, we did pay out $2.6 million to the Silverlink vendors in relation to the first of 2 earn-out conditions being met, and that was announced to market at that time.
So these graphs are in the business update, and you can look at them in more detail at your leisure. It gives you a greater view obviously, of the trends in terms of how the business is performing. The trends across the board are all moving in a positive direction. You can see we're ahead of the PCP numbers in new TCV and cash receipts in contracted revenue. We've got a healthy cash balance and a strong and continuously developing pipeline. Please note, it's worth noting when looking at these -- that I think I just touched on it before. The nonrecurring revenue year-to-date is higher than the prior calendar period, and that's really related to that Commonwealth contract having a very significant services component, which is absolutely fantastic for us. It's allowed us to work very closely with the members of that consortium and to be paid to do it to ensure the absolute success of that program of work. It's all product-related revenue. But it does mean that there is a slightly higher nonrecurring component than we have previously seen.
Talking a little -- moving a little to operational highlights. It has been a very busy quarter for us, a very significant in terms of announcements that we've made, all of them demonstrating to different degrees, how Alcidion is executing on our strategy. And I'll just touch through them because I think, hopefully, I can touch on what is important about each of these contracts and why they're contributing to a very overall positive momentum for Alcidion. So we had the 5-year contract with the Scottish trust in Tayside to implement Miya Observations and Assessments, which are modules aligned to Miya Precision. And what's important is the contract continues to expand our U.K. presence. It also expands yet again, our presence in Scotland. It's the third health board in Scotland that will implement Miya Observations and Assessments. Following the delivery of very positive and of those of you who have seen certainly some of the feedback and the results of the studies coming out of Lanarkshire. We'll see the really positive impact that our solutions are having in improving patient safety and patient outcomes. And this contract is important because it continues to demonstrate that our opportunity and our ability to execute on our land and expand strategy by using modules of Miya to establish a position in either a country or in a trust and then further develop that position. And so we look now to how we can continue to expand that opportunity throughout Scotland.
And we also signed a 5-year contract with [ Harrisons and Worcester ], which is really interesting. That was for Miya Flow so just one of the key modules of Miya Precision. But it's the first community in mental health trust that has purchased Miya Precision. It is actually one of new emerging England's global digital exemplars, some of you who have been following our story for some time will understand that the U.K. identifies some sites as exemplars. And so when they're choosing to procure our technology through a competitive tender, they have indicated that our Flow solution is an excellent choice in the market, an excellent choice for community and mental health.
So again, this is an entry point for Alcidion to demonstrate the applicability of our solution in a mental and community health trust, of which there are around 100 on top of the 145 acute trusts that we've been dealing with predominantly to date and it's a new Miya customer in England. We then had the 5-year contract with Dartford and Gravesham, which expanded the use of Miya modules. They are the first to procure a Miya Emergency, which is actually a new Miya Precision module, and that's the first module to come out of the merging of the Silverlink and Miya capabilities. Silverlink has capabilities in ED from an administrative perspective and Miya from a clinical perspective, we're bringing those capabilities together to produce a new module Miya ED and this was contracted alongside a solution -- one of our solution partners. And again, we don't believe that Miya Precision needs to develop every capability in order to provide an alternative modular electronic patient record. In fact, it makes a lot of sense where there are niche providers of deep clinical solutions like anesthetics, like medications for us to partner with them and use our highly interoperable platform to integrate that data into the electronic patient record or longitudinal health record.
And so that's what we're doing with Probation. And this is important because the agreement extends -- expands Alcidion's relationship with Dartford. They were the first trust to implement Miya in the U.K. Now they're the first to implement Miya Emergency. And that adds to other modules that they've acquired since that first contract as well, which was for diabetes management and for Miya Memory and Mobile Solution. So again, demonstrating how Alcidion is executing on that strategy. We also signed 2 renewals with existing Silverlink customers, Moorfields Eye Hospital and Liverpool Heart and Chest for the use of PCS for a further 3 years, again, providing further validation of Silverlink's long-standing position in the market.
And it delivers stable recurring revenue to us as we continue to build out our mobile our modern modular EPR. So subsequent to the end of the quarter, we also signed some additional contracts that again, I think, continue to demonstrate our execution. We had a 5-year contract with East Lancs Hospital Trust. They are already users of Miya Observations and Assessments. They were also existing users of the ExtraMed inpatient flow manager solution. And that solution has actually been used at East Lancs for about a decade. And they will represent another first customer from the ExtraMed portfolio to choose to upgrade to Miya Flow and again, demonstrating our ability to upgrade the customers acquired by the ExtraMed solution and create greater opportunity once Miya Precision as a platform is implemented, that we can continue to sell additional modules. The other thing really interesting about East Lancashire is that they are deploying the Cerner Millennium, electronic patient record. And this is a perfect opportunity for us to demonstrate into the U.K., how we interoperate and can add value around those sites that have already chosen to go with a provider such as the Cerner EPR solution.
And then most recently, we signed a 5-year contract with Northern Territory to upgrade to Miya Precision and deploy Miya Flow, Access and Command modules across the 5 main hospitals in the territory. This upgraded solution will support flow of patients. You probably -- you've heard me talk on a few of these calls about how important the flow of patients is in health care today. Every time I pick up a newspaper, there's something in there about ambulances being ramped and not being able to get into ED, ED departments being overflowing. So this capability to bring data together and look at what's preventing patients from moving through the health care system is really important. And it is fantastic and very exciting after many years of Northern Territory being a customer of ours that they are choosing to implement and upgrade to Miya Precision and put that over the top of their clinical record. And so we'll continue to see very positive results, I believe, out of the work in the Northern Territory.
Also during the quarter, we announced 3 key staff appointments, 2 based in the U.K. and 1 in ANZ. All 3 of the positions that were focused on accelerating our market growth. We -- in March, we announced the appointment of Florian Stroehle as Director of Strategy and Business Development. He's actually based in our Auckland office. So the first time we've had a member of our team that's looking at business development based in Auckland, and that is really exciting for us. And he's going to be leading business development across Australia, New Zealand and any new emerging markets. Florian has many years of experience in health care information technology, both based in New Zealand, but also on a global scale. So we're looking forward to the skills that Florian will bring to our team.
We recently appointed Steve Leggett as Head of U.K. Strategic Markets, who's going to be really focused on the opportunity of the modern modular in the U.K. He has come to us after 17 years at Cerner. So he has a very strong background and experience that we're already seeing how those -- that skills and knowledge contribute to our team and our business development and our sales execution in that market. And Dr. Paul Deffley who is joining us as the U.K. Chief Medical Officer. He has already started with us. He's really going to be looking at how he supports the growth of the U.K. business from a CMO perspective. Many of you will know our founder, Malcolm Pradhan, who is the Chief Medical Officer for Alcidion and drives a lot of the vision. He's going to work really closely with Paul to be able to grow our capacity and ensure that we are able to take our message into the U.K. market effectively. So I'm just pointing out that all of those appointments are in line with the -- as expected expenditure for this financial year. So you can see from this update, it has been a very busy quarter with a lot of progress made. During the quarter, many of you will know, I made my first trip to the U.K. in 2 years. It was fabulous to meet with current and prospective customers and to spend some time with our team who have grown significantly during that time. So there was a lot of new faces for me to meet also. We also attended our first in-person trade show in both the U.K. and Australia, which were extremely successful and continue to help us build the pipeline. And I think whilst we were very excited to see new and potential customers, they were equally excited, I think, the opportunity to get back to that kind of connection and networking. I tend to be back visiting the U.K. before the financial year is out. So we can continue with the momentum that we've established as we've come out of the pandemic.
So thank you all for attending today and for your continuing interest and I'm very happy now to move to the Q&A.
Thank you, Kate. We've had a few questions come through, so I'll just work through those in turn. We just had a question about whether -- what's the position regarding the EBITDA for the end of the financial year?
Yes. As we've continued to say, we're still looking at breakeven EBITDA for the financial year, excluding M&A costs, obviously, so would be underlying EBITDA. Obviously, there's still some of the year to play out. So provided that everything falls this time of the year, we expect to look at that underlying breakeven position.
Okay. And I guess along similar lines, where do we anticipate that the year-end revenue will be when we account for the Lancashire and Northern Territory Health contracts? And were those contracts heavily front loaded?
We don't give guidance on where the revenue is going to land because obviously, there will still be some contracts that we are working through. At this stage, we're just shy of $33 million anticipated in revenue that we expect to recognize we obviously will fall close to consensus at least, but we're not in a position to give a forward forecast at this point.
Thanks. The next one is a product question and a bit of a double-barrel question that we had from 2 attendees. What's the status of the technical integration between Silverlink and Miya Precision? And then a related question, what's the status of moving Silverlink PCS to the cloud?
Well, during the quarter, we were able to demonstrate Silverlink working alongside Miya Precision to potential customers with Silverlink deployed in the cloud. Now that's a demonstration purposes. I think there's still work where we want to do before we deployed that into a production environment, but certainly, work is well and truly underway. And as I said, we have now sold our first module that is, in fact, a combination of the capabilities of Silverlink and Miya Precision. So work is progressing and very happy with the status of that today.
Great. Next question is just asking for an update of the inflow of our involvement in the JP2060 project that was mentioned in the webinar of January and that when about further information on the status of that.
So I think what I can say about that is the project is progressing really well. We're working with other consortium partners to deliver the requirements. So it's -- the project is up and running. We have not as yet had the federal government make a formal announcement about the allocation of that contract and the members of the consortium. And now that we are in a caretaker period, we understand that that's unlikely to occur until after the election is finished. So we continue delivering on the project. It's going well. We're happy with it. We look forward to the day that we can give you more detail.
Thanks, Kate. The next one is about Alcidion's listing in the U.K. digital marketplace. So for our 4 primary products are listed there. The question is about whether this provides significant -- any significance in terms of the procurement process in the U.K.?
Look, yes, look, all of these -- it's very similar to being on a framework contract. They all help you to speed up procurement in the U.K. So we like to be on as many of these types of marketplace engagements or framework engagements as we can that our products meet the requirements so that when we do come across customers that we're talking to that want to procure our solution, they can do it with via a mechanism that makes it easier and speeds up the process. So all of these sorts of announcements are very positive.
Great. And related, I guess, to procurement in the U.K., we were talking and mentioned the impact that COVID has had on the procurement process. Has that eased since the first half of FY '22?
Yes, I think so. I mean it's hard to know 100%. But my feeling is that we're operating under fail no circumstances now, and that's probably only been in the last month or so. There's less of that, oh my, I don't have a solicitor available to work on a project because they're [ seconded ] into another department or so forth. So we keep an eye on it, but things are operating fairly well at this stage.
Great. The next one is a little bit more about market sectors across the health care I guess, environment. Are Alcidion targeting an expansion into settings that are similar to hospitals, such as with our aged care or nursing homes?
Look, we keep a very open mind on aged care and nursing homes. I think I've said this before, our longitudinal health record that we're deploying in this Commonwealth program, I think, could equally be applicable in the aged care sector. The really interesting thing for us in what we're watching well we haven't gone and massively invested into this area is that we're waiting to see what comes out of any funding initiatives to support digital health and aged care because at this point in time, it's a market that is very tight in terms of expenditure in that area and haven't really embraced digital as a way of transforming it. But we certainly think we've got a position there at the right time.
Okay. This next question relates back to the key staff appointments that were shared in the presentation, with congratulations. The question is, are we planning any more growth on the team in the near term? And how are we finding access to talent and the rising costs?
Thank you very much. Look, we have still got some roles that are not filled that are part of our plans for this financial year, but not many now. So we're getting pretty close to where we had anticipated being. We're obviously going into -- looking at the next phase of what we do, but we certainly don't have plan any significant increase in costs across the board. There will be some pockets where we may wish to recur -- to deliver various components of our actual operating plan. In terms of access to talent, I think we're doing extremely well. I think Alcidion stories -- Alcidion's positioning in the market, the success we're having is actually translating into our ability to attract talent. We're certainly continuing to look at our employee value proposition and how we position ourselves as an employer of choice. And in terms of the rising costs, to be honest, I think I'm seeing it settle off a little bit. Anyone that's interested we'll see in the Australian financial review today they published the roles for PwC and Accenture because they're now publishing their salary bands. And so I think it's really interesting to be able to actually see that information in the market now openly and to understand where people are positioned. So I'm very comfortable with where we are at the moment and how we're attracting our talent.
Okay. Just on a slightly different track. About currency. So both pound sterling and the New Zealand dollar have lost value against the Australian dollar this year. A question about whether we hedge our currency risk?
I can take that.
Matt, you love these questions.
Yes. Thank you, Kate, and good morning to everybody who's joined us. Yes, it's a good question, especially with the Aussie appreciating now 6% in the last 2 months, there's 2 elements about there's the transaction risk and the translation risk. And we're going to get too tacky here. But yes, absolutely, we hedge our transaction risk for material transactions. So for example, when we raised money in Australia for the Silverlink acquisition, and we took out port exchange contracts to remit those funds to the vendors in the U.K. Translational risk is a little bit more complicated, there is an element of natural hedging on the U.K. balance sheet. I'm going to focus on the U.K. because compared to the U.K., New Zealand is fairly immaterial, and we are actively working with our bank at the moment as we budget '23 to put in place procedures to mitigate any further appreciation of the Aussie dollar.
Thanks, Matt.
Thank you. The next question has got nearly -- it has provided us with a multiple choice and answers. So bear with me as I read through it. When you say that Alcidion expects to finish the year cash flow positive, do you mean cash flow positive, excluding acquisition costs or cash flow positive for the final quarter or actually cash flow positive for the full year?
Cash flow positive, excluding M&A costs for the year.
Okay. Thanks, Kate. Hopefully, that's clear in that respect. And I think we are now coming to our last question, which is just a request for an overview of our approach to ongoing research and development of our product suite.
In relation to what, Kaye?
It's just -- could you explain Alcidion's approach to ongoing research and development of current and possibly new product and [indiscernible] lines too...
Okay. Well, I'll just answer that. I read it then in the sense that, obviously, we continue to develop our product. That much is obvious in the sense that we are releasing new modules, selling new modules and so forth. So we -- that is consistent. How do we decide where and what is important? Obviously, that's a combination of our market intelligence. Our -- when we hire people like Florian and Steve and Paul Deffley, they bring to us a great deal of market understanding in terms of what our customers are looking for. Obviously, we also talk to our customers. We spend a lot of time engaging with them. And then we have our internal team who are keeping an eye sort of on industry trends, the sorts of things that are happening globally and where we believe health is heading. And so it's a combination of all of those in terms of where we're heading. We have a product road map. That product road map is well debated and a lot of people have input into that. And we keep it fairly agile in terms of what's important to us at any given time.
Thanks, Kate. And just as I said, that was the last question, we had on the list 2 more have popped in, so we might call them the last 2 as well then too. So the first one is, how does inflation impact the business? And how do you approach new contracts from a processing point of view?
Well, of course, for a business like ours, where we're not commodity based, we're selling long-term contracts they obviously have the ability to increase those contracts in them. So nearly increased the costs year-on-year. So nearly all of them will have either a CPI or a labor percentage factor that we can actually add each year based on what is actually happening. So we hedge the impacts of that quite well, and we take that into account. Obviously, we keep an eye on pricing for any other long-term major shifts. Whilst there has been pressure on tech industry salaries, I don't think that we're seeing that being so significant at the moment that we'll have to radically change our prices to our customers, but we keep an eye on it.
Okay. And yes, as is the case, when you say that's the end, we've had a couple more coming in, but one of them is, do we have any plans in the short to medium term to expand to other geography geographically or otherwise?
Look, we are open to it, and you will probably -- if you picked up Florian's role is not just business development in ANZ, it's also to look at emerging markets. So we're keeping an eye on the opportunities. We obviously put determined expansion into new geographies on hold during COVID. We still believe the opportunity in the U.K. and what we have here is very significant. We don't want to be distracted from that at this point in time, but we are certainly starting now to actively consider new markets. And that might be a good one to finish then, do you think, Kaye?
I think it wraps everything up very nicely, yes. So thanks, Kate. Thank you, everybody, again, for attending today. And please note, as we said, the recording of this session will be posted for you to view later today. Thank you.