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Good morning, everyone, and welcome to Alcidion's Q3 FY '24 Appendix 4C and Business Update, which covers the 3 months ended the 31st of March 2024.
You might need to be on mute, Matt. I'd like to begin by acknowledging the traditional owners of the land on which I am presenting to you today. They're the Wurundjeri People of the Kulin Nation, and the lands from which all of you are joining today as well, and I pay my respects to their elders, past and present, and I extend my respect to any indigenous persons joining us on the call today.
I'm also joined on the call today by our Chief Financial Officer, Matt Gepp. Shortly, I will take you through a presentation covering the key commercial and financial highlights of the quarter, which I would need to have up on the screen probably. Matt, can you nod that you're seeing that all right? I normally tested that beforehand.
Yes. So I'm going to take you through this short presentation. And as always, we will have opportunity for questions at the end of the presentation. We'll cover some of the key commercial and financial highlights from the quarterly. And all attendees have the opportunity to ask questions that they want at the conclusion of the presentation.
If you would like to ask a question, please use the Q&A facility at the bottom of your screen, and we'll answer -- aim to answer as many of those as possible. Any questions that are similar in nature, we may combine those to avoid repetition. If we run out of time or are unable to answer a question or you have another question post the webinar, please send it through to investors@alcidion.com, and we'll seek to answer as many of those as possible. As a reminder, the webcast is being recorded, and it will be available on Alcidion's website later today.
Getting into the detail. The quarter was in line with our expectations for cash and new business, setting us up for a stronger cash position towards the end of the financial year. Building on the material contract extension we had in Q2 with South Tees, this quarter, we signed a 3-year contract extension with Dartford and Gravesham NHS Trust. And they were our first customer for Miya Precision in the U.K. market. It's very pleasing for us to continue to extend that relationship. The contract builds on that 5-year relationship with Dartford. And it further goes to highlight the long-term nature of our customer relationships, the importance of all customer relationships in respect of that long-term recurring revenue, and it validates our progressive modular strategy, which Dartford is a really good example of having gone in there with the initial modular set and then continue to add to those modules over time.
During the quarter, we signed a new trust with -- in Tameside and Glossop, which are NHS Trust, and that was for the use of observations and assessments, or patient trackers as it's sometimes known, which is the nursing-oriented modules of Miya Precision. These modules will help to provide the clinicians at Tameside with that digital solution that will improve the real-time deployment of patient care at the bed side and also, as a result, subsequently seek to improve patient safety and outcomes for patients. And whilst it's not material from a revenue perspective in terms of announcing it as a separate deal, it really does provide further reinforcement of the importance of the modular sale in respect of how Alcidion goes to market. But it also provides us with a new trust. And also that trust is our second trust within that particular integrated care system, or ICS, or region. They joined Stockport, who has been a customer of ours for many years with Patientrack.
Collectively, those 2 sales, among others that were made during the quarter, it added $6 million of total new contracted sales during the quarter, which we expect to recognize approximately $2.9 million in this financial year, with the balance of that being recognized in future periods. We reported an operating cash outflow of $1.3 million in Q3. However, approximately $1 million of that is due to the one-off redundancy costs that are driven by the cost-saving initiatives we put in place in the quarter, all of which have now been completed. And as a result of those cost savings starting from Q4 being the current period that we're in, we expect our cost base to reduce by approximately $1 million a quarter, which would be $4 million on an annualized basis. And if you combine that with all the savings we've made in the last 6 months, that will result in an annualized cost savings to the business of $6.4 million.
Importantly, we expect to be cash flow positive for both the quarter and for the whole -- the second half of FY '24, therefore, materially improving on our cash balance, which is $6.5 million as at the 31st of March.
Across Australia and the U.K., we're definitely seeing an increase in our larger procurement activities. And I do hope to be able to provide updates on those towards the middle of the year and through into the first half of the next financial year.
Let me say, we fully understand the delays to procurement time lines have been frustrating for shareholders as they are for us internally. However, we've seen several larger EPR tenders collectively with TCV in excess of $200 million, and we've been responding to those. They take their time. But obviously, we're not going to win all of those tenders, but our ability to secure even a portion of that could be having a major impact on our growth prospects for the business in the years ahead. So -- and our improving referenceability across all of our sites in all markets continues to position us well for those larger opportunities.
Moving on, as I mentioned earlier, I'll just touch on some of those financial highlights. I mentioned earlier, during the quarter, we won new contracted sales of around $6 million, with approximately $2.9 million of that expected to be recognized in this financial year. At the end of Q3, we have FY '24 contracted revenue standing at $37.4 million. Approximately 74% of that is product -- direct product revenue and the balance relates to services, most of which is related to implementation of our products.
Cash receipts from customers in the quarter were $10.2 million, which led to an operating cash outflow of $1.3 million. As I said earlier, the cash outflow indicated approximately $1 million of one-off redundancy costs which, if we exclude those, the underlying operating cash outflow was just $300,000.
The company's cash balance at the end of the quarter was $6.5 million with no debt. Q4 will be the first period that we'll see the full benefit from the cost-saving initiatives that we completed in Q3. They are expected to reduce our operating cost by -- further reduce it by about $1 million a quarter. Looking forward and on our annual -- as I said earlier, $4 million, combined with the product savings, that's worth of $6.4 million overall savings on an annualized basis comps.
Looking forward, we've got contracted and renewal revenue of $132 million, able to be recognized over the next 5 years, excluding the current financial year that we're in. And that also doesn't include further revenue from existing customers who may choose to expand their current contract or add additional modules. And many times, when you've heard me, particularly the U.K. contracts, they often have options to buy additional modules over time, and we haven't included that in that forward view of revenue.
I won't go into too much detail on this slide as I've previously covered a lot of this detail, and it's -- you can look at many of these graphs in the 4C that was released this morning. But it does show the various trends related to sales and cash receipts for the business on a quarterly basis.
Of the new sales for Q3 as in of that $6 million, approximately 87% is related to recurring product revenue, and the balance of that will be one-off implementation and services revenue. Cash receipts to the customers were $10.2 million as we head into Q4, which is historically our strongest period for cash receipts, and we expect that to be the case in this quarter as well. And I'll touch on that a little bit further when I talk about the outlook.
As I said in my introduction, during the period, we signed that 3-year extension with Dartford and Gravesham Trust in the U.K., building on an existing 5-year relationship. They were our first Miya customer, and they bought a number of modules to start off with, but that steadily increased those modules over time, including adding partner modules such as medication management.
The contract -- this contract also involves moving them to cloud deployment as they're the only Miya U.K. customer that's still operating in an on-premise deployment. So we're pretty excited about that and excited about the opportunity to work with Dartford and Gravesham to accelerate their rollout of Meds, move them to the cloud and then help them to continue their digital maturity journey ahead of when they go to market for a full EPR this year in order for them to secure funding from the NHS frontline digitization program. To fund the next 10 years after this extension, they will be required to go to market for a full EPR.
We also signed a new trust in Tameside and Glossop for the use of Patientrack observations and assessments. As I said, they're a sister trust to Stockport. And this was a direct award that was purely based on the referenceability of the Stockport deployment. And it provides us with a new trust, another trust in this ICS. So we're really excited that we can continue to see roll out of our modular solutions, particularly sophisticated ones that are well proven within the U.K. market like Miya observations and assessments.
Looking forward, as we guided at the half year results, we expect the second half revenue to be in line with first half revenue, which was $19.1 million. We currently have $37.4 million of contracted revenue. So remain comfortable with that position as we've guided, noting that even if we were to sign a material contract late in this quarter, due to revenue recognition timing and the ability of a customer to mobilize, we may not be able to realize the revenue in this financial year. But if that were to the case, it would simply strengthen our future revenue profile as we headed into FY '25.
We expect to be cash flow positive in Q4 and for the whole of the second half of FY '24, noting, of course, that Q4 is historically our highest period for cash receipts, and we'd expect this trend to continue. And it's important to note that our confidence in that is that our debt balance at the end of Q3 was $12.9 million, and we'd expect to collect the majority of that in Q4. And we have a very strong invoicing profile in Q4, albeit we won't collect everything that we invoice in Q4, but the combination of those 2 gives us confidence about our cash position.
In addition, as I mentioned, I've already mentioned a few times on this call, it will be the first quarter where we recognize the full -- a full quarter benefit of the cost savings that we've put in place. And so that should contribute a saving of $1 million or more in respect of our quarterly costs.
We continue to actively engage and progress several large bids, including EPR tenders in the U.K., highlighting, I think, what the significant future opportunity within the business, notwithstanding the delays we've seen in procurement. As I've said at the half year, the procurement activity has picked up. It does take time, but we have -- certainly have a lot more activity in this calendar year than we saw in last. Based on the current time line, we'd expect in those EPR bids in particular, that the preferred vendor will be known by many of those by the end of this calendar year. As I mentioned earlier, we don't expect to win every tender, but even a portion of that would definitely have a materially significant impact on our growth profile, particularly as we streamline the cost base.
There are also several other opportunities we're continuing to pursue in respect of flow and virtual care, Miya results tracking on top of our already contracted and renewal revenue of $132 million out through the next 5 years. And whilst the U.K. EPR opportunities are important because of their size, I think it's very important for shareholders to note that we have many opportunities for our modular sales and that, over time, they build a very significant and steady recurring revenue base.
I am -- that's really all I wanted to cover today. Thank you for your time, and I'm very happy to take questions. Matt is going to read out those questions for me so that I can think about the answers rather than reading them and answering them.
Thanks, Kate, and good morning, everybody who joined us today. So I'll ask this first question. It relates to one of the bullet points from the presentation. With respect to the $200 million-plus TCV, can you please share some more information of the geographical split, which countries these centers are in?
The $200 million-plus we're talking about is really the EPR bids in the U.K. That's not our total pipeline. Our total pipeline is in excess of that. That is just in very much the EPR bids in the U.K.
There's a question here about the Tameside contract stating that we've not previously announced this deal. What is the current material hurdle for releasing -- reporting contracts -- releasing/reporting contracts independently?
Look, I think the guidance from ASX on acceptance that this is around 5% of -- in excess of 5% of total revenue -- or 10%? I'm sorry, I've just forgotten that at the moment. But anyway, we put it at around $3 million. So it needs to be really in excess of $3 million before ASX will consider it material in respect of announcement.
There's a question here on the NHS procurement delays. What is the risk that there are more procurement delays associated with those contracts expected to be announced at the end of this calendar year?
Well, look, it's very hard for me to say. There are -- there have been delays. There are complications in some of them with several trust in an ICS not being able to agree on solutions. But we are seeing a lot more come to market. There's a lot of activity at the moment. There has been a further $3.5 billion put aside in this financial year now. So we were in a new financial year in the U.K. from the current government and treasury to continue the rollout of which the EPR program is a significant part of that. So I have cautious confidence that it's going to continue, but obviously, we keep a watchful eye on that.
And on the same topic, Kate, are the larger EPR tenders in the pipeline mostly longer term, i.e., around 10 years duration?
Yes.
Okay. I'm going to bundle a couple of questions up here. This is around how many candidates have we submitted? And have we had any rejections on some of the larger contracts coming to tender this year?
Look, I think that's very -- it's very important that we keep that sort of information confidential. It is a very competitive information that competitors would be interested in. And I think it's important that we contain that sort of information. I can say that we do not go for every tender. We do not go for every EPR tender. So don't make an assumption if you hear that a contract award Alcidion was actually even bidding for that. The reason we don't go for every tender is some of them are very specifically targeted at maybe a big -- the big U.S. vendors or maybe there's something very specific about that trust that we know. That means that it would be -- when you are thinking about how long it takes to respond to these tenders and the intense impact it has, I know that our competitors are very similar to us. They are being quite particular about which ones that they go after.
Okay. Last question on the tenders. Is this the last bunch of EPR tenders in the U.K. with none left to win after this round?
No, they're still coming. Some of them haven't even come to market yet. They do a 2-phase process. They do a premarket engagement where they find out a little bit what was going on, and we're still expecting several of our opportunities to even come to that premarket engagement. So I think there's quite some time still to run. And that does not disregard our opportunities in the U.K. around flow and virtual care because these EPR tenders, not all of the providers, particularly the big U.S. providers, don't provide that consolidated flow view that we do. So there is a very important market for us around bed management and flow in the U.K. and around virtual care in the U.K. that we are continuing to pursue that is unrelated to the EPR market.
And apologies, there's a clarification question here on the tenders. It's just around -- when we say the preferred vendor should be known, is at the same timing as awarding contract?
No. Typically, in the U.K., unlike in Australia, you will hear about who the preferred vendor is, and then they will go into contract negotiations, and the contract will be finalized sometime thereafter.
Now moving to the other side of the world. You're seeing opportunities for new contract wins in Australia or New Zealand?
Yes, there has been a significant uptick in tender activity across all our markets.
Okay. There are questions for me here, too. Is there a reason why there is a buildup on the debt balance? Is this related to the procurement delays?
So yes, so the reason for the buildup is -- and it's not that we have a lot of aged debts, it's that we have a very active billing environment in March. So all of that has come out of the Dartford renewal, the Tameside deal, and the other renewals we have in the business that seem to group around the mid- to end of Q3. So it has nothing to do with the delays in NHS. It's just -- it's just related to a very busy quarter. And we fully expect that will turn over, that will be paid in Q4, which is why Kate and I are so confident of the cash results for the quarter and the half.
Okay. Will generative AI have an impact on the Alcidion business?
Look, I think we're keeping a watchful eye on it. We -- Alcidion will look at how we bring generative AI capability into our existing electronic noting and natural language processing capabilities. I think it's really important to note that the health care industry is very cautious about the use of generative AI and AI in general. And we need to move in lockstep with our customers in respect of their confidence and their -- the ethical considerations around adopting generative AI. So we are very tapped into how this is progressing. We are doing R&D around it, but we will need to keep it in line with our customers' readiness.
There's a question here on the revenue profile. I note that 87% of revenue is recurring and 13% is associated with implementation. Can you provide the total annualized cost to Alcidion's spend on implementation? And what portion of this is capitalized? Are there efforts to diminish this cost, including enhancing any digital onboarding?
I don't think we capitalize any of that.
We do not capitalize any of our staff costs onto the balance sheet. So P&L represents our cash and our P&L. And we don't split out -- the costs of our implementation team. So I don't think we can disclose that here.
Yes. To be as efficient as we possibly can, we have consolidated our product specialists, be they part of defining new product features or implementation or support into a single collective capacity. And so we don't separate individuals out into those separate cost buckets.
In respect of reducing implementation costs, I mean we consider doing that all the time, but you need to take into account that we are talking about, with the platform such as Alcidion, consolidating sometimes 15, 20 different systems into a single view of the world, and ensuring that the user testing and the configuration of that is accurate before somebody goes live. It's an important part of what is happening during that implementation process. And it's not the same as just being able to click a button on a screen and have it perform a macro for you. So there will always be a need for that. We look at partners, and we do have some arrangements where we may share the slice of implementation revenue and therefore the costs with others, and that reduces overall head count from our perspective.
Okay. Thank you. This is the last question from the chat before I move on to the questions that were submitted before the call. It's to do with a possible change of government in the U.K. and whether we have any visibility on what the new government, assuming the new government, policy is on health care digitization?
Yes. Look, I'm making no assumptions either way. What I do take from what I am hearing about the -- from the opposition health spokesperson in the U.K. is a real commitment to digitalization. Digitization is the right word, I think, of the health care sector. He has spent a lot of time looking at systems like the health care system in Singapore and around the world, and he's talked often about the need for digital as the only way in which the efficiencies that are needed in NHS will be gained. So I'm pretty heartened that whatever government wins, they do have a commitment to further investment in digital.
Okay. So I'll move on to the questions we received for the call. Is Alcidion at risk of takeover of larger companies, including those not traditionally working in the health sector, accelerate their AI-powered product development?
Look, I mean, to be fair, we're focused on our own business. And obviously, we keep an eye on what the competitors are doing, and we're definitely aware of what's going on in AI in this space. But we're very focused on our own business and the areas that we can control. We firmly believe we've got a leading technology platform that enables our customers to improve the quality of efficiency of health care. We currently use AI and have been -- and have done so for some time. I'm very confident that Alcidion is well placed to enable our customers to actively engage with AI in a safe and ethical manner when it is ready for health care to do that.
Thank you, Kate. Notes from a recent interview with Kate said that ALC had a ready-to-go platform additional modules and a fully developed PAS when compared to nurse center. Is this correct? And is my results tracking also being added to the modules included in EPR bids?
Yes, we have it ready to go and proven paths, which we have enhanced and incorporated into the Miya architecture. And yes, future bids would include Miya results tracking, but it's worth noting that Miya results tracking can also be sold with flow or stand-alone as a module on its own.
Thanks, Kate. How confident are we that we're going to land an EPR contract that utilizes capability acquired from Silverlink?
Well, Silverlink forms a very important part of our EPR strategy. So without it, we don't have a full EPR offering, which is why we acquired this, and that and its market presence. There are a number of tenders in flow at the moment, and we're presenting a compelling proposition in those that's differentiated to our competitors. As I said earlier, we don't disclose which tenders we respond to, but do not assume that we respond to all of them. We carefully analyze each opportunity and whether it fits our position. Some tenders are clearly aimed at large U.S. EPR providers, and those that do not align with our proposition make no sense for us to go after them.
Thank you. Now I'm going to wrap another question into this one, which is related, but the question is, is Altera Health a competitor to Alcidion? They won an EPR contract via Insight Direct and work when we've not been won. And there's another question just more about, can we elaborate more on who our competitors are in the U.K.?
Yes. Altera is interesting. So yes, they are a competitor in an EPR bid, but we also have -- can demonstrate many places where we sit on top of Altera as an EPR and add value to it. So we've done that over many years, both in the U.K. and here. We have won an EPR contract, which was South Tees. The extension of South Tees was a 10-year EPR contract.
As I said, we don't respond to all tenders. We don't disclose the ones which we've bid for as that's confidential and important to our sales strategy. Also, I think it's important to note these tenders are really large. They take a long time to go through procurement. And as there's been delays, they're not awarded every day or even every month, so I guess all I can say is we are involved in some tenders. There are still more coming that we will need to respond to. They take a long time to go through the procurement process. Some of them get stalled along the way because the trust are challenging and making collective decision-making. And we will continue to keep the market updated when and if information becomes available that is disclosable.
Thanks, Kate. And the final question we have for the webinar, do you have future plans to access capital or any plans to go into debt?
Look, Alcidion has a very strong cash position, which will be stronger when we come to the year-end. We've made adjustments to the cost base in order to preserve that. And we have -- as a result, we have no plans to access additional capital or to go into debt.
Okay. That's all for the questions.
All right. Well, thank you very much, Matt. Thank you to everybody for your interest today. We've had a large number of people registered with the webinar, and I always appreciate you giving the time to directly hear an update and to provide us with such great questions. I look forward to keeping you as shareholders updated as we progress through the rest of this calendar year, and I thank you, as always, for your support of Alcidion.