© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Okay. Good morning, and good afternoon to those of you joining from North America. Welcome to the Mach7 third quarter business update. My name is Rebecca Thompson, and I look after Mach7's Investor Relations. Today, we have Mach7's CEO, Mike Lampron, to give an overview of the quarter highlights, after which he'll be joined by CFO, Dyan O'Herne for Q&A. With regard to the Q&A, if any attendees have a question, please submit it by the Q&A text box at the bottom of your screen. Alternatively, you can e-mail me your questions on rebecca.thompson@mach7t.com. I'll now hand over to Mike for the Q3 update.
Thank you, Rebecca, and thank you, everyone, for joining our call today. I'll first start off with some highlights from Q3. This quarter, we are announcing that we have exceeded our FY '23 sales order target of $36 million. I have said throughout the fiscal year that this was more of a floor than a ceiling, and I'm happy to say that we have exceeded that goal and hit $37.1 million, with another quarter of sales yet to come in this fiscal year. Our contracted annual recurring revenue is up to $20.6 million at the end of Q3, moving us closer and closer to recurring revenue covering our OpEx on an annual basis. If we stay on this path, we would expect that our recurring revenue would cover OpEx over the course of the next 2 fiscal years, which has been a goal of ours for the last 3 or 4 years now. Our ARR is at $17.2 million on a run rate basis, up from $16.4 million in December of '22. And we have cash on hand of $19.4 million. So we'll cover the good news first. On the sales orders front, it's been a tremendous year for us to date. In Q3, we had sales orders of $11.3 million, up strongly from Q3 of FY '22, where we had $4.4 million. But I think if you look at the chart below, you see that there isn't really any seasonality to our sales. And although we had a slow Q1, we did make up for that in Q2, and Q3 was strong, and we suspect that Q4 will be the same. Our Q3 sales order is comprised of $6.2 million in recurring revenue sales. And what that is, is that represents sales orders from a support and maintenance perspective as well as any subscription fees. So those are deals where our revenue is coming in on a recurring perspective rather than a capital license. These deals will not have an immediate impact to the revenue line and will be recognized over the term, typically 5 years from first productive use. On the capital software side, we did have $3.6 million of capital software sales. That will be immediately recognized as revenue upon delivery in FY '23. And with the professional services line of $1.5 million, that will be recognized as revenue on a percent complete basis over time as we deliver the services. That's a little in contrast to Q2 where the bulk of our sales orders came from new clients, and the bulk of our sales orders in Q3 came from existing customers. 95% of the sales orders were from the customer base. That does include Adventist Health West, which did start off as an eUnity-only customer some years ago and has now committed to the entire Mach7 product suite across their hospital system. From a partnership perspective, in Q3, partners accounted for about 11% of total sales orders. That's broadly in line with our expectation this year of partner contribution. We've said in the past and continue to believe that our partnerships will play a bigger and bigger role in contributing to our overall sales and our overall revenue. I think 10% is probably about right for this year. From a revenue perspective, our annual recurring revenue is currently at $17.2 million. This has increased from $16.4 million at the end of December. And our contracted annual recurring revenue continues to grow. It currently sits at $20.6 million. This number consists of ARR plus $3.4 million of subscription and maintenance fees that have yet to be recognized because first productive use is still pending. Again, very important that -- to keep an eye on that CARR number. We want to see good growth on the CARR number. It's slow growth but good growth because we, again, want to make sure that our recurring revenue can cover our OpEx here in the near future. From a cash flow perspective, cash receipts for Q3 were $5.4 million. There was a net operating cash outflow of $1.3 million in Q3. With our scheduled cash collections and a strong sales order outlook, we still feel very much like we will remain cash flow positive on an annual basis as we have for the last 3 years. We have a big quarter ahead of us in Q4 from a cash collection perspective. And we remain debt-free and have $19.4 million cash on hand. From an outlook perspective, again, the highlight really is the sales orders overcoming that forecast of $36 million, with another quarter left to go is fantastic news. We have a healthy pipeline from which to add to that number in the final quarter. From a cash flow perspective, the fourth quarter is typically really strong for cash collections, and the company continues to expect positive operating cash flows on an annual basis. And as FY '23 draws to a close, Mach7 remains focused on new customers, either from a deployment perspective so we can continue to get first productive use and continue to get these new contracts deployed, or from a sales perspective, continuing to bring in new customers from the sales side throughout Q4. And we are also focused on release of new product versions for each of its core products, the VNA and the Enterprise Viewer. We do have 1 major -- 1 more major trade show coming up this fiscal year. It's called [ SIM ]. It's during the second week of June. We look forward to showcasing our product along with meeting many of our great partners at that show. It is very much a partner show. Usually a very, very good show for us, one of the 2 major shows that we attend every year. And usually, a good precursor to building up our pipeline going into next fiscal year. The other thing I would draw attention to for everyone on the call is we're often asked for -- from the community for educational opportunities. So I'd just like to alert you to a customer-driven webinar that we're hosting on May 9 with the topic of Critical Steps for Success in Your AI Journey. Please feel free to attend that. You can register through our LinkedIn page. We'll have a registration page up on our website tomorrow. But that's a good opportunity to hear about Mach7, hear from a partner, hear from some of our customers and hear their steps around AI and how that's affected by Mach7 and the Mach7 products. So it won't be a lengthy webinar but could be educational. I know many of you have asked me in the past to alert you to any educational opportunities that we have. So I think, Beck, with that, I can hand it back over to you for some questions.
Thanks, Mike. I have a question from one of our institutional investors with regard to the Akumin contract, asking whether we have received any cash from that contract as yet.
Yes. Look, we have sent 2 invoices out on Akumin. Both of those invoices have been paid in full. So they are up to date and I would not expect to send any further invoices out to them until probably around the December time frame if memory serves me according to the contract milestones.
Okay, thank you. And then in regard to cash flow, we have a question here from Stella Wang. Can I confirm the cash flow seasonality, please? Does most annual recurring revenue get billed and received in December and June quarters?
Yes. Look, it's hard for me to say that we really have any seasonality. But I will say this, Q4 has traditionally been a very big quarter for us from a billings and collections perspective. And not necessarily because of seasonality but just because of the contracts we have and when they've signed currently with our current customer base. But April, May and June are big months for us for cash collection, yes.
And then Dyan, I'm wondering if you could help to clarify in terms of the calculation for annual recurring revenue, what's included and what is the month that is annualized for the calculation.
Okay. So for the month that was annualized was the month of March. We went through annualized March. There weren't many true-ups, so it was appropriate to annualize March for to calculate it. I'm sorry, Beck, what was the rest of the question?
Yes. And look, there's a follow-on question, just referring to the Adventist announcement as well. We mentioned that there was $3 million of revenue expected in FY '23. And just wanting to know, will we expect that in the June quarter?
We have recognized the software revenue for those deals that were signed in this quarter, and we have got cash that we are expecting to receive before the end of June. So obviously, according to the payment milestones we invoiced, what we could when those contracts were signed and we are expecting the cash in this quarter.
Terrific. And then a follow-on question from Stella. Earlier in the financial year, we made note that we're expecting more Asia Pac sales. We've seen the St. Paul's sales in Hong Kong. Are there any more substantial APAC or Middle East details -- deals in the pipeline?
Yes, there are. There are many in the pipeline, actually, and we're still very bullish on the impact that they may have. I suspect we will still see orders coming in, in Q4 for APAC and will definitely contribute to a much larger percentage of our Q4 overall sales orders that has happened in the last 3 quarters. So yes, the pipeline is still very healthy over there, and yes, we still have deals that we're expecting to bring in.
Okay. And now I've got a question from Iain Wilkie from Morgans. He says, "Well done on the sales order beat with a good amount of time to spare. Is it that some orders have been brought forward out of the Adventist Health, which you had previously expected in FY '24? And how should we look at the fourth quarter sales orders?"
Yes. Like I've said from the beginning with our sales order number this year of $36 million, I've always looked at that like it was a floor. And so my hope was to exceed that number. I can see that we had a possibility of exceeding that number but not enough certainty to call it. So I was more comfortable with $36 million. But yes, I mean, getting the Adventist orders all in, in 1 big chunk was a great effort by the sales organization to turn them around from what they were doing, which was giving us 1 order at a time, 1 hospital at a time. So certainly, that was a welcome change and not something that was necessarily expected. And when we developed our sales order number, we looked at it from a weighted perspective throughout our funnel. And every year, we realize that some deals that we expect are going to come in aren't and some deals that we didn't expect are. So we just look at it from a weighted perspective rather than necessarily from a named deal perspective. But we generally have a pretty good feel for where we're going to land. And in Q4, I think that Q4 is still going to be a strong quarter for us. I think we have a number of deals in the pipe still that we're working on. Whether or not all of those deals fall into Q4 or whether they push into Q1, that's difficult for us to project. But I would say that we'll still have a pretty healthy Q4.
Okay. And just on Q4, a follow-on question from Iain. Picking up on the operating cash flow in Q4, a fairly large year-to-date deficit. Can you give just a bit of color on the shape of where this is coming from? Sounds primarily driven by higher cash collections, but can you speak to the seasonality in operating expenses for the period?
Yes. And Dyan, I might have you jump in on this a little bit, too. But I'll just say that when you think about -- when you look at our OpEx right now, I think we're about $18 million into our OpEx of a budget of around $25 million. So we're pretty much on track from an expense perspective. We might come in a little low, actually, if we have some luck here in Q4 on the expense side of things. And then from a cash collection perspective and a cash flow perspective, it's just a matter of collections here in Q4 for us. I think that we've got a number of support and maintenance agreements. We've got invoices that are due here in Q4. So we have a large degree of the gap from where we are today to where we need to be, that's covered through deals that are already in the door. None of it is going to be driven from net new deals. And then we have a little bit of just flat-out collections and first productive use to get through this quarter.
Okay, thank you. And then it looks like this is the last question from Ivan Tanner. Has the annual cost of running the business now stabilized, i.e., wage inflation, increased marketing in FY '23?
Yes. Look, I think it has, right? Our budget went up a little bit this year to $25 million. I think last year, we were at like $23 million, if I recall. So it went up a couple of million. And I think that as we look to next year, we're probably looking at $26-ish million, somewhere between $25 million and $27 million is sort of what I thought of for FY '24. So it goes up incrementally, but some of that may not actually occur just like this year so we still have some expenses that still may not occur. We could come in at $24 million and so to $25 million. It's right in that range though, right? I think the same thing is true with next year. So we're starting to see leverage in the business for sure. When you start to look at the sales order number and you start to look at a healthy Q4, you end up with a really healthy sales book, which is going to drive revenue in future years. And we've got the staff now to maintain that book of business. So we shouldn't see a lot of change in the way we manage our OpEx over the coming years.
Thanks, Mike. That is it for the questions, so over to you now to close the meeting.
Look, everyone, thank you so much for joining. I appreciate everyone taking the time and the interest in our business. And happy to announce a very positive third quarter for us and happy to follow up with everybody as we close out the fiscal year here in June.
Thanks.