© 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.
Hello, everyone. Welcome to our Fourth Quarter FY '23 Business Update. A reminder that our fiscal year results will be coming out at a later date. Today, we do have some financial highlights that we want to give you for Q4. And although it's difficult to separate the performance of Q4 with the full fiscal year, we do not have audited financials prepared at this time for FY '23. So we will try and refrain from speculating on the results of FY '23.
Let's talk through some highlights for the quarter first. So Q4 FY '23 sales orders totaled $3.2 million, bringing our FY '23 sales orders to $40.3 million. That's up 21% over what was a record high fiscal year of '22, and it did exceed our FY '23 targets. All in all, an incredible year for us from a sales order perspective.
Cash receipts on hand on Friday, June 30, were $23.4 million. We did have $2.5 million in electronic payment advice, but that was -- that not on hand until the 3rd of July. That would have given us a $25.9 million cash. So we just missed that Q4 deadline with that deposit, leaving us at the end of the fiscal with $23.4 million. You will notice in this release, our ARR and CARR are largely unchanged in Q4. These numbers did not include the Veterans Affairs or DIA deals that came in Q1 where you would have seen those announcements.
So a little on the sales orders, I guess, to start with, we did have a total of $40.3 million, again really solid performance from the sales organization for us. Part of this was through partnership sales, which accounted for 35% of the total sales orders. That's up strongly on the 11% achieved in the prior quarter. As I've said previously, we do believe that we'll continue to see greater contribution to our sales and revenue numbers coming from partners as we look out over the next few fiscal years.
Our sales in Q4 were driven by our current customer base. We already had commercial relationships with them. We are seeing volumes increasing across the installed base with the expansion representing 41% of the Q4 sales orders. And just as a reminder, on our licensing, our standard licensing is volume based. Our customers buy a license for the total they believe they will achieve and if they go over that license volume by more than 5%, they're required to buy a license that is equal to 15% of the total license volume.
As an example, the customer bought a license for 100,000 studies, their actual volume was 105,000 or a little over 105,000 and they need to expand the license volume to 115,000, just to give you an example. Our pipeline continues to be strong and replenished even with another record year of sales growth. And again, this is 2 years in a row, that's actually 3 years in a row of record sales growth, but our pipeline continues to grow very, very strongly. And as we look at expectations for FY '24, we feel really confident that we have well over 3x coverage in our funnel for FY '24.
From a recurring revenue perspective, and annual recurring revenue, we'll talk about first. Mach7 is currently generating $17 million of ARR. The run rate there is calculated by annualizing the revenue earned from support maintenance fees plus subscription fees. We did see a decrease that is within range of our estimates due to attrition and contract revision upon renewal. Not every hospital and every imaging center is winning right now. So occasionally, we'll see customers who, when they renew, they'll renew for a slightly less volume than they had 5 years ago. That doesn't happen often, but it can and it does happen occasionally.
From a contracted annual recurring revenue, and I know this can be confusing to everyone, that is around $20.6 million and that consists of the $17 million of ARR for customers that have already achieved what we call first productive use, you'll see the term FPU all of the time, first productive use. When a customer reaches first productive use, that is when we start to recognize subscription revenue, and it's also when we start to begin to recognize annual support maintenance.
So the $17 million of ARR, plus the $3.6 million of subscription support fee is not yet recognized as revenue because FPU is still pending, that's how we generate the CARR. And by the way, in this release, you'll also notice that our CARR and ARR hasn't changed much, our CARR will go up because this does not include the Veterans Health Administration or DIA contracts that were announced in July of '23.
From a cash flow perspective, cash receipts from customers in Q4 amounted to $10.5 million, up on the $9.7 million collected in the previous corresponding period. An additional $2.5 million electronic funds transfer remitted by a customer on 30 June was not reflected in the maximum bank account until the 3rd of July, that's the lower number for our Q4 numbers. The business they -- consequently, on a full year basis, as of 30 June, cash receipts were $25 million, down on the $28.2 million in FY '22, which FY '22 also benefited some additional capital contracts and some payment milestones. We did see a larger percentage of subscription deals in FY '23 than we did in previous years. And while there was a $3.9 million net operating cash inflow in the fourth quarter, the above mentioned $2.5 million receipt delay contributed negative operating cash flow for FY '23.
This is the first time in 3 fiscal years that we have not been cash flow positive. And we do have an excellent start to the new fiscal year. We will fully intend on being cash flow positive in the upcoming fiscal year. So that being said, we take a kind of a forward-looking outlook as we look into FY '24. We expect to continue to see good sales growth within or in addition to 20% sales growth as we've shown this past year. And as I've said in the past, in my mind, this is the most important metric that we measure ourselves against as our sales grow, so does the footprint of our software, helping clinicians around the world. And that growth and the proliferation of our software leads to customer evangelism and through our customer base, they become our best resources towards continued positive financial growth as a business.
So another mention in the fourth quarter business update were a couple of promotions I'd like to highlight today. First, I'd like to congratulate Dyan O'Herne for her confirmation as our CFO. Dyan has been a very important member of the leadership team and her depth of knowledge of our contracts, our customers, our cash flow, our overall business and what is a reasonably complex business are a huge asset to the company. And Dyan is based out of our Vermont office, just down the hall from me, and it's a pleasure to have a chance to work with her every day, and I'm really happy to have our CFO in the office.
Another important promotion was Dave Madaffri, who we will recognize what he is and has been our Vice President of Sales. He was also appointed as a COO. I think the important thing there is when I took this role as a CEO in 2019, we chose not to backfill my role as a COO at the time. We were a much smaller company. It's a great way of reallocating resources. And subsequent to that and all of our success, acquisition, growing customer base, growing employee base, growing complexity in our business, it was just time to make this addition. So Dave comes to this role with a single goal in mind actually, which is the cohesion of our growing company across departments and ensuring that we have appropriate policies and procedures in place for the most efficient growth possible at Mach7. So really giving me an extra set of hands and an extra set of eyes on the operations of the business to make sure that we remain lean and we remain strong and we remain a single vision within the company.
So I think with that, Rebecca, I can hand it back over to you and maybe take some questions.
Thanks, Mike. Yes, we've got a few questions that have come in just now. The first set of questions are from Peter Cooper from Teaminvest. First one is, can you please explain how the new Veterans Affairs contract will be managed by the 3 companies involved?
Sure. not the simplest answer in the world. Actually, there are multiple companies that are involved with this kind of best-of-breed approach. Frontier will be a prime vendor. They'll handle contracts, logistics, things like that for the group. Ready Computer Systems will handle all the IT and infrastructure. Microsoft Azure will be handling all cloud-related requirements and Nuance, which happens to be owned by Microsoft, but run somewhat independently will be providing workflow orchestration and reporting. Another important piece here Blackford AI, will be providing AI modules that the VA is [ not ] helpful in their workflow. So for us, for Mach7, we'll be providing the VNA and diagnostic viewer. And with our platform, we can integrate these third-party systems. So in this case, we'll be managing the integration of Nuance and Blackford AI to our solution.
Each company will have deployment resources assigned, we'll manage through. It will be a matrix management system for the program. It's definitely not going to be the easiest project we've ever worked on, but it certainly is going to be rewarding and these are integrations that we've already worked through. Nuance and Blackford, we have had customers using their platforms in the past as well. So we're in a good spot to look through any issues that they may have.
Okay. And then in that same arena, can you please outline how Mach7 will be able to increase its participation over time in that Veterans Affairs contract?
Yes, I can certainly highlight what we hope happens. Look, there's multiple routes for this could go, one of which is just volume-based as more business come on board with the NTP solution and as the NTP team grows, that's one way. But the other solution, the more lucrative would be if [ Vizns ] choose to purchase the NTP solution as a PACS replacement for their individual visits. As their contracts expire with their existing vendors, they can choose to move forward with the NTP technology stack as their primary PACS. One advantage to the Visage, if they do that -- is that they don't have to go through a length of procurement process and it's -- the contract allows for that kind of growth. So that streamlined administration in government projects is kind of key. So that's probably where we'll hopefully see the most growth of the VA contract.
Okay. And look, I might just jump from Peter's question to another on the same topic from Michael Holland in the VA contract, does Phase II commence after the 3-year term of Phase I and the necessary milestones to initiate Phase II be achieved within the 3-year Phase I period?
Yes, they certainly can be achieved. Look, the first year, I would say, is really dedicated to the deployment of the NTP solution. But after the first year, and once the NTP clients begin to use the solution at any point in time, in parallel to the execution of Phase I, Phase II could start. So there's no like specific milestone that needs to be met in order for that to be achieved. It's more like we have to be really successful with the NTP and as they start to see that success, they'll have more confidence in making a solution, more forward Phase II. But most certainly, that could happen in parallel.
Okay. And what is your expectation for Phase II?
Look, we're concentrating on Phase I right now. Our expectation is that we're going to be very successful with Phase I. And with the NTP solution, I truly believe that we've got a lot of strong relationships across [ Vizns ]. Our partners have a lot of strong partnerships throughout the [ Vizns ]. I see the real opportunity here for us of winning some of that Phase II business for sure. I also see these partnerships that we're developing right now going into other government-related businesses, which could lead to Department of Defense or Indian affairs or other government agencies where we really could take advantage of the same technology stack with the vendors that we're partnering with. So it's not just about Phase II for us, but certainly, that's the one that we're contracted for, but there's other growth opportunities here beyond just Phase II. Right now, it's to execute against what we need to do to be successful.
Okay. Now the next question from Peter, is the out-of-hospital diagnostic imaging services market is still growing.
Yes, growing definitely. The analyst and we use a company called Signify where we get a lot of our analytics from, but the analysts that measure and watch this market feel the outpatient or what I call often attention, call the ambulatory market for imaging is outpacing the acute care or the hospital market. And there's a number of reasons and that's a particular thing in the U.S. at least. One primary is there is a lack of radiologists in the acute care space. So they have to from a resource perspective. But the second, and some would argue maybe more important point is that insurance providers in the U.S. prefer the outpatient market because it's less expensive to them. Sometimes insurers can drive direction in the market whether we want it to or not. But certainly, the ambulatory market space is growing. And I believe the expectation that I saw was that the ambulatory market within the next couple of years would represent 60% of the market for diagnostic reading where the acute care space will go to 40%. That's an exact flip of where it is today.
Okay. His next question is about the cash flow goals for Q4 and FY '23, which you've discussed this morning, so I think we can skip to -- has Mach7 now concluded its staff hire needs for the foreseeable future.
An interesting question. Look, we are always evaluating our business. As our customer base grows, and we have complexity with some of these bigger clients, like the Veterans Affairs, Trinity, Adventist, our needs may shift. And so we're evaluating FY '24 needs now. But what I can say is that our customers and the customer experience is very, very, very important to us. We want to lead the industry and customer experience above all else. So we will staff up for service and support as we have to, to make sure that we can ensure we're giving the customers the right experience and whether that's applications trainers, project managers, implementation engineers, support engineers, whatever the need may arise, we're constantly evaluating that. and we'll make changes in the business as we have to, to make sure we're successful there. So I think that's the best answer I can give you right now.
Okay. We have a couple of questions from Stella Wang, a shareholder of Mach7., One is in that same vein, having signed Akumin and Veterans Affairs, 2 largest contracts in the company history by TCV, does the company have sufficient capacity for implementation and the following maintenance and support, particularly if the VA contract proceeds to Phase II?
Yes. Yes. Look, I think a lot of the same answers as I just gave there for that. The one thing I will add is that we have to make hiring decisions a little early, earlier than what our needs truly are because we do have a ramp-up time for employees. And it does take a while to get an implementation engineer, supporting engineer up to speed. So with that ramp-up time, again, we're analyzing this on a recurring basis constantly, and we're going through that process right now, and we'll always stay a little bit ahead of the curve to ensure that we have time to train our team prior to them really being needed.
Okay. Another one from Stella, getting KLAS ranking the first time boosted the pipeline for Mach7, a couple of years ago. This year, Visage, Pro Medicus' product got ranked for the first time in the viewer category. Has that changed the company's competitive environment in terms of pipeline?
Not in terms of pipeline, no. I mean we've stayed consistently #2 on the viewer. It's an interesting category for KLAS. And actually, we've been speaking to KLAS quite a bit about this because as we all know, there's pretty drastic differences between the 2 companies' products. And yet, we're being ranked as if we're competing with one another where we are really not. So I think that we've been consistently #2. We look to continue to have good performance with KLAS. We look at KLAS like it's a voice of the customer. And as buyers look to KLAS for recommendations, we're well ranked. And we'd be well ranked if we are 1, 2 or 3. I don't think it matters specifically where you rank there, but what will matter is when we get that call from a client and what we do and how we respond to that call that e-mail from the buyer, that first touch will matter. So that's, I guess, really what we're concentrating on. I think our rankings in KLAS are good enough to get our foot in the door for some who are using it as a buying guide, and then it's all on us.
Okay. I have another question here around Pro Medicus. And this is from Mike Deke, did Mach7 tender for the recent contract that Visage has won. And I understand that there are a couple there. There was one with Veterans Affairs and also one with Memorial Sloan Kettering. So wondering if....
No. We did not.
Okay. So now I have another question from Shuo Yang. Can you comment on the average TCV size of opportunities in the pipeline and how this has changed in the past 12 months?
Well, I guess the one thing I can say is we're getting more of the multiproduct deals in our pipeline, whereas historically, if you look at our company prior to client outlook, we really had one product that we were selling. So now we've got 2 products that we're selling. We started to get more traction with that really in '21 rather than '20, calendar year '21. And so yes, our pipeline has changed. It's gotten bigger as we sell more deals with multiple products in the RFPs or in our responses, in our bids. So it's going up for sure. Again, I always look at the pipeline is that up to $1 million as a small contract; from like 1 to 2.5-fish, 1 to -- I'd say $2.5 million-ish is like a medium-size contract and $2.5 million plus to us is always, we consider that to be a larger contract. So yes, we're getting a higher concentration of larger contracts. But at the same time, bread and butter is not always the large contracts, and we want to be able to be effective in all of those markets.
Okay. So another one, what is the sales pipeline coverage of your expected FY '24 sales order forecast?
Yes, it's a little over 3x. I think I mentioned that earlier, a little over 3x coverage of where we would expect to be for FY '24.
Okay. And look, there's another question here about the headcount, headcount today versus 12 months prior. And how many more heads are you expecting to add in the next 12 months?
I don't really know our headcount.
I can answer the head count, Mike, if you want me to answer.
Go ahead Dyan.
So as of July of 2022, we were at 87 and as of July of this year, we're at 96.
In regards to where we're going to go in FY '24, I mean, we're in the middle of planning that out now. As a matter of fact, we have a leadership meeting coming up this week, and we'll be sorting out that concept over the next couple of weeks.
Okay. We have a question here from Claude Walker. At the Q3 results, Mach7 said that it expects to remain operating cash flow positive for FY '23 that Mach7 would have known this expectation would not be met for almost a month now. Why not mention this it in any of the earlier announcements in July. And look, I can start with a response there that we do have a cash flow reporting date, which is set and is the forum to report on cash flows, and it's within a month from period end. But Mike, would you like to add to that?
Well, just in regards to knowing if we're going to hit it or not, actually, we didn't know, we wouldn't hit it. We actually fully expected to hit it. And had we received everything that we expected to receive in our outstanding AR balance then we would have hit that number. So I wouldn't say that we knew we were going to. I would say it's unfortunate that we didn't because we very well could have.
Okay. And another question from Stella Wang. Would you like to update on the Middle East and Asian market prospects, while U.S. revenue continued to grow, would those markets grow to a larger percentage of the company's revenue base?
I'm not sure that they'll grow it to a higher level, I mean, meaning whether they're going to go to 30% or 40% of our total contribution for our overall revenue, I don't know about that. But what I can say is that the Middle East team out of APAC has got a number of deals, and they've got a much stronger funnel today than they've ever had. And I mean it takes time to work through that. And I feel like there's been a little bit of a resurgence. They were certainly the last to come out of sort of [ cold slumber, ] especially considering Hong Kong Hospital Authority of Hong Kong is one of our key anchor sites in the region and Hong Kong was hit pretty hard with COVID, had a lot of restrictions for a long time. So we're starting to come out of that. We're starting to work through deals with the hospital authority. We have a number of deals in the Middle East and throughout Singapore as well. So funnel is growing, and we certainly are looking to have a higher degree of contribution this coming year than we did last year.
Okay. And then a question from Indika Rajakaruna. On the FY '24 guidance of 20% growth for sales orders, does it include any renewals?
Yes, it does include renewals. Yes.
And then I have a question here from Iain Wilkie from Morgans. Any change to recent commentary on ARR covering OpEx base within 2 to 3 years, particularly following the recent contract wins.
Look, it's been my stated goal to have our ARR covering our OpEx over the course of the next couple of years, and we are progressively getting closer to that milestone. Some of these larger contracts will have some expenses associated to them, but it doesn't affect the ability for us to get to that coverage in the same amount of time. So even though there's some investment required for these larger contracts, they certainly are very, very helpful in getting us ever closer to recurring revenue, covering our OpEx. And I would stick to our estimates that we've said in the past, I think that we're probably 2 to 3 years out. Probably consider 2 to 3 at the moment.
Okay. Another question from Mark Dick. What do you anticipate the recurring subscription mix of sales to be in FY '24?
Good question. We've had pretty much a 50-50 mix over the years of capital licenses and subscription licenses. And it's ebbing closer to 60-40 at the moment. It doesn't move fast. So I think as we look at FY '24, we're probably looking at a 60-40 split subscription to capital. I mean, I suppose it could be a 65%. But I would say just 60-40 is probably the safest bet.
Okay. And then another question on the Veterans Affairs contract from Don Roberts. Regarding the VA contract, does the Phase I $11.7 million account for 100% of the [ 7 Vizns ] business or only a small or lesser percentage?
I believe that's for the full value of Phase I.
Yes. I think so, too. I would be keen to know more about exclusivity in the [ 7 Vizns ] for VNA and universal viewer tax reporting, does Mach7 have the whole contract or only part?
So with regards to NTP we have the whole contracted. So maybe to better understand this, NTP is a program that's almost think about it like a third-party company that the VA has where NTP provides teleradiology services for the VA. It's part of the VA, but they provide this teleradiology service for the VA. So like almost like a third party, right? So we're providing the technology for NTP to run the teleradiology program across the VA. And any vision in the VA that participates with NTP and uses NTP for teleradiology, right, that will add to our revenue, right? So that's the way that works. And so I would say that from an NTP perspective, yes, we have exclusivity. But from a PACS perspective, we don't. Any [ VISM ] does have the capability of making whatever decision they'd like in regards to what they use for a PAC solution just as they do today.
Okay. And then I've just got a final question here from Jonathan Wilson. Can you explain the difference between the Visage and eUnity and why they perhaps don't belong in the same KLAS category?
Sure. I'll do my best to explain that so people can understand it. The Visage product was built primarily for radiologists. It was primarily built as a very fast solution for radiologists who are sitting at the same workstation all day long to be able to read their studies. They concentrated on advanced visualization. They concentrated on the radiology cockpit. They concentrated on workflow for radiologists and supplying images to the radiologist. And again, the technology there is now sitting at the same workstation. So things like zero footprint were never important. You could install a client on the workstation. It didn't matter. You could have a large cash on site because the radiologist [ reaffirm ] from the same location all of the time, that's what made it such a fast solution.
So Visage is really a radiology driven solution. The eUnity viewer was built to integrate to EMRs. It was built to be a zero footprint viewer for radiologists and clinicians, but think of it as outside of the walls of the radiology department. -- right, is really where eUnity was built from. So if you're a radiologist working from home and you're using the eUnity viewer, you don't have any software you need to install on your laptop or if you are on your iPad, right? You just need to have an HTML5 viewer. That's all you need. It was a lightweight, zero footprint viewer that had all the tools you needed for diagnostic radiology, but it didn't have all the bells and whistles that a solution like Visage would have.
So they're primarily developed really for 2 different use cases at their core. Now you're starting to see Visage start to get more involved in enterprise imaging. You're starting to see Mach7 and eUnity get more involved in radiology. So we're starting to intertwine a little bit, but the products were really designed differently, and that's why we've never competed in the past.
Okay. Well, look, thank you, Mike. I think that wraps it up from the questions that have been posed by our shareholders. So I'll hand back to you to close the meeting.
Well, first of all, thank you for all the questions. There was a lot of questions this time around. I appreciate it. It means people are interested, and I'm glad that we could do this, and I hope that we're able to answer your questions effectively. But thank you all for taking the time to listen to us today. And I hope everyone has a great start to your week.