Mach7 Technologies Ltd

ASX:M7T

Earnings Call Transcript

[Francoise Dixon, executive]

FY '25 Business Update. My name is Francoise Dixon, and I'm Head of Investor Relations for Mach7. Today, our CEO, Mike Lampron, will provide an overview of our Q3 results. We will then open it up for questions, which can be submitted via the Q&A text box at the bottom of the screen.



I'll now hand over to Mike.

[Michael Lampron, executive]

Thank you, Francoise. Good morning, everyone, and welcome to Mach7's FY '25 Third Quarter Business Update.



I will start off with some highlights and then go into a bit more detail on the third quarter results. So, some highlights for us this quarter. CARR, contracted annual recurring revenue, of $30.8 million, slightly down on a constant currency basis by a little over 2%, 2.2%. Annual recurring revenue run rate of $24.4 million at the end of March, that's down about just under 2%, 1.9% again, constant currency basis. Sales orders of $5.1 million for the quarter. Cash receipts were a highlight of $11.4 million, up a little over 28%. Remain operating cash flow positive in Q3 and for the 9 months ending 31 March.



We remain to have cash on hand of just under $25 million, $24.9 million, up slightly from where we ended Q2, the first half of the year, and we still have no debt. We were able to complete some cost-out initiatives in Q3. That will result in about $2 million to $3 million in annualized savings. We'll talk more about that in a minute. And we were also able to commence our on-market share buyback. And through that buyback, we bought about 1.9 million shares in March and about 3.3 million shares bought back to date, and we think still finding value in doing that.



We did announce mid-quarter CEO transition that was announced at the beginning of April. Teri Thomas has been appointed as Managing Director and CEO, commencing on the 1st of July, and I'll comment on that at the end. And we're also reaffirming our FY '25 guidance, remembering 15% to 25% growth in CARR and revenue, and OpEx growth to be less than revenue growth. So, as we think about Q3, the message for Q3 is simply that we remain on track to meet FY '25 guidance. We continued to deliver on our cost controls throughout the quarter. We remain cash flow positive for the year and cash collections were strong, again, over $11 million in Q3, which among many different metrics shows the strength of our customer relationships.



We began to move forward throughout the quarter on our planned buyback, again, a total of 3.3 million shares bought back to date. And further to our continued focus on operational improvement in Q3, we announced the succession plan for myself and are going through that transition to welcome Teri to the Mach7 team as our newest CEO, and more on that later. All in all, from my perspective, this quarter and this year are on track with expectations, and we expect to have a strong sales quarter in Q4 to finish off the year. So, as we sort of get into the meat of the business update for everyone, we'll talk about sales orders first.



Sales orders for the third quarter, $5 million, $5.1 million. The majority of those sales orders received were ARR-type sales. The remaining sales orders were capital licenses and professional services, about $1.1 million in professional services, $600,000 in capital licenses, about $3.4 million in recurring revenue sales. When you look through the business update, you'll see a chart there that's been included. And this is a chart that we tend to include on every quarterly now. It just sort of shows you that we continue to have lumpiness in our quarter-over-quarter results, right? This isn't a sign of any predictable seasonality, but it's really the result of a growing business.



And as our total book of business grows, we'll see that lumpiness start to smooth out. And in regard to our pipeline and sales growth, while we're talking about sales, we have a very strong near-term pipeline for this fiscal year. I mean, look, knowing there's only about 60 days left in Q4, we still feel strongly that we have a supporting pipeline to meet our guidance and to build our net new customer by 2 to 4 net new logos, as I indicated we would earlier. We have a very healthy short-term and long-term pipeline for the business. And remember what I've said previously, a healthy pipeline for us is somewhere in the realm of having at least 3x coverage in the pipe, right?



So, moving on from sales to revenue. First, I'll talk about annual recurring revenue. We produced about $24.4 million in ARR on a run rate. Of course, that's calculated by annualizing the revenue earned from subscription and maintenance and support fees. The run rate did decrease slightly by about $0.5 million since the 31st of December in constant currency. And that was a reflection of we did have a customer leave us, and they shifted away from our solution to a vendor that was more local to their facility that were up for renewal. And although disappointing, we do know that this will happen on a rare occasion.



We also know, though, that our ARR will grow as new customers achieve first productive use and existing customers expand through more licensing or add-on products, and or as they renew with increased rates or achieve first productive use on add-ons. So, all of that will help increase our ARR over time. So difficult to look at little things like a contract like that in isolation, best to look at it on the aggregate, but always disappointing to lose a customer for sure.



The contracted annual recurring number, the CARR, it's about $30.8 million at the end of March. That decreased by about $700,000 in constant currency. And that meant that our growth from renewals and expansions was offset by this customer loss, right? Mach7's CARR consists of the 24.4% ARR run rate for customers that have achieved first productive use of the software, plus another $6.4 million of subscription and maintenance and support fees not yet recognized as revenue. So once again, as a reminder for everyone, the gap between our CARR and ARR represents future revenue once first productive use is achieved from new customers.



Moving on from revenue, talk about cash for a moment, sort of a bright spot for us for the quarter. Cash receipts from customers in Q3 were $11.4 million. It's actually up 28% compared to Q3 of FY '24 and up 18% on Q2 of FY '25. And again, reflecting the signing of expansion renewal agreements as well as the achievement of project milestones during the quarter. And I would say also an indicator to -- again, not to be looked at in isolation, but an indicator of having a happy customer base as well, customers that are paying their bills, right? So Mach7 was also operating cash flow positive for Q3 in FY '25 for a second consecutive quarter with operating cash flows of $2.6 million, increasing from $900,000. And for 9 months ended 31 March, we were also operating cash flow positive, and we remain on track to achieve this objective in FY '25.



Financial position of the company remains strong, no debt, $24.9 million cash on hand for us. So, as we move on and we think about the outlook for the business and a couple of additional things I'd like to highlight for you. First, the VA project, NTP, that continues to move forward. We mentioned in the past that they're choosing a new workflow orchestrator. They have completed that selection, and we continue to work closely with the VA and the new vendor to ensure that all the right pieces are in place for the VA. At this stage, though, I'm uncomfortable committing to a timetable because the new vendor is likely to have some development work that needs to be completed, and we do not have insight into that work as of yet. Now hopefully, we'll be able to give you a more firm date by the end of Q4. But again, this is work that is dependent on a third party. It's not our timetable. It's not our product road map. It's between that vendor and the VA. We're the beneficiary of that work once it's done, but we need to get some more insight into that to be able to hand it over to you.



I'd also like to just make a comment that we continue to have a strong financial position with no debt, growing cash balances, disciplined approach to costs and cash management as indicated through the $2 million to $3 million in costing out that we did complete in Q3. And lastly, just to highlight the fact that we are reaffirming our FY '25 guidance, and we feel comfortable with that. We will have an excellent Q4 to support that.



So, I think with that, Francoise, I'll hand it back over to you to take questions, and then I'll have a couple of closing comments.

[Francoise Dixon, executive]

Thanks, Mike. We have received a couple of questions in advance via e-mail from Mike Goodson. So, we'll start with those. The first question is, would you please discuss the market reaction to UnityVue?

[Michael Lampron, executive]

Sure. Yes. Look, UnityVue is a great product offering that we introduced around RSNA time frame. We've had a lot of interest from a marketing and early-stage sales pipeline build. We do have some customers that are moving along pretty quickly along that pipeline, and we continue to get new leads pretty consistently every week around that product. So, looking forward to seeing some actual commercial contracts in place for that so that we can all have something to stand on. But from a marketing and commercialization perspective, it's been well-received by the market.

[Francoise Dixon, executive]

Our second question from Mike Goodson is as follows. If I understand correctly, the VA Phase II gives 7 VISNs the option to use Mach7. Are you aware of any VISNs that have chosen a different provider?

[Michael Lampron, executive]

A slightly difficult question to answer. What I can tell you is that every VISN has an existing PAC solution. Every VISN has a different time line on when they will either choose to renew or replace their existing technology. And they could choose to renew just for a year, just for a short-term or they could choose to do a full contract renewal. For us, we're focused right now on Phase I. Phase II deliverables will come after we've completed Phase I.



We have had conversations with all of the VISNs in regard to this contract avenue, this vehicle for them to use. But again, until the product is out into Phase I and until NTP is a success, that's really where we're applying our time, and it would be very difficult for us to really know independently what each VISN is choosing to do or even further what each VA hospital within the VISN is choosing to do. So unfortunately, I can't give a straight answer to that in regard to what their technology choices have been to date.

[Francoise Dixon, executive]

I'll now turn to the live chat. We've got a few questions. The first one comes from Andrew Tan. You've previously said that Mach7 could achieve 3 or 4 net new logos by the end of FY '25. Is this still the case? How many net new logos have you achieved for the year-to-date?

[Michael Lampron, executive]

Yes. We do still believe we can achieve that goal for the end of the fiscal year. To date, I believe we've got just one net new logo in the door. But yes, we again reiterate my comments around our pipeline. We have a great short-term pipeline, and we have more than enough deals that are late stage right now that can fall into Q4 to give us the results that we're looking for.

[Francoise Dixon, executive]

Our next question got a few from Wei Sim at Jefferies. Why did the customer leave? What platform did they go to? And what risk do you see for other losses?

[Michael Lampron, executive]

Yes. Good questions. Look, and again, sometimes these are difficult questions to answer. The client left to go with a vendor that was more local to their location. Actually, they're both located in the same -- within about 10 miles of each other, which I think had a big part of their selection process. Local services and local relationships, I think, were a big part of that. And in regard to that vendor, I'm not really at liberty to say who that vendor is. I don't know that any announcements have come out around that. So, I'm not really at liberty to say.



And then in reference to the rest of our customers or do we ever -- do we expect that this could be a growing trend or something? Look, attrition is always something that we have an eye towards. We have a low attrition rate in our company, and we're very proud of that. And we have some significant initiatives, as you all know, within the company around customer intimacy to even further those relationships with the customers. So never take a relationship for granted, never take it lightly. Appreciate all of your customers, appreciate your whole book of business and do everything you can to maintain that book of business. That's the goal for everyone in the company. So, I don't -- I wouldn't say that I feel that there's any particular risk from any one particular client. We're doing everything we can to make sure we keep a healthy book.

[Francoise Dixon, executive]

We have another question from Wei Sim. What other contracts are up for renewal in the next 12 months?

[Michael Lampron, executive]

I don't know that off the top of my head. We have -- we always have a selection of renewals every year. Last year was a huge renewal year for us. This year was a smaller renewal year for us. Maybe we can provide more insight into that as we start looking about FY '26 ahead. But I don't actually know off the top of my head what our 12-month renewals are. There will probably be many, many renewals.

[Francoise Dixon, executive]

And a further question from Wei Sim. What is the outlook for CARR in the fourth quarter?

[Michael Lampron, executive]

Look, again, we expect just as our guidance suggests that we'll see growth in CARR. So, we would have expected -- we will expect -- we do expect our CARR and our ARR to grow at that 15% to 25% mark, just as we've indicated to our guidance.

[Francoise Dixon, executive]

And now we have a question from Andrew Hewitt. Could you expand on the revenue hit of the lost customer and its location or country?

[Michael Lampron, executive]

The customer was in the U.S. But again, I can't really make a lot of comments beyond that. U.S.-based customer chose to go with another vendor. And that vendor is someone that they had close relationships with.

[Francoise Dixon, executive]

We don't have any further questions. So, I'll pause a moment in case anything comes through on the chat. We have a question from Lachlan Rogers. Can you please give more detail on the CARR guidance growth range? Is the upper end of guidance plus 25% CARR growth still possible?

[Michael Lampron, executive]

Yes. Yes, we can still reach -- again, anywhere from 15% to 25% growth in CARR, we could still reach this quarter. We absolutely could.

[Francoise Dixon, executive]

And we have another question from Wei Sim. Do we still have Trinity?

[Michael Lampron, executive]

We do. Yes.

[Francoise Dixon, executive]

We have no further questions at this time. So, I'll hand back to you for closing remarks.

[Michael Lampron, executive]

Yes. Thanks, Francoise. Look, for everybody on the call, I'll end by just saying this is my last quarterly business update for the business. It's been a pleasure to represent Mach7. Financially, the company is in good standing. Operationally, the company is on the right track and the business is well-positioned to take advantage of the knowledge, experience and expertise that Teri Thomas is bringing to the table as our next CEO. And I'd like to wish all of our shareholders, brokers, analysts good fortune. And I think with that, Francoise, I'll hand it back over to you for closing.

[Francoise Dixon, executive]

Thanks, everybody, for joining today, and have a good day.