Adheris Health Limited (AHE) Earnings Call Transcript

Good morning, and welcome to the Adheris Health FY '26 Investor Briefing. My name is George Kopsiaftis, and I'll be your moderator today. With us today, we have Chief Executive Officer, John Ciccio. Good morning, John.

Good morning, George.

So the format for today is for John to spend about 20 to 25 minutes talking through a presentation that will be or has been launched with the ASX this morning. This will be followed by a question-and-answer session. [Operator Instructions] As a reminder, this briefing is being recorded and will be available on the Adheris website. And with that, I'd now like to hand it over to John to get us. Thanks, John.

Thank you, George. Welcome, everybody. Let's dive right into the slides. So I'll skip the disclaimer here. Just quickly on the business for those of you that might be new to our story. So we sit in the -- at the intersection between pharma manufacturers, retail pharmacies and the patients that they serve. We have relationships with top global pharma companies. Most of those relationships are over 15 years old. And we also work with 9 out of the top 10 pharmacy chains in the U.S. and those relationships expand over 20 years on average. We've driven quite a bit of impact across the 30 years that we've been in business. We reach over just about 170 million Americans through our network of 25,000 pharmacies. And we've sent over 500 million sponsored messages to patients in the past 5 years. And we've driven strong results. So 65% of the patients we reach return to therapy after receiving interventions from us, our click-through rates on SMS are over 24% on average. And on the awareness side of our business, we drive an average lift of over 11%. The agenda for today is to cover key highlights from fiscal '26. We'll spend some time reviewing progress against the strategic priorities that we established when I joined the business, and then we'll share some observations and outlook going forward. So for key highlights. We'll start with the financial results for the year. Revenue was $34 million, down 46% from prior year. Gross profit of $14.6 million is down 56% from the prior year. Gross margin at 43%, down 9 percentage points year-over-year. An underlying loss before income tax of $16.7 million, and that's actually a slightly smaller loss than in fiscal '25, but a 1% difference. The statutory net loss of $4.3 million, which is much lower than it was in fiscal '25, 93% lower than last year. We finished the period with $9.5 million cash at bank and that's down about $800,000 year-over-year. So I'll spend some time on key highlights from fiscal '26, which really was a year where we establish the foundations that will help us return the company to growth as we entered fiscal '27. Starting in the upper left with our financial performance. We just talked through the key numbers. We did achieve cash flow breakeven in the fourth quarter, which we had guided previously, ending the year at $9.5 million in cash, as I had mentioned, and with no debt. Moving over to the right on operational highlights. We did accelerate our cost-out program and finished with a 37% reduction in operating costs over the prior year. And importantly, we did reengage with many customers who had either stopped spending with us or had significantly reduced their spend with us in prior periods and actually won over USD 3 million in contracts from customers who had previously stopped working with us. And we also added 8 new brands to our portfolio in the second half of '26, which is a period of time where we typically don't see a lot of bookings. And we'll talk more about that cycle as we proceed. With Board and management key updates there, we did resize the Board following the disposal of the ANZ business. And we did add a very experienced Non-Exec Director, John Murray, on the 1st of July. And as I've mentioned in prior presentations, we did refresh our leadership team with several executives who've spent a good amount of time in this company itself as well as in the industry more broadly. And they all bring a proven track record of executing both within this business and returning it to growth before as well as strong delivery in the space more broadly. Then I'll finish with focus on the future. So we are into our calendar '27 pharma planning cycle, which is really a critical time of the year for the business. This is when our pharma customers develop their budgets for the following calendar year. So this is when folks like us are putting forth their best proposals for how to support the brands that we work with and our customers are making decisions that will impact their spend and obviously, therefore, our revenue in calendar '27. I'm happy to report that close to 60% of the current pipeline opportunity that we have right now, sits in THRiV opportunities and other digital engagement programs. And that's a material increase compared to our fiscal '26 revenue mix, which will support a better gross margin story for fiscal '27. And then lastly, we do expect to maintain cash flow breakeven across fiscal '27. Although the generation of cash throughout that year will be a bit lumpy, and you should see that be a bit uneven quarter-to-quarter. And we'll talk a little bit more about that. When I returned to the company in November of '25, I established 5 key strategic priorities for the year, and I want to spend a little time giving you a progress update on each of those priorities. And then we'll dig a little deeper on each in the following slides. So the 5 priorities were to build a more scalable operation to diversify our revenue, to focus our sales on higher-margin solutions, expand our pharmacy network and enhance digital engagement. So starting on the far left, with building a more scalable operation. Our plan heading into fiscal '27 is to hold the cost base roughly flat so that the revenue growth that we're projecting will fall through more often to the bottom line and will improve our overall profitability. We're also working hard to increase the output that we get from each employee by embedding AI productivity tools across the company. And we've already done that, and we're seeing some really strong early results from that. As far as the tangible results from this initiative, as I mentioned before, operating costs down 37% year-over-year. And as a subset of that, our staff costs, including contractor and consulting spend, is expected to stabilize at about $18.2 million in fiscal '27 versus $34 million in fiscal '25, so a significant reduction there. Moving over to revenue diversification. We talked about this when I came back. We have worked hard to reduce our overdependence on vaccine revenue and focused on high-growth categories like obesity, including GLP-1s, diabetes, immunology, respiratory and other specialty conditions. And we've had good progress against that. Our non-vaccine revenue was 83% of the mix in fiscal '26 and that's compared to only 54% in fiscal '25. And so we've increased the share from general medicine, specialty meds and GLP-1s. And we'll get into more detail as we go forward in the presentation. And we also, importantly, onboarded a total of 11 new brands in the year. On the selling higher-margin solutions, right, we've refocused our sales efforts toward the products that drive the best gross margin for us, and those products are THRiV and our other digital engagement tactics. And that focus should improve our revenue mix here in fiscal '27, which ultimately then drives higher gross margins. And as I mentioned on the prior slide, close to 60% of our calendar '27 pipeline is in those higher-margin products, and that compares to just 32% of our fiscal '26 revenue coming from those products. So that's a material increase, and that's really where we expect to see margin expansion come from. On the pharmacy network side, we continue to look to increase the breadth and the scale of our network. And that comes from adding new partners, but it also comes from expanding channels and working with each of our current chains across more engagement strategies. So for example, adding digital messaging to a partner who maybe historically has only run print. A couple of highlights there. One of our largest pharmacy partners enabled our programs on their brand new digital platform, which they rolled out across their entire enterprise, and that generates additional revenue opportunities for us. And also, we expanded our digital reach in the year by more than 36 million patients, which is a substantial number. That alone is actually a pretty strong number in the industry, let alone just being an addition for us to what we already have. So, a material increase there. And then lastly, enhancing digital engagement. We're going to show you some examples in a few slides of how we're leveling up our engagement suite on the digital side. But we are adding richer content. We're leveraging AI where it makes sense, and we're pushing for deeper pharmacy integration. And all of that helps improve behavior and ultimately creates healthier patients, which is why we exist. We've seen average click-through rates on our SMS messages at over 24%, as I mentioned earlier. And we also have over 2,000 stores live on our new digital regulatory product which is a subscription product that our pharmacy partners can buy to deliver government required material to patients in a digital format versus in a printed format, which is how it's historically been done. And we do have over 9,000 stores in the pipeline for this product as well. So we're excited about this. It's an early -- still early days, but I think we're seeing some good traction in the marketplace. So diving a little bit deeper on the scalable operation. I talked about the cost-out program, right, material reduction in OpEx as well as staff costs. We materially changed our executive compensation plan. It's very much oriented toward a performance basis now. The emphasis is on equity upside. And we've taken a different look at salary and cash bonuses, those are much lower than under prior leadership. And really what that generates is strong alignment between my team and myself and shareholders. And that's really where it needs to be. So, I think that, that philosophy will serve everybody well moving forward as we start to rebuild our enterprise value. And then on the productivity side, I mentioned that we had launched some AI-powered productivity tools. Those have been resulting so far in faster execution, a significant reduction in the manual work that it takes for us to do our jobs each day and ultimately higher output per FTE. Revenue diversification, both in terms of the disease states as well as the product mix, right? So I talked about shifting our mix away from the overdependence that we had previously on vaccines. We've done well there. And as I mentioned before, we increased our non-vaccine mix from 54% in fiscal '25 to 83% in fiscal '26. We have maintained a strong focus on immunology, respiratory, diabetes and other complex specialty conditions. Our digital programs went from 6% of revenue in January up to 15% by June. And as I mentioned, our pipeline is showing an even stronger skew towards digital and THRiV. And all of that is expected to improve our revenue mix. GLP-1s are a very fast-growing category, and this is a place where we are really well positioned to grow revenue materially. Our GLP-1 revenue in fiscal '26 was up almost 35% from the prior year and is now 8% of our revenue mix for the year. And actually is an even larger percentage of our mix of calendar '27 pipeline, so definitely heading in the right direction. And this category of medicines is expected to grow materially. So 25 million Americans are expected to be on a GLP-1 medication by 2030, which is only 4 years, 3.5 years away. And that goes from a base of 10 million last year. So that's a really material increase. And so this is a growth area that we have to be part of. And so far, we've started to make good inroads with the leading manufacturers of these products. And then lastly, I mentioned earlier, we did win back over USD 3 million in contracts from folks that had left us in prior periods and added 11 new brands during the year, 8 of those were in the second half. So good progress there. Just really quickly on the far right, if you look at our revenue mix, between fiscal '25 to fiscal '26, you'll see the increases in the yellow there, that's GLP-1 revenue and then also in specialty going from 10% of mix to 21% and then gen med going from 34% to 47%. Now if you look at our current calendar '27 pipeline, that trend is continuing, right? So, so far, the pipeline as of the 21st of August, 13% of our pipeline was in GLP-1, 22% in specialty, 59% in gen med. And so we continue to see the trends that we set out to achieve when we established this initiative back in November. So higher-margin solutions. I've mentioned THRiV a few times, and I wanted to just spend a few minutes explaining to all of you what our THRiV solution is, how it works and why it's beneficial for our clients, our patients that we serve as well as our business itself. So what we do is we apply advanced predictive modeling that finds the patients who are most likely to have an adherence problem. And that helps us focus our messaging and our outreach to the patients who we believe need support most. We personalize that experience to improve ultimately the patient's outcome while also maximizing program efficiency. So if we think that a digital communication is the best fit for that patient at that particular moment, that's what we'll send if we think potentially a higher cost direct mail message might be the right fit at that time, given the patient's profile, their demographics and so forth, then that's what we'll send. And so we're differentially investing and using the channels appropriately based on what we know about the patient and their challenges. Importantly, this revenue model is a little bit different than how the business has historically operated. So most of our programs run on a per message basis. But THRiV is built on a per patient revenue model. And so that allows us to scale efficiently as program sizes increase. It also improves our unit economics as the programs get larger because we can direct the higher-margin digital messages to the patients who really need them and then only fall back on the lower-margin printed products when they're most appropriate. So ultimately, this leads to a higher gross margin profile than some of our legacy tactics. And then because we have multiple ways to reach patients, right, direct mail, print, MMS, SMS, patient concierge, we can deploy the right message at the right time based on what we think will drive the highest engagement as well as the highest behavioral impact. So this is a really important product, not only for patient support, but also for driving better gross margins for us and more scalable programs as brands invest more with us. On the pharmacy network, a few highlights that I wanted to mention. I talked about our digital regulatory product earlier and the fact that we have over 2,000 stores live right now and another 9,000 plus in pipeline, that's definitely helping us expand our digital presence with our retail partners. I talked about the 36 million patients that we've added to our digital reach. That's a really important driver for us, and that allows us to, again, skew our revenue mix more towards digital because we have more access, we can reach more patients that way than we could a year ago. We did have a new regional chain launch SMS with us in the second half '26 and we have another one that's expected to onboard here in the first half of fiscal '27. And then I talked earlier about how one of our larger chains enabled our programs across their entire enterprise-wide digital platform. And then lastly, we're really excited about -- we have an agreement signed with one of our retail partners to pilot a new concierge service, which helps patients with scheduling of appointments at the pharmacy. This takes us beyond the traditional messaging that we've done historically and builds a new use case for the way that we can leverage the access that we have to patients and some of the newer products that we've built to potentially generate pharmacy funded revenue opportunities in addition to pharma funded, right? So obviously, historically, we were very heavily skewed towards pharma as our primary sponsor but increasingly with these new products, we now have opportunities to generate revenue directly from the pharmacies themselves. We've talked about enhancing the digital experience. Really what that means is we want to make sure that we take our connectivity with patients beyond a static one-way message into a real conversation, right, a real engagement with a patient that can actually solve a problem for them in real time. And so I want to show you a quick demo of how this product actually works. So this is a real patient journey that I'm about to show you. And this one is focused on driving better adherence and helping patients afford expensive medications. So the way this flow would start would be if we see a prescription comes through, that's going to be expensive for the patient based on their insurance coverage or lack of insurance coverage. We will greet them with a custom message that lets them know that there are savings opportunities available to help them afford the medication. Once we get the patient's consent and they provide their information, the concierge will automatically sign them up for a savings program and return a savings card to them that they can then present right at the pharmacy counter and get significant savings off their medication. So I'm just going to play this flow for you really quickly so you can see it in action. [Presentation]

So that's what maybe a 45-second flow, maybe 60 seconds with the patient entering their information, which actually we can help pre-populate. But think about the power of determining that a patient's prescription is going to cost them a lot of money, proactively making a savings program available for them, signing them up without them having to know how to do that. and then pushing back the card right to their phone that they can immediately save $50, $100, $200, sometimes even more dollars per fill. These are the kinds of things that we're doing to help drive our results further and help more patients stay healthy. So the last section that we have here is just observations and outlook as we go forward into fiscal '27. So I'm going to start at the top left here and talk a little bit more about our calendar '27 pipeline. So again, as I mentioned before, this period that we're in right now, so from today through the end of December, this is when most of our customers are making the majority of their buying decisions for all of calendar 2027. So this is the critical period. This is where we will build our revenue base for calendar '27. So at August 21, we had more than 90 opportunities in our pipeline. That covers almost 40 customers and about 80 different brands. And importantly, it's not overly concentrated. So no single opportunity or a brand is more than 10% of pipeline value. And so it's very distributed across a lot of customers and a lot of opportunities. I talked earlier about the fact that almost 60% of the value in that pipeline is focused on higher-margin products, THRiV and digital versus 32% of our '26 mix. And also importantly, the opportunities in this pipeline right now are materially larger on average than our fiscal '26 bookings. And about half of the value of this pipeline right now is in programs that are USD 1 million or larger. So not only are we seeing some good early traction, a lot of opportunities against the right products but we're also seeing larger deal sizes, which is really important as we try to scale. And so I'm encouraged by the early progress that we've seen on the pipeline. If we go to the top right, decisions on the majority of the pipeline that I just talked about, we do expect to see by the end of December. Some of those will spill into January and February, but most of these will be locked up by the end of December. And that will be part of the reporting that we're doing going forward. So every quarter, we'll be reporting progress against our bookings growth for this calendar '27 cycle that I talked about. The share of our revenue that's coming from digital and THRiV, our margin profile and our cash discipline. So you can expect to see reports on all of those every quarter. The first material readout for the pipeline conversion. So how well are we doing closing the deals that I just walked through, you'll see that at the AGM in November. By then we will have a pretty good feel for how this is trending, and we will have some contracts under agreement by then, like signed contracts that I can talk through. So that's an important milestone at the AGM in November. The shape of fiscal '27 we certainly are targeting substantial revenue growth over fiscal '26. And we do not expect to increase the cost base materially, as I've said a couple of times. And that really supports our path back to profitability, which is where we have to be as quickly as possible. And I alluded to this earlier, but we do expect to remain cash flow breakeven across calendar '27 and fiscal '27 as well is important to note. So for July 1 to June 30, we expect to be cash flow breakeven as well. Now that cash flow generation, as I talked about, it will be a bit lumpy. So you'll see some unevenness quarter-to-quarter. But on an overall basis for the fiscal year and for the calendar year '27, we do expect to be at least cash flow breakeven. Lastly, the earn-out from the sale of the ANZ business, we expect to finalize that process in Q1 and determined the final figure, and then payment is expected in Q2 of fiscal '27. We've had conversations with Jonas over the past few weeks, and so we're getting closer to finalizing that payment amount. We are confident that there will be a payment for the first year of the earn-out. And then lastly, we already disclosed the Mindsprint dispute. We're vigorously defending those claims. It's not expected to impact our operations. And as I said in the release, we really can't comment any further than that. But if we have the opportunity to do that in the future, we certainly will. So, just to close with our investment case, I feel really confident about the position we're in right now as the precursor to getting back to profitable growth. We've been around a really long time over 30 years, we have a very established brand and a strong reputation with pharma and with pharmacies. And we've been rebuilding a lot of that trust here over the past 9 months. We reestablished our experienced leadership team, as I mentioned earlier, we've added a lot of additional talent on top of that. And a lot of folks that we've worked with before. And so I feel really good about the team that we have here and our ability to execute. And as I said earlier, our incentives are very much aligned to shareholder value creation. We are here for the long term. We're here to rebuild value for shareholders. We are also uniquely positioned in a very large market. Pharma spends about USD 8 billion per year on patient support and patient marketing and about $2 billion of that is through the pharmacy channel. So it doesn't take a large percentage of that spend to get materially larger revenue than what we've seen over the past year. In addition, our products are unique, not only because of the reach that we have, the scale that we have, the ability to drive behavior but also that it's measurable. We measure every program that we run with a rigorous prospectively randomized methodology, and we're able to prove to clients that for every dollar they spend, we're returning $5, $6, $8, $10 back. And that's what gets customers coming back year-over-year. Our strategy is, I think, really well aligned to getting back to growth quickly. We've talked about diversifying our revenue streams. I think we're seeing some progress there. We are prioritizing our higher-margin solutions. You're seeing early days of that in the pipeline mix. We have expanded our network, particularly with our digital presence. And I just showed you a preview of our next-gen digital engagement, which is really going to make our customer relationship stronger as well as our patient impact a lot stronger. And then lastly, we need to maintain discipline and be laser-focused on profitability, and that's what I've been since the day I came back. I think we've set some strong foundations for calendar 27, right? I talked about the pipeline. It's diversified. It's weighted towards the right products and it has much larger deal sizes on average than prior year. I think we've proven our cost management discipline, and we'll continue to be very tight on cash and make sure that we're spending on the right things. And as I said earlier, we are targeting a cash flow breakeven position again in fiscal '27. So with that, George, I'll turn it over to you for Q&A.

Thanks for that very insightful presentation. [Operator Instructions] John, first question, the U.S. administration's policies, are they impacting your business in a positive or negative way?

Yes, it's a good question. I think when the new administration first came in, there was a lot of fear about price pressures, and that did temporarily have an impact on pharma budgets, but we've seen that ease up quite a bit, I'd say, since I rejoined. And interestingly, sometimes when budgets become a little bit tighter, that could actually be a benefit to us because our programs are measurable, right? Like I talked about before, because we can actually prove the value of what we do when pharma is making hard decisions about where to allocate funds, we tend to come out on top more often than not. And so that's kind of how I see the impact so far.

Next question around digital. So is digital creating new revenue streams for the business? And if so, how large could they become?

Yes, that's a great question. I talked earlier about the digital regulatory product. I think that's one big trend that we've seen historically, that material has been printed, and it's a very expensive for pharmacies and it's also very wasteful because a lot of that paper. Over time, the patient gets the same thing 10 or 12 times, they tend to throw that out. We've seen a really strong push for pharmacies to deliver that regulatory content digitally, and that is creating opportunities for us to generate subscription revenue from the pharmacies. We've also seen, as you've seen from the pipeline mix, continued interest and demand for digital solutions to reach patients. So whether it's our THRiV product or whether it's the concierge that I showed those products, there's just a higher demand for those products compared to some of the legacy tactics. And they also carry larger price points and can tend to drive higher deal sizes. And so those are all good things for us. I probably wouldn't put an exact figure on what they can become just because it's such a large market. But I mean, there's material opportunity in digital for sure, and that's what we're chasing.

Great. Next question. When do you expect the cash low point on your balance sheet and can we expect a better Q2 than Q1?

Yes, I think we -- the low point, I think we probably will see in this quarter in the first quarter here. And so I would expect to see Q2 be in a better position relative to Q1. That's where I would probably guide it right now.