ImExHS Limited (IME) Earnings Call Transcript

Thank you for standing by, and welcome to the ImExHS Limited 1H FY '21 Conference Call. [Operator Instructions] I would now like to hand the conference over to Dr. German Arango, CEO and Co-Founder. Please go ahead.

Thank you very much. Good morning, and thank you for joining us for the presentation of ImExHS first half FY '21 results. I am Dr. German Arango, CEO and Co-Founder of ImExHS. And with me on the call is Reena Minhas, our Chief Financial Officer. Turning to Slide 2 of the presentation lodged with the ASX this morning, ImExHS is a provider of cloud-based medical imaging software solutions. Our software is fully web and cloud-based. It includes innovative artificial intelligence or AI tools and has a lower cost base than our competitors, which enables us to provide attractive pricing to our customers. Turning to Slide 3. We are a leading medical imaging software provider in Latin America and expanding our footprint to larger markets such as the U.S. and Australia. Our software is used by over 2,100 radiologists across 15 countries and is developed by engineers based in Colombia who now total 38. Turning to the agenda on Slide 4. I will start with providing you with an overview of our first half FY '21 results and then Reena will cover the financials in more detail. I will then address our strategy and the outlook before opening it up for questions. Slide 6 shows that we achieved good growth across our key financial metrics in the first half of FY '21, both on a reported and a constant currency basis. Sales revenue of $5.2 million was 15% higher compared to the prior year and up 25% on a constant currency basis. 94% of this revenue was recurring revenue as we continued to focus on growing subscription revenue. Annualized recurring revenue, or ARR, was $12.7 million, up 44% versus PCP and 57% higher on a constant currency basis. Our EBITDA loss of $2.1 million increased by $800,000 compared to last year's number due to investments in sales and marketing and one-off costs related to the RIMAB acquisition. We are investing in sales and marketing to expand into new geographies, such as the U.S. and Australia. With a cash balance of $8.3 million, ImExHS is in a strong financial position. Slide 7 provides an overview of Aquila Custom, our customized solution for radiology that is target to large customers that require highly complex solutions. Currently, most of our revenue and ARR comes from this product offering. As you can see on this chart, ARR from Aquila Custom was $10.7 million, up 22% versus PCP, 32% on a constant currency basis, representing over 80% of total ARR. Despite the strong growth, decision-making among larger operators has been slower than normal as a result of the pandemic. However, we are experiencing renewed interest from larger customers and seeing an increase in imaging volumes. Turning to Slide 8. Our new product offering, Aquila in the Cloud, continues to generate strong interest and provide small- and medium-sized customers with a low-cost medical imaging solution that can be accessed remotely. Launched in May 2020, it is a highly scalable business model that is supported by an extensive and growing network of distributor partners. In fact, 65% of Q2 FY '21 Aquila in the Cloud sales were generated by our partner network. At 30 June 2021, Aquila in the Cloud had contributed $2 million in ARR based on 84 deals, including 6 in the U.S. and 4 in Australia. Q4 FY '21 was our strongest sales quarter with 24 deals showing that sales momentum is growing. Despite the strong interest in the product, implementation has been slower than planned. We are working closely with our partners to make the implementation process more efficient and onboard new customers faster. I will now hand over to Reena Minhas, our CFO, to cover our first half FY '21 financial results in more detail.

Thanks, German. I will now run through the FY '21 financial performance of the company, starting on Slide 10. We finished the year with ARR of $12.7 million, which is 44% up versus prior year and 57% higher on a constant currency basis, reflecting continued growth from our customized solutions, both volume growing and new customers and $2 million of ARR from the Aquila in the Cloud product offering. The chart shows annualized recurring revenue, which is currently billing as well as ARR, which is yet to commence billing in a lighter shade. Turning to Slide 11, the income statement. I will now run through the underlying financial performance of the company, which excludes costs in relation to share-based payment expenses and foreign exchange movements. First half FY '22 revenue of $5.2 million was up 15% versus PCP and up 25% on a constant currency basis, with recurring revenue contracts accounting for 94% of revenue. The strategic focus on driving subscription revenue growth continued, with recurring revenue maintaining a growing trend. Total expenses were up 16% compared to first half FY '20, reflecting an increased investment in sales and marketing, expanding operations in Australia and the U.S. and acquisition-related costs of $4.4 million. As a result, the group's EBITDA was a loss of $2.1 million, representing a 64% or $0.8 million decline versus PCP. Underlying EBITDA was a loss of $1.4 million versus an EBITDA loss of $0.8 million in the first half of FY '20. Interest and finance costs of borrowing the down versus PCP as the prior year results included costs in relation to a related party loan, which was repaid in August 2020. Turning to Slide 12, the balance sheet. At 30 June 2021, the company had net assets of $13.7 million. The company ended the half with cash on hand of $8.3 million and total debt of $1 million. Intangible assets increased during the 6 months, primarily reflecting the continued investment in software development of $630,000 during the period. Borrowings decreased by $600,000 to $1 million due to the repayment of debt during the half. On Slide 13, net cash flow used in operating activities increased by $0.5 million versus prior year, reflecting the increased investment and one-off acquisition-related costs discussed earlier. Net cash used in investing activities included capitalized development costs of $630,000. Net cash flows from financing activities includes $1 million from proceeds from the exercise of the options and was down against PCP due to the prior year, including new borrowing facilities. I will now hand back to German to take you through the FY '21 strategy and outlook.

Thank you, Reena. Slide 15 shows that the global medical imaging software market is large and growing. The U.S. accounts for around 40% of the global radiology imaging systems and PACS market, valued at greater than USD 2.8 billion. And Florida alone is 3x the size of the Colombia market based on GDP estimates. That is why we are targeting overseas markets, particularly the U.S. Aquila in the Cloud is helping us move into new geographies, as 85% of Aquila in the Cloud sales are from outside Colombia. Slide 16 outlines the macro trends in the health care sector and our strategic priorities. We are well placed to benefit from industry tailwinds and expect growth to come from our core Latin American markets with our custom offer and multiple verticals, including advanced post processing, AI, pathology and other -ologies. Our standardized Aquila in the Cloud solution aimed to small- to medium-sized companies, expanding into new markets in the U.S. and Australia and continuing to continuing to innovate our imaging solutions software by adding artificial intelligence. Turning to our 2021 roadmap on Slide 17. We have a number of key priorities. We are upgrading Aquila platform with Version 4.0 to provide a broader product offering to potential customers in the U.S. and Australia and have just finished version 3.5, which improves the user experience. We are working on creating the Alula Marketplace, the world's first pathology marketplace. We have finished developing other medical verticals, including a dental imaging and the veterinary information system, which we are currently testing. Finally, we will use our rapidly growing image library for training and testing AI algorithms. Turning to Slide 18. Developing AI capabilities is a way for ImExHS to remain competitive and to develop its software for the future. Access to a growing radiology database with agreement from our clients give us fast and powerful access for AI training, embedded trade testing for new releases. The number of store images that we use to develop AI capabilities has almost doubled to $940 million, reflecting a full year of the Colsubsidio contract. Turning to Slide 19. Access to a growing radially database is one of the reasons why we are buying RIMAB, who provides radiology services to Colsubsidio and a number of our other large customers. On 26 July 2021, ImExHS announced the acquisition of RIMAB SAS for approximately $8.5 million, less estimated purchase price adjustments. This acquisition strengthens IMEXHS customer offering and provides a testbed for developing AI tools. It also removes related party transactions and improves transparency. The EGM to approve the acquisition is scheduled for the end of September 2021 with completion expected in October 2021. Next slide, Slide 20 shows a summary of what RIMAB does and some key financial metrics. Slide 21 provides you with a first half FY '21 trading update for RIMAB. For the 6 months ended 30 June 2021, RIMAB reported revenues of $5.3 million and EBITDA of $0.7 million, subject to approval of acquisition at the EGM, ImExHS Q4 FY '21 will include RIMAB results from 1 October, 2021. The timing currently depends on ASIC's approval. Excluding any one-offs, management expects RIMAB's Q4 FY '21 revenue and EBITDA to be above Q4 FY '20 results of $2 million and $0.3 million, respectively, based on the strong renewals and new contract wins. Turning to Slide 22 and the outlook for 2021. We will continue to focus on expanding into new geographies and converting the strong interest in both our Aquila Custom and our Aquila in the Cloud offerings. The company is continuing to invest in its capability and growth and is recruiting some senior executives together with an expansion in the numbers of software development and operational engineers, the cost of which will impact the second half. For FY '21, management expects revenue to be in the range of between $11.5 million and $13 million. The company guided towards achieving monthly run rate EBITDA breakeven by December 2021. Given the continued investment in growth, there is a risk that run rate EBITDA breakeven may not be achieved in 2021. This guidance excludes RIMAB's contribution in Q4 and one-offs. I will now hand back to the operator to open it up for questions.

[Operator Instructions] Your first question comes from John Barrick, a private investor.

Just a couple of things. The Aquila in the Cloud, you say there's delays with implementation. Could you just expand on that a little bit, please?

Yes, sure, John. Thank you for making the time today. Well, regards to Aquila in the Cloud, it's a disruptive business model in our market. It's something that has been launched and created by ourselves. And after the -- after launching the product, we have experienced some -- we have found some issues essentially from the customer side and from the partner side. We are currently very focused on converting the 84 deals signed to date and recognizing more of the ARR contribution as soon as possible, and we will continue to use Aquila in the Cloud to expand into new markets. One of the main -- well, we are not so happy with the length of time to convert the Aquila in the Cloud deals into revenue. And we are working intensively and close this gap. But the fact is that we have found is, as it happens in a very new and disruptive business model, not very mature, that there are several things that we have to adjust. And the main thing is that we have found that sometimes the customers' final users and the partners are not fully prepared for receiving the technology. So after the first half of the first year of Aquila in the Cloud, we modified some of the terms and of the processes. And after implementing those processes, we have been experiencing an improvement with reduction in the deployment times and in converting the deals in actual revenue. It's a work in progress, and we need to keep controlling and improving the processes, but it's going in the correct direction.

So it sounds like you're saying you're finding it needs to be more user friendly. Given that [indiscernible] particularly technologically [indiscernible].

No, the issues have been not, at the moment of using the technology, are happening actually before. And what we have found is that sometimes the customers have not fully, for example, installed all the modalities of the site. It's a new site and the infrastructure is not completed, or the connectivity is not the idea or not -- has not been set up. So most of the issues are happening before implementing the technology. As we install, everything runs smoothly and with no issues. But the main issue is between placing the purchase order from the partner and actually installing. And most of the larger proportion of this is coming from issues related to a lack of preparedness from the customer's side. So we have been correcting this, doing more presales support, more training for our partners and actually checking with -- in several moments that the infrastructure is prepared for receiving the technology.

Right. That's very helpful. So but presumably, that is actually -- takes personal time in order for you -- in order to do that.

Well, the objective of this model is to be as standardized as possible and to be as low touch as possible. In the meantime, we are supporting with our resources and with our own team, all the partners and even the customers in order to solve these initial issues. But the plan is that down the road, this business model should be as automatic as possible. One thing, for example, we have done recently is one of the sources of the delay was that -- has been that the customer or the partner doesn't have the hardware for routing the images to the cloud. And we have developed a virtual Dicom router for sending the images from the customer to the cloud. And with these kind of things, we are being as low -- as much as possible low touch. And this is the objective of this business model. But again, in the meantime, we have been supporting with our resources, the evolution of this new and, it's fair to say, very mature business model, but already delivering very good results, and very promising in terms of the future.

Now I wanted to ask something about your FY '21 revenue forecast. So you're saying $11.5 million to $13 million, but how much of that is ARR?

Well, the -- honestly, we have been procuring to deliver recurring revenue deals. In fact, currently 94% of our revenues from the first half are coming from recurring revenue deals. And obviously, a good proportion of this revenue is the conversion of contracted deals into actual revenues. But on top of that, we have to deliver some new deals. And our preference is if those new deals are, again, recurring revenue deals. But since the inception of the company, there has been some seasonality in which, in the last quarters of the year, there are some one-offs. And then essentially, it is something that happens as a requirement from the side of the customer, some tenders or public or private tenders that require exclusively to propose a one-off deal. The plan is to, as I said, to bring as much as possible recurring revenue deals to convert existing contracted and lock in revenues which are currently under deployment. And -- but it doesn't exclude one-off deals if there is any public tender or private tender requiring this specific business model.

Okay. And you also say concerning your EBITDA breakeven that had been predicted for December, you say it may not be achieved if you exclude the RIMAB contribution. What if that -- if the RIMAB contribution were included?

Well, the -- currently, what we have and show in terms of -- or reported in terms of the RIMAB EBITDA is that in the first half was $0.7 million. If we are not providing guidance on the RIMAB's revenues for the second half currently, but expecting the same growing rate compared to the previous year, it should be probably 2x this or a number around this. And in that case, there should be enough correction for our EBITDA in order to be breakeven. I will allow Reena to confirm or to add on top of this. If you can, please, Reena.

Yes, sure, German. Yes, I think just, John, we haven't given guidance on that one. So -- but we have said that in the first half, the numbers are unquoted there. And I think we do expect it to be higher than the FY '20 EBITDA of $0.3 million for the last quarter, in turn adding in the contribution from RIMAB. But we're basically not providing guidance on -- with RIMAB included with it's subject to an EGM, which we expect at the end of next month and then completion from 1st October.

So when might we get guidance? I mean if that -- if the EGM approves, you were waiting for the EGM to approve to give guidance as to whether or not...

I don't think -- I don't think we'll provide guidance on including RIMAB at that point. So we'll probably be potentially after full year results, but TBC.

[Operator Instructions] Your next question comes from Iain Wilkie of Morgans Financial.

Look, just one quick question for you. The 22% growth in ARR from the Aquila Custom product. There's been a real announcement over that rough 6 to 12 months. So is this growth just based on some smaller contracts dropping through below materiality threshold? Or is this basically disclosed due to study volumes and existing contracts being rolled and renegotiated higher?

Iain, and again, thank you for making the time this morning. Well, the 22% increase versus PCP of the ARR coming from Aquila Custom has different sources. One of the sources is the increase in the volume of the stories with significant contribution. So there is a 50% increase in the volume of stories of the existing customers versus PCP. And some of the contracts we have in the Aquila Custom front are fixed rates, fixed monthly rates and some other variable rates. So the effect is obviously increasing the revenues from the variable fees or monthly fees in the Aquila Custom front. But there is also some small wins from the Aquila Custom front below the threshold of materiality. And currently, we have 73 customers which represents an increase of 30% versus PCP in the Aquila Custom front. So it's both new customers, several new customers, 30% more customers, but below the threshold of materiality and an increase of 50% of the volume of the studies in the Aquila Custom front, but this is obviously only causing an effect in the proportion of contracts in which we have variable revenues. It's also important to say that this kind of -- this business model in terms of cost and currency basis is representing a 32% increase versus PCP.

Okay. Great. And I guess, the -- I think before you said that 85% of new contracts, I guess, are outside of Colombia, is this across the whole group? Or is this mainly the Aquila in the Cloud model? I was curious of the Aquila customer, so the growth that you're seeing in that, is that mainly in Colombia? Or is that included in the 85%?

Yes. Well, the Aquila in the Cloud has been much more effective in the international strategy -- for the international strategy. So given it's standardized and it's low touch, it's easy -- everything is easier in terms of the process related to Aquila in the Cloud, selling, installing, training. That's why most of the international sales are coming through the Aquila in the Cloud business model. But we have done some custom in some of the countries where we already have a strong presence like Ecuador and Peru. Otherwise, across Latin America, U.S. and Australia, it has been -- the new contracts we have delivered are for Aquila in the Cloud. The plan is to keep the geographical expansion using Aquila in the Cloud to expand the footprint and to have installed base and to have resources in several geographies. And behind Aquila in the Cloud should grow Aquila Custom, growing in the international scenario with the support Aquila in the Cloud is doing in advance. So this is part of our strategy and it's going as we expected.