ImExHS Limited (IME) Earnings Call Transcript

Thank you for standing by, and welcome to the IMEXHS Limited First Half Fiscal Year 2022 Conference Call. [Operator Instructions] I would now like to hand the conference over to Dr. German Arango, CEO and Managing Director. Please go ahead.

Good morning, and thank you for joining us for the presentation of our first half 2022 results. I am Dr. German Arango, CEO of IMEXHS. And with me on the call is our CFO, Reena Minhas. I will be taking you through a presentation pack put up on the ASX platform this morning and it will be best if you have that in front of you. Turning to the agenda on Slide 2 of the presentation. I will start with an overview of IMEXHS and the highlights of our first half results. Reena will then cover the financials in more detail and I will follow with our strategy and outlook before opening it up for questions. Turning to Slide 4. We will cover much of this during the presentation, so I will just give you a quick summary now. All the key metrics, both operational and financial, are showing strong growth. We continue to develop our growing pipeline of opportunities and are in final advanced negotiation with 2 material contracts. Our radiology services business is mostly in Colombia. It is substantially differentiated through specialization, highly qualified doctors and the use of IMEXHS enterprise software, all of which give us a substantial edge. The stock market downturn, most particularly in pre-profit tech stocks, has made us determined to swiftly get in a position to become cash positive and not reliant on the market in the future. To achieve that, we have focused the company on those elements in product, sales and market development that will drive profit and cash. The equity capital raise is well underway with some elements completed. We thank our shareholders for their support and confidence. The investment the company has made in disruptive cloud-based medical imaging software is only at the beginning of the journey of its value. Slide 5 provides you with a summary of who we are. IMEXHS was founded 10 years ago in Bogota, Colombia, with the aim to democratize access to medical expertise through technology and services. The company consists of 2 businesses, medical imaging software and radiology services. The next slide, Slide 6, shows our expanding global footprint. We have grown to be a leading radiology software and services provider in Latin America and are expanding overseas to markets such as the U.S. and Australia. Our software is installed in 418 sites used by over 2,600 radiologists across 15 countries and is developed by 37 engineers based in Colombia. Our services business has over 130 radiologists with 33 radiology centers in Colombia and teleradiology for customers in Spain and Mexico. Then let's move on to the operational status and progress for the first half. On Slide 8, we outline our operational highlights for the year. We continue to make good progress with IMEXHS cloud, formerly AQUILA in the Cloud, our standardized radiology software solution with 140 contracts signed to date and an ARR of $2.8 million. This is a total contracted annualized value and includes both installed and billing and contracts not yet installed. While our standardized IMEXHS cloud product is growing, so is our enterprise system for large and more complex hospitals. Because it requires close collaboration with customers, it has mostly been approved for Colombia, Peru, Ecuador and Mexico. Strengthening our partner network remains a priority with 6 new partners from 4 countries, including the first entry into the Southeast Asia market through Thailand. Two key renewed contracts with Colsubsidio and National Police were entered into in June, both with improved prices. Both contracts are for the complete outsourcing of radiology services, including IMEXHS enterprise software. The new contract with major hospital group, Colsubsidio, provides for additional services of nuclear medicine and enterprise software for ophthalmology as well as an expansion in the number of sites from 23 to 28 over time. IMEXHS cloud beta product went live with 3 IMEXHS partners and is used by 66 active customers. This is an early version of our universal medical imaging software aimed at covering a wide range of ologies and able to adapt to necessary workflows for each. This represents an important step in our strategic path. The universal IMEXHS cloud will offer major benefits to multidisciplinary clinics as well as provide a standard, easily configurable software package, which will be unique in the marketplace. We expect to release a general use software version in 2023. Moving to Slide 9, path to profitability. Importantly, let me outline the actions taken to deliver our path to profitability. The plan is complete and we are midway through implementing a cost-out program aimed at getting to cash positive at the company level with both divisions profitable. We have refocused on the near-term sales pipeline and on product development, which will swiftly contribute to profit. Our sales capability is directed towards the immediate pipeline as opposed to longer-term market development. There have been minimal one-off costs incurred in H1 and further one-off costs are forecast for H2 to achieve ongoing operating and CapEx cost reductions. Development is directed towards near-term profitable outcomes, enhancements for radiology use, automation of onboarding IMEXHS cloud and of the help desk which is also expected to see the acceleration of software contracts not yet [ installed ]. [Technical Difficulty]

It looks like we've lost Dr. Arango's line. Please hold while we reconnect. [Technical Difficulty]

Okay. I think we've [indiscernible] of telecommunications around the world. I will pick up from where German left off. My name is Doug Flynn. I'm the Chief Executive of -- sorry, I'm the Chairman of IMEXHS. I think if I pick up from where we left, which was the refocused development program means that completion of the universal imaging platform designed to provide for all medical imaging workflows and now deferred until 2023, but the strategic vision, which German articulated early [indiscernible]. The company has also tightened its working capital processes, and we expect the cost-out program to be largely complete by the end of Q3. We turn now to our financial highlights on Slide 10. We've achieved good growth across our key financial metrics in the first half of FY '22, both on a reported and constant currency basis. Revenue of $9.5 million was in line with plan, was 83% higher compared to the prior year and up 82% on a constant currency basis. Annualized recurring revenue of $20.5 million was up 61% versus the prior year and 60% higher on a constant currency basis. The increase in ARR reflects increasing dollars in radiology services, new contract wins in both customized solutions and the standardized software product offering offset by the customer that we've ceased to service. Our underlying EBITDA loss of $0.4 million was $1 million lower than last year's number due to contracts coming [ through ] and some cost reductions achieved in the first half. At 30th of June 2022, cash was $0.9 million. Slide 11 shows the revenue and ARR split between our 2 businesses, software and services. The balance includes ARR from radiology services of $12 million and $8.5 million from software. The software ARR includes $2.8 million from the 140 active IMEXHS cloud contracts and $5.7 million from IMEXHS enterprise. Let's move to the business update and starting on Slide 12.

Sorry, Doug. I'm already here. If you want, I can proceed.

Please pick it up.

Okay. Apologies for the interruption in the call. So let us move to the business update. And starting with Slide 12, let me take you through what makes us unique and our offering compelling. Our multi-tenant end-to-end cloud-based software platform for medical imaging does well across every segment of the market. It covers the requirements of the high-end hospitals with integrated AI and advanced post processing and the strong visualization tools in the [indiscernible], being at the same time, flexible and cost effective for the SME segment. Rapidly deployed and integrated with third party integrated software, simplifying the corporation into new environments. The disruptive business models have been the key for the success in the geographical expansion. To remainder shareholders, there are 2 separate approaches to support cloud characteristics and sales, IMEXHS cloud and IMEXHS enterprise. Turning to Slide 13. IMEXHS enterprise is highly configurable and easily integrated into hospital enterprise systems. The same at large university hospitals and multisite health care organizations. The average contract life is around 5 years, and there are circa 100 customers across 8 countries. We continue to see strong growth in overall studies and revenues from both new and existing customers. By comparison on Slide 14, IMEXHS cloud is a standardized radiology solution launched in May 2020. It is a unique and successful offering in an underpenetrated global market. IMEXHS cloud is small- and medium-sized customers, low-cost, rapidly deployable imaging software. Importantly, it provides the same sophisticated capability to be found in the most advanced hospitals in the world to each and every clinic that takes it up. IMEXHS cloud makes an important contribution towards the democratization of health care. At 30 June 2022, 140 deals with a combined ARR of $2.8 million across 11 countries have been signed, including the U.S. and Australia. Distribution is mostly via growing partner network, which generated 85% of cloud sales in the first half of FY '22. We continue to see a strong pipeline of new opportunities. On Slide 15, we outlined the attributes of our radiology services. There are several key differentiators of what we offer. And key among them is that we exclusively use IMEXHS software, which drives efficiency and diagnostic capabilities. Our principal business model is providing outsourced radiology services for hospitals and other health care establishments. This is an end-to-end service. We are not the only operator in Colombia, but are distinguished not only by the use of IMEXHS software, we will, for example, make our software available to competitors, but also by the level of specialization and high academic profile of radiologists and residency training for 3 universities. A smaller but growing part of the business is external teleradiology services for third party. This provides great flexibility through remote access to the highest quality radiology specialists to international clients at Colombian costs. Let us return to the first half financials, and I will pass you to Reena.

Thank you, German. I will now run through the first half FY '22 financial performance of the company, starting on Slide 17, progress in ARR. ARR of $20.5 million as at 30 June was up 61% versus PCP. ARR of $20.5 million consisted of $12 million from radiology services and $8.5 million from software. The software ARR includes $2.8 million from 140 active IMEXHS cloud contracts and $5.7 million from IMEXHS enterprise. On 1st of July 2022, radiology business ceased to service a customer with a poor payment record and the associated ARR has been excluded. The increase versus PCP reflects increasing volumes in radiology services, new contract wins in both customized solutions and the standardized software product offering offset by the customer that we have ceased to service. The chart shows annualized recurring revenue, which is currently billing as well as that which is yet to commence billing in a lighter shade. Turning to Page 18, the income statement. First half FY '22 revenue of $9.5 million was up 83% versus PCP and up 82% on a constant currency basis. The software and services revenue is $2.8 million and $6.7 million, respectively. Recurring revenue represented 98% of total revenue in the half. The underlying EBITDA loss, which excludes costs in relation to share-based payment expenses, foreign exchange movements and one-off costs of $0.4 million versus a prior year underlying EBITDA loss of $1.4 million. Slide 19, the balance sheet. At 30 June, the company had a closing cash balance of $0.9 million and net assets of $15.4 million. Intangible assets consisted of goodwill of $5.6 million, $0.9 million of customer contracts and software assets of $2.5 million. The increase in the intangible assets reflects the continued investment in software development during the half. Trade and other receivables were $8.4 million at 30 June. After reviewing overdue receivables, we do not believe there are any unprovided credit risk. On Page 20, net cash flow used in operating activities was $1.3 million, reflecting continued investment in working capital. At 30 June, the cash balance of $0.9 million, which was after the purchase of equipment of $347,000 for a customer contract for which equipment financing was approved in early July and is expected to be received in this quarter to replace the initial cash outlay by the company. Net cash flows used in investing activities include capitalized development costs of $0.9 million and a payment for the RIMAB acquisition of $0.2 million. As German has outlined, our work on our path to profit is near completion and should be clearly visible in the fourth quarter. Moving to Slide 22. On the 3rd of August, the company announced that we have received binding commitments for $2 million via a placement to sophisticated and institutional investors and was also undertaking a non-renounceable pro rata entitlement offer to raise approximately a further $2 million. Both the placement and the entitlement offer are fully underwritten. The first tranche of the fully underwritten placement to institutional and sophisticated investors was successfully completed on the 9th of August, having issued 1.95 million new fully paid ordinary shares at an issue price of $0.48. The directors have agreed to subscribe for an aggregate of 2.2 million new shares under the placement, subject to shareholder approval at an AGM of shareholders to be held on 27th of September 2022. The entitlement offers a pro rata non-renounceable entitlement offer under which eligible shareholders were entitled to subscribe for 1 new share for every 8 shares held. The entitlement offer closed on 25th of August and the results will be available on the ASX later this week. I will now hand back to German to take you through the strategy and outlook on Slide 24.

Thank you, Reena. We are in a final negotiation on 2 material contracts expected to be concluded within Q3. As I have said, we will largely have reset our cost base by the beginning of Q3. The refocusing that has gone on will help us operationally at several levels. Together with the growth in the business, we are forecasting to be EBITDA positive for FY '22 and, importantly, monthly run rate underlying cash breakeven during the second half. We are very confident of the actions being taken to refocus the company, which will underpin a path to profitability and cash. Our software clients love our product, and we continue to take profitable share in our radiology business. We very much appreciate the support of our shareholders, and we aim to deliver for you. Thank you. I will now hand over to the operator.

[Operator Instructions] Your first question today comes from [ Richard Hope ] with -- who is a private investor.

Could you provide some insights into the average revenue per contract for clearing the cloud and why it seems to be continuing to reduce? If I look at the first 12 contracts for $400,000, it's an ARR of around $33,000 a contract. When you got to the sort of $2 million mark, it seems to average around $20,000 a contract. And the last quarter's additional contracts have only added another $100,000 ARR, which will be around $3,700 a contract or roughly 1/10 of what the first quarter sales was. So is that because you're reducing prices or because you're signing contracts with much smaller veins at this point? That would be helpful to answer.

So essentially, the average is still around $20,000 but the fact is that the way we -- the mechanism we use for calculating our ARR is including the average of the actuals from the last 3 months. And given we have been deploying several deals in the recent period of time, we are -- and normally the customers as soon as we install -- we first install the software, there is a gradual ramp-up in the numbers until they achieve their normal volumes. So this incorporation of the technology creates a gradual increase in the volumes. And they spend a few months to achieve this average -- normal average for them. And given the ARR is taking into account the average of the actual from the last 3 months, there is an effect on the calculation of the ARR. But again, the average for the deals we have been closing, in general, is still around $20,000.

So even if there are no new deals in the next quarter, the cumulative effect from the deals you sum up this quarter would still continue to increase ARR of your volumes, correct? If I understand that?

Yes. So the existing deals will keep growing. They will have the internal normal growing as soon as they are deployed. So in the first initial months, they start from low volumes up until they achieve the lower normal and average volumes for them. So this will represent an internal growing rate for the already deployed customers. But -- and the other elements of the calculation of the ARR is an estimation of the contracts that are signed and not deployed. So given the number of non-deployed deals is becoming very reduced compared to numbers of already installed and billing deals, the average of those installed is correcting the number or affecting the number, but this number will experience an internal growth that will normalize the ARR as soon as the initial period of time happens.

The next question comes from Iain Wilkie with Morgans Financial.

Just a couple for me. If you could just walk through the cost-out program and what this entails again, please? So sort of just trying to understand the scale of the one-off costs versus what you're looking to achieve in annualized savings, just to get a sense of where you're guiding to underlying EBITDA positive versus the reported figure. If you could just sort of talk through that, that would be great.

Sure, Iain. Well, first of all, as we have said, our guidance is including to be EBITDA positive for the year and to be cash flow positive or breakeven on the run rate basis in the second half. This is actually in cash, not in accounting numbers. It's a cash effect that we are expecting to have. The plan is based on protecting the short-term sales pipeline and the requirement from the market in the short term. So most of our efforts are now focused in selling what is active in our pipeline and close to be delivered to be signed. This attempt is backed by protecting the software development road map in everything related to the short-term plan and in parallel to improve our post-sales support or health care in order to protect our existing customers. We are also aiming to enhance our sales capabilities with -- and technical capabilities with automation, training, and several other strategies or activities. The important thing behind this is that we are maintaining the strategic view and plan that we have presented to investors early in this year. We may have some delays in some specific products but the overall effect is that we have been able to reduce our cost base, protecting the short-term sales pipeline and also protecting our existing customers with an enhancement in the help desk and post-sales service activities. The overall effect -- well, the progress of the plan -- we are midway, we can say, or a bit more than midway. In the first half, we implemented probably 1/3 of the total cost reduction. And in this third quarter, we have been able to progress in the 2 additional terms. So very soon, we will have the plan fully implemented with the cost reduction having effect on our numbers.

Okay. Great. And just 1 more update for Reena. But you've sort of spoken before that it doesn't appear at this stage to be any unprovided credit risk, but if you can just touch on the credit risk profile and you had around $6 million in that balance. And what your -- the general expected credit loss rates are based on those age brackets? I know over the last couple of years they have improved significantly, but just sort of key to hear your thoughts on where that sits now.

Iain, yes, they have improved significantly. And we've provided, I think, $168,000 on the current balance of maintenance. So we've got $168,000 provisions on $4.7 million. So that is done on a -- especially in the radiology services, business is done on a customer by customer, but a small number of customers are going through and reviewing the estimates. On the software side, there's -- we have a calculation that we do. Just over 90 days or 180 days, we've got a percentage that we provide for those. But -- yes, so the provision at the moment is adequate for the $4.7 million of receivables that are sitting in the current. Actually, I should say, that there's a portion of receivables in the [indiscernible] provision of $169,000 is adequate for that balance.

Okay. That's helpful. And just last one for me. You managed to flag those 2 major contracts coming soon. I think is it couple of weeks or months ago? Are you sort of still looking at third quarter? Does that sound about right?