Mach7 Technologies Limited (M7T) Earnings Call Transcript

Good afternoon, everyone, and welcome to the Mach7 Q4 FY '26 Results Briefing. My name is Francoise Dixon, and I'm Head of Investor Relations for Mach7. Today, our CEO, Teri Thomas; and Interim CFO, Shawni Hadfield, will provide an overview of our Q4 results. We will then open it up for questions. [Operator Instructions] I'll now hand over to Teri.

Thanks, Francoise. Hi, everybody. Nice to be here. Given my propensity for bird analogies, I can't resist starting off by saying that this quarter has flown by. When you're this busy quarters have a way of doing that. Let me give a little bit of quick context for anybody who's not familiar with Mach7. We're a company of just over 100 people, and our job is to get every medical image, whether it's x-rays or PACs, ultrasound, MRI, CT, mammography, whenever the modality to be able to get that organized into one archive, served up very quickly through our zero footprint viewer, and then make those images even more usable through a growing set of new products. We help hospitals and imaging centers actually do something with their imaging data under the wings of our Flamingo set of products, starting with strong interoperability, some ingestion foundational components, hybrid cloud, and on-prem storage, orchestration of those images, routing them appropriately and workflow automation. So back to the quarter. Not a huge headline quarter, it's a proof point quarter. All year, I'd call fiscal year '26 the year of a reset, a time for us to reassess, adjust, design some improvements and then execute. And we've done this, better products, better revenue quality, tighter operating expenses, and more discipline across the board. We only announced this reset at Halloween, and here we are 9 months later and this is what we've actually built. Q4 is where the transformation starts showing up in the numbers instead of just in my talking points. So I expect some of you would rather spend this whole presentation on Flamingo and AI and where we're headed strategically, and I would love to do that, but that's next month's conversation alongside our full year results. Today, I'm going to focus very much on the quarter. And it was a solid quarter, gives us increasing confidence that we are heading in the right direction with our strategy. Now a couple of highlights that I'll call out before Shawni takes you through the details. I'm happy to say it's our third straight quarter of positive operating cash flow. I'll tell you, it's a little bit like how I like to operate in general, spend less than you make. But I do want you to know the first quarter tends to be historically a tough quarter for revenue and OpEx for Mach7. So we are working on it. While this may not look super exciting, it is a strong foundation that everything else can build on. We have $19.9 million in cash. We have no debt. We're up from $19.2 million last quarter, which is some runway, gives us the ability to invest and room for us to sell from a position of strength instead of a position of urgency. Our ARR run rate is up 7.6% in constant currency year-on-year to $23.5 million. Now I do like to talk about commercial. So on to the commercial side. Flamingo went live in production for the first time at Unity Point Health with orchestration. We've signed a 5-year $2.8 million contract with a prestigious U.S. customer. It's an expansion and building on an existing relationship. But it's important for you to know about this because it's the first step in us migrating to convert legacy capital customers to our now standard subscription model in North America. That's a higher quality and more predictable revenue stream, and it's the foundation for our future. Also AMRADNET, brand-new customer. They went from contract to implementation faster than any other sale in Mach7's history. And while it wasn't our biggest sale by size, it was one that shows that we can be nimble, we can be responsive, and it's the new Mach7 way. Howard Medical gives us a connection into 3,700-plus hospitals and eUnity is now listed in the Epic Connection Hub. For those of you who don't know, Epic is the dominant clinical systems vendor in the United States and globally, increasingly even in Australia with New South Wales Health installing Epic. So none of those individually rewrites the Mach7 story, but together, they're evidence that our reset is turning into a pattern of execution. Now I'm going to turn it over to Shawni, our Interim CFO. But before I do, most of you haven't met Shawni yet. She's not new to Mach7. She was promoted into the Interim CFO role after running commercial excellence and customer success. So she's seen our contracts, our renewals, and established customer relationships before she ever touched a P&L. That combination of financial discipline that you'd expect from a public company CFO plus fluency in the customer journey is unusual, and it fits the culture that we are building at Mach7, delight the customers, provide real value, and the business value will grow as well. So Shawni, please tell everybody a little bit about yourself and then roll on into the numbers, all you.

Great. Thank you, Teri. Good morning, everyone. Building on what Teri said, my background is in finance and business operations with experience in restructuring, M&A, and execution in technology businesses. I've spent much of my career working with boards and management teams through periods of change, whether that's improving performance, simplifying structures, scaling for growth or sharpening capital discipline. I'm a chartered accountant and CFA charter holder. And before Mach7, I was CFO of a lean, agile SaaS business based in New Zealand with global offices and sales, which gave me a practical grounding in scaling recurring revenue models. As Teri mentioned, coming into the seat from commercial excellence means I already know our contracts, renewals, and customer relationships from the ground up. I've been involved with Mach7 for the last 12 months, and so while I'm new in the CFO seat, I'm not new to Mach7's business operations, priorities, or value drivers. And now let me take you through the detail behind the cash number Teri gave you. We finished the quarter net cash flow positive, increasing our cash balance 4% from the end of Q3 to $19.9 million at 30 June, driven by positive net operating cash flow of $1.1 million. Behind that $1.1 million of net operating cash flow, cash receipts from customers was $7.4 million this quarter, down 7.9% on Q3's $8.1 million. That's timing of customer payments between quarters, not a change in collection quality. Operating payments came down too, 7.3% lower than Q3, mainly on reduced COGS and lower staff and admin costs. This cost discipline hasn't come at the expense of growth investment. This quarter, we capitalized $260,000 of development costs in connection with existing R&D projects, which drove the overall cash outflow in investing activities. There were no cash flows associated with financing activities this quarter. One more layer for anyone tracking the cash balance closely. The move from $19.2 million to $19.9 million also reflects a $66,000 unfavorable currency effect on cash held during the quarter, worth flagging given FX volatility over the last 12 months, but immaterial to the overall trend. Our ARR run rate of $23.5 million at 30 June was up 7.6% in constant currency, driven by expansions and add-ons across our existing installed base, which speaks to its durability as well as the UnityPoint Health go-live, which shows we're also converting new logos to recurring revenue. We also added 2 new contracts to CARR totaling $0.9 million, the referenced U.S. expansion agreement, which completed in June, effective immediately and the new AMRADNET contract announced in May, taking CARR to $25.5 million at 30 June. And now back to you, Teri.

Thanks very much, Shawni. All right. So we reaffirm our fiscal year '26 guidance. We restructured our cost base and OpEx is expected to be down approximately 10% compared to fiscal year '25. While fiscal year '26 revenue is expected to come in approximately 15% below fiscal year '25 due to some historical customer losses that we disclosed earlier in the year and some delayed large capital deals primarily out of Asia and the Middle East. We would love to see that war end and business in the Middle East go back to normal. Now none of this changes our strategy, and I'm quite happy with where we're headed. 12 months ago, this was a company unsure of what discipline looked like. And today, our software shifts faster, deployment cycles are shorter, our sales and customer engagement models, people, roles, technology -- all of it has been rebuilt. Watch for new branding and our new website going live in the next few weeks. Our support ticket volumes are down, and our KLAS standing has improved this quarter as well. Our engineering team is more productive, partly through AI-assisted development, but partly because we now bring customers in while we're building, not after we ship. And here's where that shows up commercially. Flamingo is live in production. Howard Medical and Epic Connection Hub, both make it easier for the right customers to find us before we knock on the door. And that right customer part really matters. We are not chasing after every hospital in the world. We're focused on those that need to unify imaging across multiple PACS environments and are ready to build on the data and use the data, not just archive it. That's our ideal customer, and it's also a differentiator. Nobody else is doing the Flamingo orchestration layer with that same open approach to Epic, AWS, Oracle, hybrid, on-prem and cloud and zero footprint access. Being the easy partner to work with instead of the vendor everyone has to work around is a strategic choice. It is not an accident. Health care is changing fast, and AI is only as trustworthy as the imaging data that it's built on. And that's the bet that we've made with Flamingo, and it's why we've spent this year on execution before expansion. We'll go much deeper on Flamingo and our broader strategy next month with our full year results. But for today, the foundation is stronger. Our execution is better, and the commercial wins this quarter are the beginning. Happy to take some questions.

Thanks, Teri. We've received a couple of questions by e-mail, so I'll start with these. Okay. The question comes from [ Matt Gardner ], and he asks, can you comment on the CFO search process?

Absolutely. So we're not running a process. We are fortunate to have, as we mentioned, an experienced CFO already in our leadership team, and she stepped seamlessly into the role. She's doing a great job. We will update the market once management and the Board determine that it's the right time to confirm a permanent appointment, but there is no selection process underway.

Thanks, Teri. And we have a follow-up question. Could you comment on the latest KLAS scores?

Absolutely. We watch it carefully. It's part of our metrics. It's part of what we report to the Board regularly. And I'm happy to say a year ago, Francoise and I were talking about the KLAS scores, and I acknowledge that they sucked. They're sucking less over time. And eUnity, in particular, is absolutely market leader, doing really well. We've had minor upticks in both of our products, improvements in money's worth, likelihood to recommend partnership. And both of our products are really strong in the fair and transparent category, well above segment averages, even though segment averages have improved. eUnity is well above market average. It's staying strong. We're looking closely at what's different in our engagement with the VNA, and we've made some significant adjustments in how we engage with our customers on the VNA with an expectation that we will raise those scores to the same level as eUnity as the insights we've gotten from KLAS indicate these are very movable, less related to the product, more related to the support model and how we engage with our customers. But I will share, we brought our leadership team to KLAS. We engage with them regularly. We get detailed input from them. But we've also engaged in a much more direct solicitation of feedback from our customers as part of our support process. In the past, getting feedback from them wasn't embraced heavily. It was a little bit cumbersome, and we've changed how we engage with our customers to make it easier and easier. And so we expect that we will know way ahead of the on average 9 months it takes from when we make a business change until it flows through the KLAS scores. So KLAS runs on a rolling 12-month schedule. So they told us, expect when you make a change about 9 months later is when you see it in their scores, 12 months to be fully taken up. We've made a lot of changes in the last 9 months. We're starting to see the impact and I expect to see more positive KLAS scores coming up in the next couple of quarters.

Thanks, Teri. I'll now turn to the live chat. We've got a few questions that have come in. The first one is from Giuliano Saliterna. Can you please comment on the sales pipeline with some specifics? To date, the new contracts have been on the smaller side. Are you seeing larger potential contracts in the pipeline?

Our pipeline has gotten healthier over time. We did do a lot of cleaning up of our pipeline over the course of the last couple of quarters and the last year overall. We have a mix of large and small contracts. Now Flamingo as a strategy is meant to be modular and enable us to land and expand. So customers like eUnity Point, we expect in the future, we'll add other modules and will grow into a bigger contract over time, but it enables us to start new relationships with customers in a less traumatic, easier to install, faster to install and an entry to make those stronger relationships that we can build on going forward. So our overall pipeline, our health has improved, but the mix of size of contracts is quite broad at this point. And I expect that will continue as we get the Flamingo modules out there and sell more of those leading up to and beyond RSNA. The other point in the pipeline is we're doing much more of an emphasis on that recurring revenue model and really not focusing on capital deals that looked like really big contracts when you announced the total amount, but provide a little bit less visibility in terms of that recurring revenue base over time. So Asia and the Middle East has some sizable capital deals, but our standard within North America is for the recurring revenue models. Anything that you want to add to this, Shawni?

No, Teri, I was just going to say that your point around the contracts mixing from more capital base as it was in the past with Mach7, to more of a focus on annual recurring revenue and subscription-based contracts will change what the pipeline looks like over time.

The next question is from Sean Kennedy and he says, good results, Teri and team. With respect to the $20 million cash holding, would you consider M&A to bolster future revenue and earnings?

M&A is always one of those things we look at opportunistically and only if it's accretive. And so there's always a list of potential possible acquisitions that we keep an eye on. There's nobody that we're imminently considering. Our main focus is executing according to our strategy. But if there were something that we thought would accelerate our ability to drive growth in revenue, we certainly would consider it. On the -- on the question about sales, we are recruiting for sales. We've got a sales team right now of 11 people, but we expect to add a couple of people in the next couple of months. We're looking for people who are humble, hungry, smart and building because we, as a company, are in build mode. So we do expect that we will continue to grow the people that are out in the field, helping sell our products. There's been a lot of focus in this last quarter, last couple of quarters on the partnership strategy. But a number of those partner arrangements really increase the pipeline. So the pieces fit together.

Thanks, Teri. That second part of Sean's question also aligns with Giuliano Saliterna's next question, where I think you've partly answered. So just add any color that you want to that you feel would be helpful. Giuliano asked, can you please comment on any new hires in the sales team and what your intentions are in relation to the size of the sales team over the next 12 months?

Yes. We expect to add somewhere in the 2 to 3 more people to sales over time. We also have a little bit of a different strategy. Our culture code is spells the word climb. It starts with customers' best interest drive all of our decisions. So see for customer first, but the S is sells. Everybody sells. And so we are opening up so that we have the ability for people to do sales in areas that they have specific expertise and match people who are both selling within our current customer base and selling new customers, but making sure our incentives don't align behind people just focusing on renewals. So we've got some expansion opportunities within the team, but we've also got some opportunities within our current existing sales -- our existing staff to be able to get people doing some sales activities as well. So it's a multipronged approach as sales is very strategic for us going forward, especially with these new modules coming out.