Good morning, everyone, and welcome to Alcidion's Q3 FY 2024 Appendix 4C and Business Update, which covers the three months ending the 31st of March, 2024. You might need to be on mute, Matt. I'd like to begin by acknowledging the traditional owners of the land on which I am presenting to you today. They are the Wurundjeri people of the Kulin Nation, and the lands from which all of you are joining today as well, and I pay my respects to their elders, past and present, and I extend my respect to any Indigenous persons joining us on the call today. I'm also joined on the call today by our Chief Financial Officer, Matt Japp.
Shortly, I will take you through a presentation covering the key commercial and financial highlights of the quarter, which I would need to have up on the screen probably to... I'll just get that up. Matt, can you nod that you're seeing that all right? I've normally tested that beforehand. Yeah, so I'm gonna take you through this short presentation, and as always, we will have opportunity for questions at the end of the presentation. We'll cover some of the key commercial and financial highlights from the quarterly. And all attendees have the opportunity to ask the questions that they want at the conclusion of the presentation. If you would like to ask a question, please use the Q&A facility at the bottom of your screen, and we'll answer, aim to answer as many of those as possible.
Any questions that are similar in nature, we may combine those to avoid repetition. If we run out of time, we're, or we're unable to answer a question, or you have another question post-webinar, please send it through to investor@alcidion.com, and we'll seek to answer as soon as possible. As a reminder, the webcast is being recorded, and it will be available on Alcidion's website later today. Getting into the detail. The quarter was in line with our expectations for cash and new business, setting us up for a stronger cash position towards the end of the financial year. Building on the material contract extension we had in Q2 with South Tees, this quarter, we signed a three-year contract extension with Dartford and Gravesham NHS Trust, and they were our first customer for Miya Precision in the UK market.
It's very pleasing for us to continue to extend that relationship. The contract builds on that 5-year relationship with Dartford, and it further goes to highlight the long-term nature of our customer relationships, the importance of all customer relationships in respect of that long-term recurring revenue, and it validates our progressive modular strategy, which Dartford is a really good example of having gone in there with the initial modular set, and then continued to add to those modules over time. During the quarter, we signed a new trust with in Tameside and Glossop, which are NHS trusts, and that was for the use of observations and assessments or Patientrack, as it is sometimes known, which is the nursing-oriented modules of Miya Precision.
These modules will help to provide the clinicians at Tameside with a digital solution that will improve the real-time deployment of patient care, at the bedside, and also, as a result, subsequently, seek to improve patient safety and outcomes for patients. While it's not material from a revenue perspective in terms of announcing it as a separate deal, it really does provide, you know, further reinforcement of the importance of the modular sale in respect of how Alcidion goes to market, but it also provides us with a new trust. Also, that trust is our second trust within that particular integrated care system or ICS or region. They joined Stockport, who has been a customer of ours for many years with Patientrack.
Collectively, those two sales, among others that were made during the quarter, it added AUD 6 million of total new contracted sales during the quarter, of which we expect to recognize approximately AUD 2.9 million in this financial year, with the balance of that being recognized in future periods. We reported an operating cash outflow of AUD 1.3 million in Q3. However, approximately AUD 1 million of that is due to the one-off redundancy costs that are driven by the cost-saving initiatives that we put in place in the quarter, all of which have now been completed. And as a result of those cost savings, starting from Q4, being the current period that we're in, we expect our cost base to reduce by approximately AUD 1 million a quarter, which would be AUD 4 million on an annualized basis.
And if you combine that with all the savings we've made in the last six months, that will result in an annualized cost saving to the business of AUD 6.4 million. Importantly, we expect to be cash flow positive for both the quarter and for the whole, the second half of FY 2024. Therefore, materially improving on our cash balance, which is AUD 6.5 million as at the 31 of March. Across Australia and the UK, we're definitely seeing an increase in our larger procurement activities, and I do hope to be able to provide updates on those towards the middle of the year, of the year and through into the first half of the next financial year. Let me say, we fully understand the delays to procurement timelines have been frustrating for shareholders, as they are for us internally.
However, we've seen several larger EPR tenders, you know, collectively with, you know, TCV in excess of AUD 200 million, and we've been responding, you know, to those. They take their time, but, you know, obviously, we're not gonna win all of those tenders, but our ability to secure even a portion of that could be having a major, impact on our growth, prospects, for the business in the years ahead. So, and our improving referenceability across all of our sites, in all markets, continues to position us well for those larger opportunities. Moving on, as I mentioned earlier, you know, I'll just touch on some of those financial highlights.
I mentioned earlier, during the quarter, we won new contracted sales of around AUD 6 million, with approximately AUD 2.9 million of that expected to be recognized in this financial year. At the end of Q3, we have FY 2024 contracted revenue standing at AUD 37.4 million. Approximately 74% of that is product, direct product revenue, and the balance relates to services, most of which is related to implementation of our products. Cash receipts from customers in the quarter were AUD 10.2 million, which led to an operating cash outflow of AUD 1.3 million. As I said earlier, the cash outflow indicated approximately AUD 1 million of one-off redundancy costs, which if we exclude those, the underlying operating cash outflow was just AUD 300,000.
The company's cash balance at the end of the quarter was AUD 6.5 million, with no debt. Q4 will be the first period that we'll see the full benefit from the cost saving initiatives that we completed in Q3. They're expected to reduce our operating costs by, you know, further reduce it by about AUD 1 million a quarter. Looking forward, and on an annual basis, as I said earlier, AUD 4 million, combined with the prior savings, that's where the AUD 6.4 million overall saving on an annualized basis comes. Looking forward, we've got contracted and renewal revenue of AUD 132 million able to be recognized over the next 5 years, excluding the current financial year that we're in.
That also doesn't include further revenue from existing customers who may choose to expand their current contract or add additional modules. Many times, when you've heard me, particularly the UK contracts, they often have options to buy additional modules over time, and we haven't included that in that forward view of revenue. I won't go into too much detail on this slide, as I've previously covered a lot of this detail, and it's you can look at many of these graphs in the 4C that was released this morning. But it does show the various trends related to sales and cash receipts for the business on a quarterly basis.
Of the new sales for Q3, of that AUD 6 million, approximately 87% is related to recurring product revenue, and the balance of that will be one-off implementation and services revenue. Cash receipts to the customers were AUD 10.2 million as we head into Q4, which is historically our strongest period for cash receipts, and we'll expect that to be the case in this quarter as well. And, you know, I'll touch on that a little bit further when I talk about the outlook. As I said in my introduction, during the period, we signed that 3-year extension with Dartford and Gravesham Trust in the UK, building on an existing 5-year relationship.
They were our first Miya customer, and they bought a number of modules to start off with, but they've steadily increased those modules over time, including adding partner modules such as medication management. The contract, this contract also involves moving them to cloud deployment. They're the only Miya UK customer that's still operating in an on-premise deployment. So we're pretty excited about that and excited about the opportunity to work with Dartford and Gravesham to accelerate their rollout of Meds, move them to the cloud, and then help them to continue their digital maturity journey, ahead of when they go to market for a full EPR this year.
In order for them to secure funding from the NHS Frontline Digitisation Program to fund their next ten years after this extension, they will be required to go to market for a full EPR. We also signed a new trust in Tameside and Glossop for the use of Patientrack observations and assessments. As I said, they're a sister trust to Stockport, and this was a direct award that was purely based on the referenceability of the Stockport deployment. And it provides us with a new trust, another trust in this ICS, and so we're really excited that we can continue to see rollout of our modular solutions, particularly sophisticated ones that are well proven within the UK market, like Miya Observations and Assessments.
Looking forward, as we guided at the half year results, we expect the second half revenue to be in line with first half revenue, which was AUD 19.1 million. We currently have AUD 37.4 million of contracted revenue, so remain comfortable with that position as we've guided. Noting that even if we were to sign a material contract late in this quarter, due to revenue recognition, timing, and the ability of a customer to mobilize, we may not be able to realize the revenue in this financial year. But if that were the case, it would simply strengthen our future revenue profile as we headed into FY 2025. We expect to be cash flow positive in Q4 and for the whole second half of FY 2024.
Noting, of course, that Q4 is historically our highest period for cash receipts, we'd expect this trend to continue. And of importance to note about our confidence in that is that our debtor balance at the end of Q3 was AUD 12.9 million, and we'd expect to collect the majority of that in Q4. We have a very strong invoicing profile in Q4, albeit we won't collect everything that we invoice in Q4, but the combination of those two gives us confidence about our cash position. In addition, as I mentioned, I've already mentioned a few times on this call, it will be the first quarter where we recognize the full, a full quarter's benefit to the cost savings that we've put in place.
And so that should contribute, you know, a saving of AUD 1 million or more in respect of our quarterly costs. We continue to actively engage and progress several large bids, including EPR tenders in the UK, highlighting, you know, I think what the significant future opportunity within the business, you know, notwithstanding the delays we've seen in procurement. As I've said, at the half year, the procurement activity has picked up. It does take time, but we certainly have a lot more activity in this calendar year than we saw in last. Based on the current timelines, we'd expect in those EPR bids in particular, that the preferred vendor will be known by many of those by the end of this calendar year.
As I mentioned earlier, we don't expect to win every tender, but even a portion of that would definitely have a materially significant impact on our growth profile, particularly as we've streamlined the cost base. There are also several other opportunities we're continuing to pursue in respect of flow and virtual care. Miya Results Tracking on top of our already contracted and renewal revenue of over AUD 132 million out through the next five years.
While the UK EPR opportunities are important because of their size, I think it's very important for shareholders to know that we have many opportunities for our modular sales, and that over time, these build a very significant and steady recurring revenue base. That's really all I wanted to cover today. Thank you for your time, and I'm very happy to take questions. Matt is going to read out those questions for me so that I can think about the answers rather than reading them and answering them.
Thanks, Kate. Good morning, everybody who's joined us today. So I, I'll ask this first question. It relates to one of the bullet points from the presentation. With respect to the AUD 200 million+ TCV, can you please share some more information of the geographical split, which countries these tenders are in?
Oh, the 200+ we're talking about is really the EPR bids in the UK. That's not our total pipeline. Our total pipeline is, is in excess of that. That is just in very much the EPR bids in the UK.
There's a question here about the Tameside contract, stating that we've not previously announced this deal. What is the current material hurdle for releasing reporting contracts-releasing/reporting contracts independently?
Look, I think the guidance from ASX on acceptance of this is around 5% of. It needs to be in excess of 5% of total revenue or 10? 10. I'm sorry, I've just forgotten that at the moment. But anyway, we, we put it at around AUD 3 million. So, you know, it needs to be really in excess of AUD 3 million before ASX will consider it material in respective announcement.
There's a question here on the NHS procurement delays. What is the risk that there are more procurement delays associated with those contracts expected to be announced at the end of this calendar year?
Oh, look, it's very hard for me to say. There are, there have been delays. There are complications in some of them with, you know, several trusts in an ICS not being able to agree on solutions. But we are seeing a lot more come to market. There's a lot of activity at the moment. There has been a further GBP 3.5 billion put aside in this financial year now, so we're in a new financial year in the UK, from the current government and treasury to continue the rollout, of which the EPR program is a significant part of that. So, so I have cautious confidence that it's going to continue, but, obviously we keep a watchful eye on that.
On the same topic, Kate, are the larger EPR tenders in the pipeline, mostly longer term, i.e., around 10 years duration?
Yes.
Yeah. Okay, I'm going to bundle a couple of questions up here. This is around how many tenders have we submitted, and have we had any rejections on some of the larger contracts coming to tender this year?
Look, I think that's very important that we keep that sort of information confidential. It's very important that we keep that sort of information confidential. It is very competitive information that competitors would be interested in. And I think it's important that we contain that sort of information. You know, I can say that we do not go for every tender. We do not go for every EPR tender. So don't make an assumption if you hear that a contract is awarded, that Alcidion was actually even bidding for that.
The reason we don't go for every tender is some of them are very specifically targeted at maybe the big US vendors, or maybe there's something very specific about that trust that we know. When you are thinking about how long it takes to respond to these tenders and the intense impact it has, I know that our competitors are very similar to us. They are being quite particular about which ones that they go after.
Okay. Last question on the tenders. Is this the last batch of EPR tenders in the UK, with none left to win after this round?
No, they're still, they're still coming. Some of them haven't even come to market yet. They do a two-phase process. They do a pre-market engagement, where they find out a little bit about, about what's going on, and we're still expecting several of our opportunities to, to even come to that pre-market engagement. So, I think there's quite some time still to run. And that does not disregard our opportunities in the UK around flow, and virtual care, because these EPR tenders, not all of the providers, particularly the big US providers, don't provide that, consolidated flow view that we do. So there is a very important market for us around bed management and flow in the UK and around virtual care in the UK, that we are continuing to pursue that are, is unrelated to the EPR market.
Apologies, there's a clarification question here on the tenders. It's just around when we say preferred vendor should be known, is that the same timing as awarding contract?
No. Typically, in the UK, unlike in Australia, you will hear about who the preferred vendor is, and then they will go into contract negotiation, and the contract will be finalized sometime thereafter.
Now, moving to the other side of the world, are you seeing opportunities for new contract wins in Australia or New Zealand?
Yes, there has been a significant uptake, uptick in tender activity across all our markets.
Okay. There's a question for me here, Kate. Is there a reason why there is a build-up on the debtor balance? Is this related to procurement delays? So the reason for the build-up is, and it's not that we have a lot of aged debt, it's that we have a very active billing environment in March. So all of that has come out of the Dartford renewal, the PAS side deal, and the other renewals we have in the business, that seem to group around mid to end of Q3. So it has nothing to do with the delays in the NHS. It's just related to a very busy quarter.
And we fully expect, you know, that will turn over, that will be paid in Q4, which is why, you know, Kate and I are so confident of the cash result for the quarter and the half. Okay, will generative AI have an impact on the Alcidion business?
Look, I think we're keeping a watchful eye on it. We Alcidion will look at how we bring generative AI capability into our existing electronic noting and natural language processing capabilities. I think it's really important to note that the healthcare industry is very cautious about the use of generative AI, and AI in general, and we need to move in lockstep with our customers in respect of their confidence and their the ethical considerations around adopting generative AI. So we are very tapped in to how this is progressing. We are doing R&D around it, but we will need to keep it in line with our customers' readiness.
There's a question here on the revenue profile. I note that 87% of revenue is recurring and 13% is associated with implementation. Can you provide the total annualized cost to Alcidion spent on implementation, and what portion of this is capitalized? Are there efforts to diminish this cost, including enhancing any digital onboarding?
I don't think we capitalize any of our-
We do not capitalize any of our staff costs onto the balance sheet, so P&L represents our cash and our P&L. You know, we don't split out the costs of our implementation team, so I don't think we can disclose that here.
Yeah, to be as efficient as we possibly can, we have consolidated our product specialists, be they part of, defining new product features or implementation or support, into a single, collective, capacity, and so we don't separate individuals out into those, separate cost buckets. In respect of, you know, reducing implementation costs, I mean, we consider doing that, all the time, but you'd need to take into account that we are talking about, with a platform such as Alcidion, consolidating, you know, sometimes 15, 20 different systems into a single view of the world. And ensuring that the user testing and the configuration of that, is accurate before somebody goes live, is an important part of what is happening during that implementation process.
It's not the same as just being able to click a button on a screen and have it perform a macro for you. So there will always be a need for that. We look at partners, and we do have some arrangements where we may share the slice of implementation revenue, and therefore the costs with others. And that reduces, you know, overall headcount from our perspective.
Okay, thank you. This is the last question from the chat before I move on to the questions that were submitted for the call. It's to do with a possible change of government in the UK, and whether we have any visibility on what the new government, assuming there's new government, policy is on healthcare and digitization.
Yeah. Look, I'm making no assumptions either way. What I do take from what I am hearing about the opposition health spokesperson in the UK is a real commitment to digitalization. Digitization is the right word, I think, of the healthcare sector. He has spent a lot of time looking at systems like the healthcare system in Singapore and around the world, and he's talked often about the needs for digitization as the only way in which the efficiencies that are needed in the NHS will be gained. So, yeah, I'm pretty heartened that whatever government wins, they do have a commitment to further investment in digital.
Okay, thank you. So I'll, I'll move on to the questions we received for the call. Is Alcidion at risk of takeover as larger companies, including those not traditionally working in the health sector, accelerate their AI-powered product development?
Well, look, I mean, to be fair, we're focused on our own business, and obviously we keep an eye on what the competitors are doing, and we're definitely aware of what's going on in AI in this space. But we're very focused on our own business and the areas that we can control. We firmly believe we've got a leading technology platform that enables our customers to improve the quality of efficiency of healthcare. We currently use AI and have been and have done so for some time. I'm very confident that Alcidion is well-placed to enable our customers to actively engage with AI in a safe and ethical manner when it is ready for healthcare to do that.
Thank you, Kate. Excuse me. Notes from a recent interview with Kate said that ALC had a ready-to-go platform, additional modules, and a fully developed PAS when compared to Nervecentre. Is this correct? And is Miya Results Tracking also being added to the modules included in EPR bids?
Yes, we have it ready to go and proven PAS, which we have enhanced and incorporated into the Miya architecture. Yes, future bids would include Miya Results Tracking, but it's worth noting that Miya Results Tracking can also be sold with Flow or standalone as a module on its own.
Thanks, Kate. How confident are we that we're going to land an EPR contract that utilizes capability acquired from Silverlink?
Well, Silverlink forms a very important part of our EPR strategy, so without it, we don't have a full EPR offering, which is why we acquired it, and that and its market presence. There are a number of tenders in flight at the moment, and we're presenting a compelling proposition in those that's differentiated to our competitors. As I said earlier, we don't disclose which tenders we respond to, but do not assume that we respond to all of them. We carefully analyze each opportunity and whether it fits our position. You know, some tenders are clearly aimed at large US EPR providers, and those that do not align with our proposition make no sense for us to go after them.
Okay, thank you. Now, I'm gonna wrap another question into this one, which is related, but the question is: Is Altera Digital Health a competitor to Alcidion? They won an EPR contract via Insight Direct, and why can we not win one? And there's another question just more about, can we elaborate more on who our competitors are in the UK?
Yeah, Altera is interesting. So yes, they are a competitor in an EPR bid, but we also can demonstrate many places where we sit on top of Altera as an EPR and add value to it, so we've done that over many years, both in the UK and here. We had won an EPR contract, which was South Tees. The extension of South Tees was a 10-year EPR contract. As I said, we don't respond to all tenders. We don't disclose the ones which we've bid for, as that's confidential and important to our sales strategy. Also, I think it's important to note these tenders are really large. They take a long time to go through procurement, and as there's been delays, they're not awarded every day or even every month.
So, you know, I guess all I can say is we are involved in some tenders. There are still more coming that we will need to respond to. They take a long time to go through the procurement process. Some of them, you know, get stalled along the way because the trusts are challenging and making collective decision-making. And, you know, we will continue to keep the market updated when and if information becomes available that is disclosable.
Thanks, Kate. The final question we have for the webinar: Do you have future plans to access capital or any plans to go into debt?
Look, Alcidion has a very strong cash position, which will be stronger when we come to the year end. We've made adjustments to the cost base, in order to preserve that, and as a result, we have no plans to access additional capital or to go into debt.
Okay. That's all for the questions.
All right. Well, thank you very much, Matt. Thank you to everybody for your interest today. We've had a large number of people register for the webinar, and I always appreciate you giving the time to directly hear an update and to provide us with such great questions. I look forward to keeping you, as shareholders, updated as we progress through the rest of this calendar year, and I thank you, as always, for your support of Alcidion.