Good morning, everyone. Welcome to the Mach7 Fourth Quarter Business Update. My name is Rebecca Thompson, and I look after the investor relations for Mach7. Today, our CEO, Mike Lampron, will give an overview of the quarter highlights, after which he'll be joined by CFO Dyan O'Herne for Q&A. With regard to the Q&A, if any attendees have a question, please submit it via the Q&A text box at the bottom of the screen. Alternatively, you can email me on rebecca.thompson@mach7t.com. I'll now hand over to Mike for the Q4 update.
Thank you, Rebecca, and hello, everyone. Welcome to our Fourth Quarter FY2023 Business Update. Reminder that our fiscal year results will be coming out at a later date. Today, we do have some financial highlights that we want to give you for Q4, and although it's difficult to separate the performance of Q4 with the full fiscal year, we do not have audited financials prepared at this time for FY2023, so we will try and refrain from speculating on the results of FY2023. Let's talk through some highlights for the quarter for us. Q4 FY2023 sales orders totaled AUD 3.2 million, bringing our FY2023 sales orders to AUD 40.3 million. That's up 21% over what was a record high fiscal year 2022, and it did exceed our FY2023 targets.
All in all, an incredible year for us from a sales order perspective. Cash receipts on hand on Friday, June 30th, were AUD 23.4 million. We did have AUD 2.5 million in electronic payment advice, but that was not on hand until the July 3rd. That would have given us a AUD 25.9 million cash. We just missed that Q4 deadline with that deposit, leaving us at the end of the fiscal at AUD 23.4 million. You will notice in this release, our ARR and CARR are largely unchanged in Q4. These numbers did not include the Veterans Affairs or DIA deals that came in Q1, where you would have seen those announcements. A little on the sales orders, I guess, to start with.
You know, we, we did have a total of AUD 40.3. Again, a really solid performance from the sales organization for us. Part of this was through partnership sales, which accounted for 35% of the total sales orders. That's up strongly on the 11% achieved in prior quarter. As, as I've said previously, we do believe that we'll continue to see greater contribution to our sales and revenue numbers coming from partners as we look out over the next few fiscal years. Our sales in Q4 were driven by our current customer base. We already had commercial relationships with them. We are seeing volumes increasing across the install base, with the expansion representing 41% of the Q4 sales orders. Just as a, as a reminder on our licensing, our standard licensing is volume-based.
Our customers buy a license for the total they believe they will achieve, and if they go over that license volume by more than 5%, they're required to buy a license that is equal to 15% of the total license volume. As an example, if a customer bought a license for 100,000 studies, their actual volume was 105, a little over 105, then they'd need to expand their license volume to 115,000, just to give you an example. Our pipeline continues to be strong and, and replenished, even with another record year of sales growth. Again, this is two years in a row, that's actually, actually three years in a row of record sales growth. Our pipeline continues to grow very, very strongly.
As we look at expectations for FY2024, we feel really confident. We have well over 3x coverage in our funnel for FY2024. From a recurring revenue perspective and annual recurring revenue, we'll talk about first. Mach7 is currently generating AUD 17 million of ARR. The run rate there is calculated by annualizing the revenue earned from support maintenance fees plus subscription fees. We did see a decrease that is within range of our estimates due to attrition and contract revision upon renewal. Not every hospital and every imaging center is winning right now, so occasionally we'll see customers who, when they renew, they'll renew for a slightly less volume than they had five years ago. That doesn't happen often, but it, but it can, and, and it does happen occasionally.
From a contracted annual recurring revenue, and I know this can be confusing to everyone, that is around AUD 20.6, and that consists of the AUD 17 million of ARR for customers that have already achieved what we call First Productive Use. You'll see the term FPU all of the time, First Productive Use . When a customer reaches First Productive Use , that is when we'd start to recognize subscription revenue, and it's also when we start to begin to recognize annual support maintenance. The AUD 17 million of ARR, plus the AUD 3.6 million of subscription support fees, not yet recognized as revenue because FPU is still pending. That's how we generate the CARR. By the way, in this, in this release, you'll also notice that, you know, our CARR and ARR hasn't changed much.
Our CARR will go up, because this does not include, the Veterans Health Administration or DIA contracts that were announced in, in July of 2023. From a cash flow perspective, cash receipts from customers in Q4 amounted to AUD 10.5 million, up on the AUD 9.7 million collected in the previous corresponding period. An additional AUD 2.5 million electronic funds transfer remitted by a customer on June 30 was not reflected in the Mach7 bank account until the July 3rd. Thus, the lower number for our Q4 numbers. The business day, consequently-... On a full year basis, as of June 30, cash receipts were AUD 25 million, down on the AUD 28.2 million in FY2022, which FY2022 also benefited some, from some additional capital contracts and some payment milestones.
We did see a larger percentage of subscription deals in FY2023 than we did in previous years. While there was a AUD 3.9 million net operating cash inflow in the fourth quarter, the above-mentioned AUD 2.5 million receipt delay contributed negative operating cash flow for FY2023. This is the first time in three fiscal years that we have not been cash flow positive, we do have an excellent start to the new fiscal year. We will fully intend on being cash flow positive in the upcoming fiscal year. With that being said, we take a kind of a forward-looking outlook as we look into FY2024. We expect to continue to see good sales growth, you know, within or in addition to 20% sales growth as we've shown this past year.
As I've said in the past, in my mind, this is the most important metric that we measure ourselves against. As our sales grow, so does the footprint of our software, helping clinicians around the world. That growth and our proliferation of our software leads to customer evangelism, and through our customer base, they become our best resources towards continued positive financial growth as a business. Another mention in the fourth quarter business update were a couple of promotions I'd like to highlight today. First, I'd like to congratulate Dyan O'Herne for her confirmation as our CFO.
Dyan has been an a very important member of the leadership team, and her depth of knowledge of our contracts, our customers, our cash flow, our overall business, in what is a reasonably complex business, are a huge asset to the company. Dyan is based in our Vermont office, just down the hall from me, and it's a pleasure to have a chance to work with her every day, and I'm really happy to have our CFO in the office. Another important promotion was Dave McDuffie, who you will recognize is and has been our Vice President of Sales. He was also appointed as a COO.
I think the important thing there is when I took this role as a CEO in 2019, we, we chose not to backfill my role as a COO at the time. We were a much smaller company. It was a great way of reallocating resources, and, subsequent to that and, and, and all of our success, acquisition, growing customer base, growing employee base, growing complexity in our business, it was, it was just time to make this addition. Dave comes to this role with a, with a single goal in mind, actually, which is the cohesion of our growing company across departments and ensuring that we have appropriate policies and procedures in place for the most efficient growth possible at Mach7.
Really giving me an extra set of hands and an extra set of eyes on the operations of the business to make sure that we remain lean, and we remain strong, and we remain a, a, a single vision within the company. I think with, with that, Rebecca, I can hand it back over to you and maybe take some questions.
Thanks, Mike. Yeah, we've got a few questions that have come in just now. The first set of questions are from Peter Cooper, from Teaminvest. First one is: Can you please explain how the new Veterans Affairs contract will be managed by the three companies involved?
Sure. Not the, not the simplest answer in the world. Actually, there are multiple companies that are involved with this kind of best-of-breed approach. Frontier will be the prime vendor, and they'll handle contracts, logistics, things like that for the group. Ready Computer Systems will handle all the IT and infrastructure. Microsoft Azure will be handling all cloud-related requirements. Nuance, which happens to be owned by Microsoft, but run somewhat independently, will be providing workflow, orchestration, and reporting. Another important piece here, Blackford AI, will be providing AI modules that the VA has found helpful in their workflow. For us, for Mach7, we'll be providing the VNA and diagnostic viewer, and with our platform, we can integrate these third-party systems.
In this case, we'll be managing the integration of Nuance and Blackford AI through our, through our solution. You know, each company will have deployment resources assigned. We'll manage through it. It'll be a matrix management system for the program. It's definitely not gonna be the easiest project we've ever worked on, but it certainly is going to be rewarding, and, and these are integrations that we've, we've already worked through. Nuance and Blackford, we have had customers using their p- their platforms in the past as well. We're in, we're in a good spot to work through any issues that they might have.
Okay. Thank you. Then in that same arena, can you please outline how Mach7 will be able to increase its participation over time in that Veterans Affairs contract?
Yeah, I can certainly highlight what we hope happens. Look, there's multiple routes for this could go, one of which is just volume-based, as more business come on board with the NTP solution or, and as the NTP team grows. That's one way. The other solution, the more lucrative, would be if business choose to purchase the NTP solution as a PACS replacement for their individual business. As their contracts expire with their existing vendors, they can choose to move forward with the NTP technology stack as their primary PACS. One advantage to the business, if they do that, is that they don't have to go through a lengthy procurement process, and it's the contract allows for that kind of growth, so that streamlined administration and government projects is kind of key. That's probably where we'll, where we'll hopefully see the most growth in the VA contract.
Okay, thank you. Look, I might just jump from Peter's question to another on the same topic from Michael Hollingworth. In the VA contract, does phase II commence after the three-year term of phase I, or can the necessary milestones to initiate phase II be achieved within the three-year phase I period?
Yeah, they certainly can be achieved. look, the, the first, the first year, I would say, is really dedicated to the deployment of the NTP solution. After the first year, and once the NTP clients begin to use the solution at any point in time, in parallel to the execution of phase I, phase II could start. There's no, there's no, there's no specific milestone that needs to be met in order for that to be achieved. It's more like we have to be really successful with the NTP, and as they start to see that success, they'll have more confidence in making a solution to move more forward with phase II. Most certainly, that could happen in parallel.
Okay, what is your expectation for phase II?
Look, we're concentrating on phase I right now. Our expectation is that we're going to be very successful with phase I and with the NTP solution. I truly believe that, you know, we've got a lot of strong relationships across VISN. Our partners have a lot of strong partnerships throughout the VISNs. I see that the real opportunity here for us of winning some of that phase II business for sure. I also see these partnerships that we're developing right now going into other government-related businesses, which could lead to Department of Defense or Indian Affairs or other government agencies where we really could take advantage of this, the same technology stack with the vendors that we're partnering with.
It's not just about phase II for us, but certainly that's the one that we're contracted for, but there's other growth opportunities here beyond just phase II. Right now, it's to execute against what we need to do to be successful.
Okay, thank you. The next question from Peter is: Is the out-of-hospital diagnostic imaging services market still growing?
Yeah. Growing, growing, definitely. You know, the analysts, and we use a company called Signify, where we get a lot of our analytics from, but the analysts that measure and watch this market feel the outpatient or, what I call you'll oftentimes hear me call the ambulatory market for imaging, is outpacing the acute care or the hospital market. There's a number of reasons, and that's a particular thing in the U.S. at least. You know, one primary is, there's a lack of radiologists in the acute care space. So, they have to, from a resource perspective. The second, and some would argue maybe more important point is that insurance providers in the U.S. prefer the outpatient market because it's less expensive to them.
Sometimes insurers can, can drive direction in a market, whether we want it to or not. Certainly, certainly the that ambulatory market space is growing, and I believe the, the expectation that I saw was that the ambulatory market within the next couple of years would represent 60% of the market for, for diagnostic reading, where the acute care space will go to 40%. That's an exact flip of where it is today.
Okay, thank you. His next question is about the cash flow goals for Q4 and FY 2023, which you've discussed this morning, so I think we can skip to, has Mach7 now concluded its staff hire needs for the foreseeable future?
An interesting question. look, we, we are always evaluating our business. as our customer base grows, you know, and we have, we have complexity with some of these bigger clients, like the Veterans Affairs, Trinity, Adventist, you know, our needs may shift. So we're, we're evaluating FY2024 needs now, but what I can say is that our, our customers and the customer experience is very, very, very important to us. We want to lead the industry in customer experience above all else.
We will staff up for service and support as we have to, to make sure that we can ensure we're giving the, the customers the right experience, and whether that's applications, trainers, project managers, implementation engineers, support engineers, whatever, whatever the need may arise, we're constantly evaluating that, and we'll make changes in the business as we have to, to make sure we're successful there. So, you know, I think, I think that's the best answer I can give you right now.
Okay, thank you. We have two questions from Stella Wang, a shareholder of Mach7. One is in that same vein: Having signed Akumin and Veterans Affairs, two largest contracts in the company history by TCV, does the company have sufficient capacity for implementation and the following maintenance and support, particularly if the V.A. contract proceeds to phase II?
Look, I think, you know, a lot of the same answers as I, as I just gave there for that. The one thing I will add is that, you know, we have to make hiring decisions a little early, earlier than what our needs truly are, because we do have a ramp-up time for employees and, you know, and, and it does take a while to get implementation engineer or a support engineer up to speed. With that ramp-up time, you know, again, we're, we're, we're analyzing this on a recurring basis constantly, and we're going through that process right now, and we'll always stay a little bit ahead of the curve to ensure that we have time to train our team prior to them really being needed.
Okay, thank you. Another one from Stella: Getting class ranking for the first time boosted the pipeline for Mach7 a couple of years ago. This year, Visage, Pro Medicus's product, got ranked for the first time in the viewer category. Has that changed the company's competitive environment in terms of pipeline?
... Not in terms of pipeline, no. I mean, we've, we've stayed consistently number two on the viewer. It's an interesting, it's an interesting category for KLAS, and actually, we've been, we've been speaking to KLAS quite a bit about this because, as we all know, there's pretty drastic differences between the two companies' products, and yet we're being ranked, you know, as if we're competing with one another, and we're, we're really not. So I think that, you know, we're, we're being consistently number two. We look to continue to have good performance with KLAS. We look at KLAS like it's a voice of the customer, and as buyers look to KLAS for recommendations, we're, we're well ranked, and we'd be well ranked if we were one, two, or three.
You know, I don't think it matters specifically where you rank there, but, but what will what will matter is, you know, when, when we get that call from a client and, and what we, what we do and how we respond to that call or that email from the buyer, that first touch will matter. That's, I guess, really where we're concentrating on. I think our rankings in KLAS are good enough to get our foot in the door for some who are using it as a buying guide, and then it's all on us.
Okay, thank you. I have another question here, around Pro Medicus', and this is from Mark Devic. Did Mach7 tender for the recent contract that Visage has won? I understand that there are a couple there. There was one with U.S. Department of Veterans Affairs and also, one with Memorial Sloan Kettering Cancer Center. Wondering if-
Yeah, no.
You tended for either.
We did not.
Okay. Now I have another question from Shuo Yang. Can you comment on the average TCV size of opportunities in the pipeline and how this has changed in the past 12 months?
Well, I guess the one thing I can say is we're, we're getting more of the multi-product deals in our pipeline, whereas historically, if you, if, if you look at our company prior to Client Outlook, we really had one product that we were selling. Now, you know, we've got, we've got two products that we're selling. We started to get more traction with that really in 2021 rather than 2020, calendar year 2021. You know, yeah, our pipeline has changed. It's gotten, gotten bigger as we sell more deals with, with multiple products in the RFPs or in our responses in our bids. It's going up for sure.
You know, again, I always look at the, the pipeline, is that, you know, up, up to, you know, AUD 1 million is a small contract. You know, from, like, one to, one to two and a half-ish, one to, I'd say two and a half -ish is, like, a medium-sized contract, and two and a half plus to us is a, is we consider that to be a larger contract. Yeah, you know, we're getting, we're getting a, a, a higher concentration of larger contracts, but at the same time, bread and butter is not always the large contracts, and, you know, we, we wanna be able to be effective in, in all of those markets.
Okay. Another one from Shuo: What is the sales pipeline coverage of your expected FY2024 sales order forecast?
Yeah, it's a little over... It's a little over 3x . I think I mentioned that earlier. A little over 3x coverage of, of where we would expect to be for FY2024.
Okay. Look, there's another question here about the headcount, headcount today versus 12 months prior, and how many more heads are you expecting to add in the next 12 months?
you know, I don't really know our headcount.
I can answer the headcount, Mike, if you want.
Go ahead, Dyan.
As of July of 2022, we were at 87, and as of July this year, we're at 97.
In regards to where are we going to go in FY2024, I mean, we're in the middle of planning that out now. As a matter of fact, we have a leadership meeting coming up this week, we'll be sorting out that concept over the next couple of weeks.
Okay. We have a question here from Claude Walker. At the Q3 results, Mach7 said that it expects to remain operating cash flow positive for FY2023, that Mach7 would have known this expectation would not be met for almost a month now. Why not mention this miss in any of the earlier announcements in July? Look, I can start with a response there, that we do have a cash flow reporting date, which is set and is the forum to report on cash flows, and it's within a month from period end. Mike, would you like to add to that?
Well, just in regards to knowing if we're going to hit it or not, actually, we, we didn't know we wouldn't hit it. We actually fully expected to hit it, and, you know, and had we received everything that we expected to receive in our outstanding ARR balance, we would have hit that number. I wouldn't say that we, we knew we weren't going to. I would say it's unfortunate that we didn't because we very well could have.
Okay. Another question from Stella Wang: Would you like to update on the Middle East and Asia market prospects? While U.S. revenue continued to grow, would those markets grow to a larger % of the company's revenue base?
I, I, I'm not sure that they'll grow it to a higher level. I mean, meaning, you know, we, you know, whether they're gonna go to 30% or 40% of our total contribution for our overall revenue, I don't, I don't know about that. What I can say is that, you know, the Middle East team out of APAC has got a number of deals, and they've got a much stronger funnel today than they've ever had. It takes time to work through that, and I feel like there's been a little bit of a resurgence. They were certainly the last to come out of sort of the COVID slumber, you know, especially considering Hong Kong.
Hospital Authority of Hong Kong is one of our, one of our key anchor sites in the, in the region, and, you know, Hong Kong was hit pretty, pretty hard with, with COVID and had a lot of restrictions for a long time. We're starting to come out of that. We're starting to work through deals with the, with the Hospital Authority. We have a number of deals in the Middle East and, and throughout Singapore as well. Funnel's growing and, and we, you know, certainly are looking to have a higher degree of contribution this coming year than we did last year.
Okay. Then a question from Indika Rajakaruna on the FY2024 guidance of 20% growth for sales orders, does it include any renewals?
Yes, it does include renewals. Yes.
Okay. Then, I have a question here from Iain Wilkie from Morgans. Any change to recent commentary on ARR covering OpEx space within two to three years, particularly following the recent contract wins?
Yeah, look, you know, it's been my, my stated goal to have our ARR covering our OpEx over the course of the next couple of years, and we are progressively getting closer to that, to that, to that milestone. You know, some of these larger contracts, you know, will have some expenses associated to them, but it doesn't affect the ability for us to get to that coverage in the same amount of time. Even, even though there's some investment required for these larger contracts, they certainly are very, very helpful in getting us ever closer to recurring revenue covering our OpEx. I would stick to our estimates that we've said in the past of, I think that we're, you know, we're probably two to three years out.
Okay.
Probably closer to two than three at the moment.
Okay. Another question from Mark Devic. What do you anticipate the recurring subscription mix of sales to be in FY2024?
Good question. You know, we've, we've had pretty much a 50/50 mix over the years of capital licenses and subscription licenses, and, you know, it's, it's ebbing closer to 60/40 at the moment. It doesn't move fast. I think as we look at FY2024, we're probably looking at a 60/40 split subscription to capital. I mean, I suppose it could be a 65, you know, but, but I would say just 60/40 is probably the safest bet.
Okay. another question on the Veterans Affairs contract from Don Roberts. Regarding the VA contract, does the phase I, AUD 11.7 million account for 100% of the Mach7 business, or only a smaller or lesser percentage?
I believe that's for the full value of, of phase I.
Yeah. I, I, I think so too. I would be keen to know more about exclusivity in the seven VISNs for VNA and universal viewer PACS reporting. Does Mach7 have the whole contract or only part?
As regards to NTP, we have the whole contract. Maybe to, to better understand this, NTP is a program that's almost think about it like a third-party company that the VA has, where NTP provides teleradiology services for the VA. It's part of the VA, but they provide this teleradiology service for the VA, so like, almost like a third party, right?
We're providing the technology for NTP to run the teleradiology program across the VA. Any, any VISN in the VA that participates with NTP and uses NTP for teleradiology, right, that will add to our revenue, right? That's the way that works. I would say that, you know, from an NTP perspective, yes, we have exclusivity, but from a PACS perspective, we don't. Any VISN does have the capability of making whatever decision they'd like in regards to what they use for a PACS solution, just as they do today.
Okay, and then I've just got a final question here from Jonathan Wilson. Can you explain the difference between Visage and eUnity, and why they perhaps don't belong in the same class category?
Sure. I'll do my, I'll do my best to explain that in a way people can understand it. The Visage product was built primarily for radiologists. It was primarily built as a very fast solution for radiologists who are sitting at the same workstation all day long to be able to read their studies. They concentrated on advanced visualization, they concentrated on the radiology cockpit, they concentrated on workflow for radiologists and supplying images to the radiologists. Again, the technology there is them sitting at the same workstation, so things like zero footprint were never important. You could install a client on the workstation, it didn't matter. You could have a large cache on site because the radiologists were reading from the same location all of the time. That's what made it such a fast solution. So Visage is really a radiology-driven solution.
The eUnity viewer was built to integrate to EMRs. It was built to be a zero-footprint viewer for radiologists and clinicians, but think of it as outside of the walls of the radiology department, right? Is really where eUnity was built from. If you're a radiologist working from home and you're using the eUnity viewer, you don't have any software you need to install on your, on your laptop, or if you are on your iPad, right? You just need to have an HTML5 viewer. That's all you need. It was a lightweight, zero-footprint viewer that had all the tools you needed for diagnostic radiology, but it didn't have all the bells and whistles that a solution like Visage would, would, would have. They're primarily developed really for two different use cases at their core.
Now you're starting to see Visage, you know, start to get more involved in enterprise imaging. You're starting to see Mach7 and eUnity get more involved in radiology. We're starting to intertwine a little bit, but the products were really designed differently, and that's why we've never competed in the past.
Okay. Well, look, thank you, Mike. I think that wraps it up from the questions that have been posed by our shareholders, so I'll hand back to you to close the meeting.
Well, first of all, thank you for all the questions. There was a lot of questions this time around. I appreciate it. It means people are interested, and I'm glad that we could do this, and I hope that we're able to answer your questions effectively. Thank you all for taking the time to listen to us today, and I hope everyone has a great start to your week.