Good morning to those of you joining from Australasia. Good afternoon to those of you joining from North America. Welcome to the Mach7 second quarter business update. My name is Rebecca Thompson. I look after Mach7's investor relations. Today, Mach7 CEO, Mike Lampron, will give an overview of the second quarter highlights and results, 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 your screen. Alternatively, you can email me your questions on rebecca.thompson@mach7t.com. I'll now hand over to Mike for the Q2 update.
Hello, thank you, Rebecca, for that introduction, and welcome to everyone to our second quarter update. Second quarter was a very strong quarter for Mach7. We had record quarterly sales orders of $22.4 million of total contract value. That's up significantly from Q2 FY 2022. We had a great quarter for record revenue as well of $18.1 million in the first half of the year, up 27%, and positive EBITDA. Maybe more importantly for us, our Contracted Annual Recurring Revenue is now at $20 million. That's up from $17.9 million as of the 30th of September.
Again, the definition of Contracted Annual Recurring Revenue is our Annual Recurring Revenue, and in addition to that, any recurring revenue that we will be able to recognize into the future, mostly created from support and maintenance agreements where our customers have not gone live yet, or a subscription license where a customer has not gone live yet, which we call First Productive Use. We had Annual Recurring Revenue run rate of $16.4 million. That's up from $15.5 million on September 30. We've increased exposure to some high growth radiology outpatient market segments with the new addition of Nuvodia and Akumin. We'll go into details on those two deals in just a moment. We have cash on hand of $20.6 million. First we'll cover off on sales orders.
Sales orders for the second quarter were a record, and that was up strongly from Q2 of FY 2022. This was really anchored by our Akumin agreement that we signed at the end of December. That really was the cornerstone of a very strong quarter for us. That contract is a longer term contract that was a 10-year agreement, although it did only include the professional services for the first couple of stages, mostly built around data migration and initial training efforts. With more professional services to come and additional order forms to come around those services as the project moves forward. Beyond Akumin, we had a couple other sort of pivotal deals for us in Q2.
The first of which was St. Paul's Hospital in Hong Kong. Important to us because St. Paul's, you know, is the second private hospital to choose Mach7, since we've signed our larger agreement with the Hospital Authority of Hong Kong, showing good growth for us in the Hong Kong market. We expect to be able to add additional private hospitals in the area, and Hong Kong's turning out to be a very great region for us to be doing business. In addition to St. Paul's, the Nuvodia agreement is a reseller. They will be reselling the full suite of Mach7 product and in that they're a technology company, so they actually include IT services, radiology-specific services.
For if you're an outpatient market or what we call the ambulatory market, and you don't have your own IT staff, Nuvodia will come in, and they'll essentially offer a managed service to include the imaging software that you would need to run your practice. That can really benefit our existing outpatient customers, and it could potentially impact other customers in the hospital market if they're really looking for a managed service offering where Mach7 doesn't offer hardware. That we're looking forward to a strong partnership with Nuvodia. They're known to us. They're a known entity to us and a great business on the West Coast. Of our total sales orders, $12.7 million or around 57%, was ARR and support maintenance and subscription fees.
AUD 8.8 million was our capital software sales, AUD 1 million was professional service sales, just to give you a flavor for the breakdown of what those sales orders consisted of. When we look, we change and we look a little bit at our recurring revenue growth and we look at ARR, Mach7 is currently generating around AUD 16.4 million of ARR. That's calculated by annualizing year-to-date monthly average of revenue earned from support maintenance fees and subscription fees. The run rate has increased 5.8% since the 30th of September and will continue to grow as existing and new customers achieve First Productive Use. On the other side of our recurring revenue, where we have Contracted Annual Recurring Revenue, that's contributed a further AUD 2.1 million.
That base is now sits at $20 million, and the CAR consists of $16.4 million of ARR run rate, plus again the additional $3.6 million of subscription support maintenance fees not yet recognized as revenue, because First Productive Use is still pending. When we look at our cash flow, cash receipts for Q2 were $6.4 million, down about $2.2 million when we look at the previous corresponding period, which is just a case of timing and receivables. That, the previous period, benefited from Trinity and Advocate Aurora sales orders.
We had a soft Q1 from a sales orders perspective and we have had a bit of an adverse foreign exchange movements and some higher marketing costs associated with our RSNA conference, which is in November. That always comes into our Q2. Typically speaking, the second quarter of the year is one of our most expensive quarters of the year. If we take a look at our outlook, we feel like we're in a great position after the first half of the year, approximately 70% towards our goals. Mach7 remains confident in our sales order forecast of at least $36 million. That represents a 20% increase of what our FY 2022 target was of $30 million.
The desire for us to, and for our customers to scale their businesses, implement cutting-edge technology, and really be able to more rapidly deploy their imaging systems in the healthcare sector is creating strong demand for our products. The trend toward remote reading services, together with that requirement for interoperability across the healthcare platforms, is seeing Mach7 gain new customers and market share. Just to spend a second on remote reading services and some statistics around that, Signify Research recently came out with new research indicating that at today's date, around 60% of images are read through the acute care market, the hospital space, and 40% read through remote reading services.
The expectation over the next 3 to 4 years is that that's going to change, and it will actually be 60% in the outpatient market and 40% in the acute care market. Again, showing some rapid growth in that outpatient market for a variety of reasons, whether it's because patients are more comfortable going to an outpatient center where they won't be around as many sick people, or whether it's just ease of access versus going to a larger hospital setting. To the fact that our radiologists can increasingly do their job just as well remotely, not having to be inside the walls of the hospital and offering that kind of flexibility.
Also adding in the fact that, you know, there is a bit of a crunch for resources for radiologists. You know, you can be more effective if you're reading across multiple facilities from the same chair. All those things are sort of leading up to an industry change towards the outpatient market, and Mach7 is well suited for that market with our zero footprint viewer in our interoperability offerings through our platform. We expect to see 20% revenue growth in FY 2023, that's really underpinned by a really healthy pipeline and recognition of revenue coming in from Trinity and Adventist sales orders.
Those Trinity Health and Adventist Health sales orders, we have about approximately 80%-85% of the total contract value associated with those contracts that is yet to be recognized as revenue. We know we have much more revenue coming in from those contracts. I'll speak just for a moment on the Akumin deal. That was our largest deal that we've signed to date. It was a 10-year deal, and it was for the entire suite of our products, our viewer, our VNA and our workflow tools and our Universal Worklist. And that will be deployed in stages.
First migrating data from existing systems into the VNA, which we will then be able to consolidate all the images across multiple PACS solutions that they have deployed across from a business that Akumin recently purchased. Akumin recently purchased a company called Alliance Imaging. Alliance Imaging is a large outpatient outpatient space, they have multiple PACS solutions. The real benefit here is through the VNA of the consolidation of that data and then being able to serve that data back out to clinicians in a more meaningful way. They can also take advantage of our zero footprint viewer by having mostly remote workforce and in their own teleradiology practice. We look forward to implementing Akumin.
With that, I think, Beck, I'll hand this back over to you, and I can answer any questions that folks have, along with Dyan O'Herne, who is our CFO and is joining us on today's call.
Thanks, Mike. The first question I have here is from Peter Cooper, and he's asked, "Based on the release today, the Akumin contract would appear to be much larger than first thought. How many tender decisions are you expecting in the second half of FY 2023?
Yeah, the Akumin deal definitely was a great deal for us, and actually it was a very, a very fast deal, and we didn't actually end up in an RFP process, a tender process for that deal. It was definitely a really, really nice win for us. In regards to, you know, what other similar-sized deals do we have coming through in the second half of the year, I mean, look, that was definitely a whale for us. I wouldn't say that we have other similarly sized, you know, coming in in the second half of the year. What I can say is that we have a number of opportunities that...
We consider any deal to be over $1 million of value to be a sort of $1 million-$3 million is about like a mid-range deal. Anything over $3 million would be a larger deal. Really the bulk of our pipeline falls in that mid-range. We have probably a dozen or more of larger scale deals that we're working on, and then the bulk of our orders we would expect to come in in that mid-range deal, some from existing customers and some from net new customers.
Thanks, Mike. I have another question here from Stella Wang. It's actually a multi-part question, so I'm going to ask it in stages, if that's okay. With the Nuvodia partnership, they are part of Inland Imaging with their own radiologists. Is that group of outpatient practices the first end users signed under this partnership?
Actually, although they are part of Inland Imaging, they are a separate business. No, those licenses that they have bought from us will, to my knowledge, not be used at Inland Imaging, and they'll be used for other Nuvodia clients. I believe Nuvodia has over 100 clients, where they have implemented and they manage PACS solutions. Primarily, they've been a reseller of the Philips PACS solution over the past several years. No relation with our agreement to Inland Imaging.
Okay. What is the full potential of this partnership in terms of the TCV if current IT service customers fully convert to M7T?
Yeah, very difficult, very difficult to know exactly. You know, we're a little cautious with partners because, you know, partnerships always sound great in the beginning, and you never really know exactly how they're going to evolve. You don't have quite as much control as you do with your own organic sales. How many of Nuvodia's clients are going to transition to our software, and how quickly are they going to transition to our software, and how well will their sales organization work to bring in net new logos to their business? It's, it's uncertain for us. There is a lot of upside. Nuvodia manages a lot of imaging across a lot of customers.
But we're just gonna have to, you know, take it, take it one day at a time, sort of, and one contract at a time. They, they signed up for a sizable amount of subscription licenses right now, and, we plan to work with them to get them live with those licenses as quickly as we can, and then we'll worry about the next chunk.
Okay. Thanks, Mike. I think that you've answered the final part of that question with what's challenging in achieving that. I think, we'll see that that one is answered. Another question here from Stella. Previously, it's mentioned Asia is expected to contribute more sales to FY 2023 than previous years. With the recent reopening of China and the current COVID wave, is that expectation positively or negatively impacted?
I wouldn't say it has either positive or negative impact. Look, when we, you know, primary drivers for us with the APAC team are activities that are occurring in the Hong Kong area, in Singapore area, and in the Middle East. We're making a concerted effort with the Middle East right now. And as a matter of fact, I'm on my way to Arab Health today for a big conference at Arab Health in Dubai next week. I wouldn't say that they have a major shift in any of our strategies moving forward.
I would just say that, you know, we certainly have seen the area start to open up more, from a doing business perspective. We've got an enhanced team over there now. We have a nice pipeline growing from that and some near-term deals and some longer-term deals that we're working on, where they can contribute a higher percentage than maybe they have in the last couple of years during COVID.
Okay. Thanks, Mike. I have a question here from journalist Claude Walker, asking if we can provide some more color on the recent departure of former CFO, Steve Parkes.
Sure. Look, you know, I can't really say a lot more than we have announced, what I can add to what we've said is that this was a very mutual agreement. We had a good transition period with Steve and Dyan. I'd add that Dyan has been with this business for over seven years now, Dyan knows this business inside and out. It really made that transition all the much easier for us. I don't feel like we've actually missed a beat with this transition. You know, we're all sorry to see Steve go, we all wish Steve the best in his future endeavors.
From a business perspective, Mach7 is in good hands with Dyan managing the finance organization.
Thanks, Mike. Well, that might be a good segue for me to pose this next question to Dyan. Dyan, one of our attendees has asked, can you provide some color around the variance between recognized revenues of AUD 18.1 million versus the cash receipts of AUD 9 million for the half? I know there is usually a decent lag between recognition and collection, but this was larger than normal. Could we expect a much stronger receipts in the second half?
Good morning. Thank you, Rebecca. In terms of that question, revenue recognized was AUD 18.1 million. Of that, approximately just over 40% of it was recognized in December and based off software revenue when the deals are signed. Obviously, once the deal is signed, we need to invoice the customer and collect the cash. Unfortunately, there will always be a bit of a timing lag between when the deals are signed, the revenue's recognized, and when the cash is collected. Also, the Akumin deal has specific payment terms. Although we have recognized a significant amount of revenue in the AUD 18.1 million, there are payment terms, so there will be a bit of a lag between the collection of the cash for that deal. Our focus is to get...
Obviously collect cash in the next last six months of the fiscal year, and so that we can remain, cash flow, you know, neutral to what we were in the previous year.
Thank you, Dyan. Another question here from Ivan Tanner. Are all contracts volume-based, i.e., volume above contracted volume translates to increased revenue?
That's correct. Everything is volume-based, and we keep a close eye on our customer volume. As our customers come close to their license maximums, they're notified by our sales organization, and our contracts all have stipulations for expansion language, we call it, so they can continue to buy additional licenses as they grow.
Okay, thank you. Now it looks like we just have a final question here from Ian Wilkie asking: When is the KLAS publication due, and how important will the results be? Now, I know that the KLAS report will come out on February 8, but perhaps, Mike, you could talk a little bit about KLAS and the importance of those ratings for Mach7's products.
Sure. Yeah, look, KLAS is definitely important in the sense that it's the consumer reports of healthcare IT in medical imaging. Once we're ranked there, then, you know, we get included in additional RFPs. That is important. It's the first place that our buyers are going to start doing their research for, you know, new, if they're gonna be buyers, that, you know, that's where they get their first glimpse. If you're in the top five of KLAS in any given category, you're in a good position to really be able to increase your marketing and increase your exposure and get involved in more deals. That's really what you're striving for.
Of course, everybody wants to be Best in KLAS in their each, in each of the categories that they are contending in. As long as you really fall within the top five, I think that, you get what you need from a marketing perspective.
Terrific. Thank you, Mike. That's all the questions that we've received now, so I'll just hand it back to you to close.
Yeah. Thank you, Rebecca. Thank you everyone for attending today's call. We really appreciate it. We will be releasing our first half year results at the end of February, 28th February. Look forward to being able to host another call where we can talk about the full first half of the year. Thank you all for attending.