Good morning, and welcome to Mach7's investor webinar to discuss today's FY 2022 result. On today's webinar, we have CEO Mike Lampron and CFO Steve Parkes, who will go through the presentation released this morning on the ASX. To ask a question, please submit them via the Q and A button at the bottom of the screen, and we'll do our best to get through as many of those as possible. I'll now hand it over to Mike.
Thank you, and welcome everyone to our FY 2022 investor presentation. We're gonna start off today with a little bit of business overview. We'll just go through quickly the business and products, our footprint, our partners, the value proposition, and our revenue models just to ensure that those that are on the call that are new to the stock understand the business. Then we'll jump right into the FY 2022 results. The first thing about our product lines at Mach7 is that we fall under the umbrella of enterprise imaging. Enterprise imaging is you know, it's a bigger umbrella that encompasses many different ologies, and it's all really about creating a longitudinal patient record for better patient care.
Mach7's component of that enterprise imaging solution really is around the centralization, the storage, the organization of images. That's done through our vendor neutral archive, and then the display of that data across the healthcare enterprise, which is done through our eUnity Viewer. This is common in connecting hospital networks to each other and to facilitate data flow between departments and clinicians, even outside of the hospital network. Our product can work in conjunction with other third-party products, other third-party PACS products, other third-party EMRs, and we oftentimes work in conjunction rather than as a replacement of those solutions. Occasionally, we do replace solutions. Our goal really is to work in conjunction with the infrastructure that the hospitals have already invested in to try to add value to each of those institutions.
When it breaks down to the three particular products that we actually sell, it falls under the categories of Enterprise Data Management, which again is our Vendor Neutral Archive. That's really the heart of our solution, and it's where everything is stored, and it's where everything is distributed out of that VNA. The Enterprise Diagnostic Viewer is a unique zero footprint viewer that that's wonderful for the enterprise, meaning there's no software that you have to install on the workstations or on your iPad or on mobile devices. It's a completely zero footprint HTML5 viewer, fully diagnostic 100% of the time. Displays high quality images so that physicians like radiologists can use it for primary diagnosis.
The zero footprint nature of it also allows it to be really flexible for the enterprise physicians, referring physicians that are downstream from the radiologists. Then the last component we have is what we call Departmental Workflow Applications. This is our capabilities for interoperability and to really use our VNA and the data that we're collecting and managing as a platform for third-party solutions like AI adoption, centralized worklists. We also sell our own Universal Worklist, our own quality control tools, and this is really where a lot of the sort of brains of the workflow and communication occur throughout our solution. Our target market, you're looking at a graph on the right-hand side here of total addressable market across the world for the radiology IT segments.
We did pare out a couple of segments that we don't really participate in, particularly the standalone RIS market and the standalone image exchange market. We did take those out of this overall number. To give an idea of the breadth of our product, to the left here is a group of types of customers that we'll sell to, whether it's an IDN, which is sort of our bread and butter, whether it's an independent radiology practice, an independent hospital or regional hospital, academic imaging center, those are all types of customers that we sell to. We don't just sell to an academic segment. We don't just sell to an ambulatory segment or an acute care segment. We can sell our products across the breadth of the healthcare enterprise.
We have hospitals who are using our system across the world. There's 150+ customers, a little closer to 165 at this point, across 15 countries. Some of those countries are through resellers or partners, not directly through Mach7. We have a great partner in Italy, Esaote. We have another great new partner in Australia through AdvaHealth. It is an example of partners who get us into new regions, where we have a great way of giving access primarily to the eUnity viewer. Again, these partners are really important to us. We have 27 partnerships currently, and they really run a breadth as well. InTouch is a telehealth client. DocPanel reads mammography. Esaote is really a cardiology solution. Allscripts is an EMR.
Ambra, now owned by Intelerad, uses our viewer for diagnostic reading with more complex clients. Some of our partners, we actually resell their product. ImageMoverMD, we resell their product when the timing is right. Bialogics is a NLP partner of ours who helps with analytics work. A number of different clients or partners that do a number of different things. We think that this really helps us from a networking perspective to get our software out into the space and to help us win new business. Just a minute about the value propositions of Mach7. First and foremost with the Mach7 solution is we wanna fit the individual needs of the clients.
We don't have a solution in a box, and we don't sell it as a solution in a box. We sell it as a number of individual components that can add up to multiple different solutions. We're selling solutions to our customers. We want it to fit into their existing technology, and we want it to scale with the scaling of their business. It's been designed for the enterprise from the ground up, meaning our purpose is to get these medical images and information out from inside of radiology, out from some of these other ologies, and out to the referring physicians. Whether it's images that are associated to dermatology, cardiology, ophthalmology, we wanna be able to both manage and then serve back out to these clinicians in a meaningful way these images, which can help them with their diagnosis and ultimately helping patient care.
The flexible workflows that we introduce are workflows that are around things like point of care ultrasound as a great example, where we can help the facilities to capture more charges, but we can also help the customers by having a more complete medical record. We consider our technology to be a lasting technology. We are, at the end of the day, neutral, and we wanna remain neutral. We wanna be able to work with third parties. We want people to be able to store their images in our solution, and they can store them there forever. Sort of back to fitting individual needs, we wanna solve immediate needs. We definitely believe in the land and expand model with our clients, where we wanna be able to solve and show value to our customers right from the very beginning.
We have a lot of faith in our software. We know we can add value. The moment we start bringing value to the clients, we become a trusted advisor. Once we're a trusted advisor, we can help them on their journey through enterprise imaging, which is very complex, and it includes products across the spectrum. That's the reason we have customer partnerships. Those partnerships, that's part of being on the journey with Mach7 from an enterprise imaging perspective. The flexible contract terms are very important to us. Just as our software is flexible, we wanna be flexible as a business. That means that we have two primarily different models, business models. We either have a subscription model or we have a capital model. I'll talk a little bit about that when we get into the business models.
We've considered ourselves to have cutting-edge technology, and I know that everyone considers themselves to have cutting-edge technology. We really truly believe this at Mach7. We're a reasonably new software platform to the industry. We don't have 30 years of spaghetti code that are in the background trying to manage this. We are a very modern technology platform. We have the added benefit of being a global company which offers some sense of help to our clients in knowing that we're going to be here tomorrow. We feel that as our business is growing, as our cash is growing, as the size and maturity of our business is growing, as our footprint has grown, it gives our clients some ability to really know that we're gonna be here tomorrow, which is important to them. It's important to that partnership.
A little bit about our revenue model. We get asked this question quite frequently, so we thought it would be ideal to go through this just fr a moment. If you look at our model here and you start off to the left with our sales order signed and software delivered, when that's a license fee. If it's a capital license, as soon as the sales order is signed, then the software is delivered. As soon as it's delivered, we can recognize 100% of those software fees from a revenue perspective. The contribution then to our CARR number is 20% of the software fees. In this case, in this example, we're saying that we sold AUD 1 million of capital license software.
That means we would have an AUD 200,000 per annum fee for maintenance and support for the next five years. They're five-year license agreements. That same deal from a subscription license perspective, when we deliver the software, we would recognize zero dollars , and we'd have a much bigger contribution to the CARR and the ARR because we wouldn't be able to recognize that revenue right off the bat. We would recognize that revenue if you go down to where the software is live in first productive use. If you see that on the subscription license there, follow along that line, that's when we would begin to recognize the software on a subscription license. Once the customer goes live, we start to recognize the revenue.
If that takes six months, if that takes 12 months, however long it takes, once the customer is live, that's when we'll begin to recognize that revenue. You can tell by the total contract value, over five years, when you look at the capital license of AUD 2.3 million in this example, and the revenue recognized on a subscription is slightly higher at AUD 2.7 million. We do charge a bit more from a subscription license perspective than we do a capital license perspective. The implementation professional service fees, they remain the same regardless of software model. That's recognized on a % complete basis. If you sell someone 100 days of service and you use 50 days of service, then you're recognizing 50% of the revenue associated to those services.
That's a little bit about our model from a capital license and a subscription license perspective. We do not really favor one or the other. We have really been a 50/50 split on capital licenses and versus subscription licenses. It is starting to tend to lean a little bit more towards subscription, at least in the last year. We see that as a growing trend. We'll talk a little bit about that later. We definitely can see how that trend will continue as a business. We'll hop into just the FY 2022 results for everyone. Hopefully, the business update is a little helpful to get everyone grounded in what we do, the value that we bring, and how we do business.
For our business in FY 2022, we did, for the second year in a row, have a record sales order of AUD 33.2 million. We had record revenue of AUD 27.1 million. Our CAR increased to 17.3. Our ARR was 13.4, but it's important to recognize this 14.4 million on a run rate. Essentially, that's taking the last month of recurring revenue times-ing that across 12 months. We had some great contract wins. We'll talk about those in a little bit. Our EBIT is up to AUD 2.8 million. We've had great cash flow, positive cash flow, again, of AUD 6.3 million. We're in a strong financial position with AUD 25.7 million of cash in the bank and no debt. Great results.
A little bit about our sales orders. You can see to the right, the graph that we've put together for you to show you the subscription versus capital versus professional services. You get a feel for what makes up that FY 2022 sales order number versus FY 2021. You can see that subscription model growing there. That can affect in-year revenue, right? Like I discussed with the model, you're not recognizing revenue right up front. Overall, it's a great value to the company. The other thing that I'll mention on this slide is just the brand recognition. As our sales orders go up and as we increase the number of clients that we're touching, the brand recognition is getting greater.
We did release our KLAS rankings this past year, and those KLAS rankings have really helped us get involved with the market. We get more phone calls, more feedback, more meetings set up by consultancies and by potential clients just based off of the fact that we're listed in KLAS. It gives us a bit of good recognition by an independent group. We feel like our sales team is the right size. We have a lot of new sales members. We started off with a new sales leader in July of just into this fiscal year. We had almost a full replacement of the sales organization until September of 2021.
Our sales team has been in place for coming up on one year here, the end of September. We feel like we have the right size team. It's a great team. They've had great success from sales orders, great success from building a pipeline, doing an excellent job. Our partnerships are growing and we've had them contribute up AUD 2.8 million this year. We suspect that will go up pretty significantly into FY 2023. We have brought on a new partner manager to help us grow those partnerships. From a sales order perspective, we're targeting AUD 36 million in FY 2023. That was based off of a 20% growth rate with the expected sales orders of AUD 30 million.
Of course, we beat that target with AUD 33 million. When we look at this, we look at AUD 36 million as a floor, not a ceiling from a sales order number for FY 2023. Some new customers and some understanding again of the breadth of this. We threw in a chart here to show new versus renewal versus expansions and add-ons. What this is showing is that we had a number of new deals signed this past year, and we've had several renewals. Renewals are important. Renewals show that our customers find value in our software and that they want to renew their agreements with us. We feel like we have a very sticky software platform. We know we're adding value in these renewals, in these expansions, in these add-ons.
That just underscores the importance of the land and expand model and how that works and sort of the satisfaction our customers are having and the value our customers are finding with our software. Changing over to revenue, AUD 27.1 million, up 42%, a great year for us. This was split between the eUnity and the VNA in the right-hand side here, so you could get an understanding of which side of the business brings in revenue. We really look at these two product segments. Now on the pricing side, there's a few things to recognize going into this fiscal year and going into part of last fiscal year. Our VNA pricing has gone up. We review our pricing annually.
Our VNA pricing has gone up, but the eUnity pricing has gone up quite a bit more. This is a big number, 300%, right? It doesn't sound quite right. If you go back five years from today when some of these eUnity contracts were signed, Client Outlook was a startup company, and they were a hungry business, and they wanted to just bring in net new customers, and they wanted to be relevant in the marketplace. They would do it at a small price point. When we have the opportunity to renew these contracts, they're renewing at a much higher price because we know the value that that software is bringing to the clients, and we're a more mature business. That pricing has gone up significantly as these renewals start to hit.
When we talk about inflation being priced in, what we're really talking about here is we have new pricing from a price book perspective. From a maintenance perspective, the bulk of our contracts have given us the ability to increase annually our fees by CPI caps. That's usually somewhere in the 2%-4%. I know CPI is quite high in North America this year. Really it's gonna be around 2%-4% on an annual basis that's gonna increase. We've continued to find strong demand for the eUnity diagnostic capabilities. COVID and post-COVID environments have really underscored the importance of having software that allows you to read images remotely and outside the walls of the hospital. We've continued to have low churn, where we don't.
Again, it's a sticky business, and our customers are generally very, very happy with us. We have strong revenue growth, double-digit growth scheduled for FY 2023, just as we did for FY 2022. On the recurring revenue side, we've increased our CARR, and just remember that the difference between CARR and ARR is the contracted annual recurring revenue versus the annual rev. So there's a gap there that you see, that $2.9 million gap. That's generally from clients who have not gone live yet. So if the customer hasn't gone live yet, then we're not recognizing support and maintenance. So that support and maintenance value is sitting in that CARR bucket, and it will convert to ARR when the client goes live. The other time that will come into play is if it's a subscription model.
On a subscription model, then that number will reside in the CARR number until the client goes live, and then it will go into the ARR as well. That's the gap. You always wanna see a gap between the CARR and the ARR. We should always have a healthy gap between the two. We're looking to, and we've talked about this, for the last couple of years, but we're looking to cover our operating expenses through our ARR run rate. We're targeting full coverage within the next four years. Right now, we have 65% coverage. That, again, is underpinned by the whole idea of our subscription models, sort of taking a lead in on our new sales.
Right now, we're looking at a 60/40 subscription to capital split, which is a change from the 50/50 split that we've seen in previous years. We're finding that there's a little less resistance to the subscription deals right now. Some of our customers are actually looking to spread those costs. We look at some significant contract wins for us. Trinity Health was a big win for us. We've talked about that a number of times. Advocate Aurora was a VNA client. They bought our eUnity viewer, showing some great cross-selling capabilities there. Cabell Huntington was a renewal. They did sign in Q4, and they did actually convert their contract from a capital to a subscription model, which was one of the first times we've seen that kind of a conversion.
We're not sure if that will be a trend or not, but it certainly did happen to Cabell. Penn State Hershey, a long-time client, and St. Luke's, a net new customer for the eUnity Universal Viewer. Look, from a cost perspective, we feel that we have a scalable business. Our revenues are growing faster than our expenses. Our expenses did go up this year as we would expect them to go up to some degree every year, but nothing material. We are cash flow positive for the third year running, AUD 25.7 million in cash, and again, we have no capitalization of R&D. From an outlook perspective, from what we're seeing in the market, hospitals have now sort of emerged from COVID.
They're returning back to sort of business as usual from an investment perspective. We see more and more integration following M&A consolidation. We're seeing a lot of M&A within the hospital space. Again, at least in North America, we're seeing that trend. That's tending to lead to more spend. Acquisition is certainly a strategy amongst the healthcare institutions, especially the larger IDNs like the Trinity Health of the world. Our customers continue to prioritize. I've been talking about this for the last year or so. Even though things have returned to normal, hospitals still have a responsibility, and they're still looking at ways that they can save money and still provide better patient care.
They're looking to make sure that they have a stable environment, that their physicians can work outside of the walls of the hospital should they ever have to again. For us, our primary buyers are the CIOs, the CMIOs, and those are folks that are both looking at the spend from a technology perspective, but also the benefit for patient care and concentrating on requests from the physician base in regards to the technology they need to do their jobs. It's a little different than selling directly into the radiology space, as an example, where you're selling to the radiologists. We feel we've got these award-winning products, highly acclaimed products from KLAS, strong interest and well-attended industry conferences. We're focused on innovation with our R&D team. We will continue to be focused on R&D for years to come.
Our sales team has got a strong pipeline. This is an experienced sales team. They've been able to build their pipeline as they've come on board. Our pipeline actually has grown by 30% since June. That's reflected in deals that we're now either speaking to or responding to bids for. We have three times coverage for our goals, for our sales order goals for this year. For this year, right? Three times coverage just for this year, not our total pipeline in totality, but for FY 2023 coverage. I think with that we can open things up for questions.
Yeah. Thanks, Mike. Just a reminder, if you'd like to ask a question, please do so via the Q and A function at the bottom of the screen. Yeah, we have some questions that have come through. First, with growing free cash flow, what is the thinking planning for the deployment of this?
Look, you know, we've had good cash flow for the last couple of years. We continue to grow our cash flow, but, you know, at the end of the day, we have a little over AUD 25 million in cash. You know, we evaluate constantly at the board level what we're going to do with our cash and what we can do to add value from a shareholder perspective, whether that includes inorganic M&A or whether that includes, you know, for future investment in R&D or in innovation. For right now, you know, we're again evaluating our opportunities with no clear plan on using that cash for anything immediate.
Certainly gives us some flexibility as we look at the industry and as we start to consider any type of acquisition that gives us more flexibility than we've ever had in the past.
I guess as a follow-up to that, we could ask this other question. Would Mach7 contemplate using its surplus cash to conduct a share buyback?
Yeah. You know what? I think at this point, the answer to that would be we're not considering a buyback at the moment. I understand the value of a buyback, but again, just to emphasize the fact that it's AUD 25 million, I think that there's other ways that that cash could be used to bring more value to the shareholders, than just through a buyback program. I do understand the desire for that, but, you know, I think our strategy is gonna have to come first and we want to grow this business.
Okay. Thank you, Mike. Assuming that the sales process and cycle is similar for both smaller and larger sized contract opportunities, are there larger value contract opportunities available for the company to pursue? If so, where do they sit in the sales cycle timeline?
Yeah. Look, we had similar to the slide where I showed the different markets that we sell into. All those markets have different requirements. They all have different price points. They all have different needs from a technology perspective, so we sell to a spectrum of clients. It could be anywhere from a AUD 20,000 or AUD 30,000 migration to a full enterprise radiology PACS solution. The range for those larger deals falls anywhere from honestly one to AUD 15 million or so. You know, if we look at deals like Hong Kong or other national deals, it could be upwards of AUD 20 million for those national deals. Now, we do have those big deals in our pipeline.
I would say the average deal size in our pipeline is around, for the larger clients, it's usually between, you know, AUD 1 million-AUD 5 million. For the slightly larger, it could be anywhere between AUD 5 million-AUD 20 million. We have a number of deals that are below the AUD 1 million-dollar threshold for us. It's a spectrum of opportunity for us. Certainly we have what we consider to be larger scale deals in the pipeline for this fiscal year.
Thanks, Mike. Do you see any emerging threats or opportunities with the growing interest in the health IT space coming from Microsoft, Apple, Google, Amazon? How do you envisage these companies reshaping the health IT landscape?
Yeah. You know, I've seen these companies sort of dart in and out of healthcare. They show interest, and then they sell off their divisions, and then they regroup, and they rethink. At the end of the day, these larger players, the Googles, the Amazons, the Microsofts, what they're really interested in is data, right? And where they can get that data from. Healthcare is just a market segment for them to collect data. They think that they can add value there. They think that they can add value with precision healthcare. They think that they can add value through data analytics and through AI functions. So that's really what I think their goal is. Their goal is to try to show value through to, you know, data science.
I think that they're definitely in this game for a while. It does seem like the winds shift oftentimes with these larger groups, depending on how the rest of their business segments are going. But I don't think that they're gonna go anywhere permanently. I think that they're here to stay in the game from a data perspective.
Thanks, Mike. A couple of questions from Scott Power from Morgans. First, did you have any pushback on the higher prices charged for the renewal and expansion of clients?
No, we really didn't. Well, you know, you always do, right? I mean, you're always gonna get some pushback from people. But I think a lot of people expected, especially those renewals where people knew they got a really good deal five years ago. I think that they realized and they knew that those prices were gonna go up. And part of that also shows the strength of our relationships with these folks. We don't surprise them with a sudden shift. We work with them proactively so they know that it's coming so they can budget for it appropriately. So this wasn't really a surprise to them. For some, they could afford it. For some, they had to push back a little bit.
For some, we meet them halfway, and we'll get them where they need to go over a course of a couple of years, perhaps. I would say not a lot of pushback, but certainly there's always a little bit. Yeah.
Also from Scott, when is the next KLAS ranking due to be released?
Yeah, good question. Right around the same time, every year, so annually. They release it annually, and it should be, usually it's late February, early March, they release, the calendar year 2022 results.
Thanks, Mike. Another question. How would you describe the pace of deals moving through your pipeline today versus 12 months ago?
The pace of deals perhaps is similar, but the volume of deals is going up. We do seem like we're, I think we did last year, I think it was right around 66 sales orders last year, which is up considerably. Now that being said, some of those are smaller orders. I think that the volume of orders has gone up, but the length of how long it takes to sell hasn't changed much year-over-year for several years now for this industry. I think it's the same for us as it is for others in the industry. I don't think any of us are unique there.
All right. Thanks, Mike. This person read about the national imaging project success of Mach7 with the Hospital Authority and would like to know of such types of projects in the U.S. or even Asia.
Yeah. Look, programs like that are not very common in the U.S., right? There's not a national health service really in the U.S., so you're not gonna see deals like that there. What you will see are deals for these larger IDNs, like the Trinity Health of the world. That's what you'll see in North America. Certainly though in Asia there's opportunity there very similar to Hong Kong, where there's national healthcare solutions or systems. Certainly we would envision additional Asian countries popping up with a very similar requests for information or bids or opportunities in Asia for similar deals to Hong Kong.
All right. How can users access the product? Examples being the laptop, the mobile device, and is remote access readily available?
Yeah, absolutely. We have a great mobile solution, actually. One of the things that underpins our mobile solution is the fact that you don't actually have to download an app. You can use it directly, and all of that is secured through IT organizations that we're installed at. It's traditionally not cloud-based. It's traditionally an on-prem solution, but we also support a cloud-based solution. Certainly, I would say one of the big selling points of our product is the mobility of our product and the ability for physicians to use our product from mobile devices.
Will there need to be any increase in headcount going forward with the expected growth? If so, which areas are likely, is this likely to occur, and are you hiring locally or bringing people over to those locations?
Yeah. Well, there's a couple things there. Yes, I would envision some headcount growing. We've had a lot of attrition over the course of the last year and a half or so through the Client Outlook acquisition. We do have some headcount replacements that we need to account for in the R&D group. We're working on that now. We have extended that, whereas historically for product like the eUnity product, we would've hired resources out, only out of Canada. We've extended that now to all of North America. I would say that most of our hires are in North America from an engineering and R&D perspective. That doesn't mean, though, that we won't also utilize outsource groups if the right opportunity presents itself.
There's some wonderful outsourcing groups out there in other countries outside of North America that can really add value. Our R&D organization looks at that all of the time to see if there's something we can take advantage of that's a little bit more, maybe cost-effective than always doing everything through FTEs.
All right. Thank you. That concludes the Q and A segment. I'll now hand it back to Mike for some closing remarks.
Yeah. Look, everyone, thank you so much for attending. We feel that we've had a really solid FY 2022. We feel very good about FY 2023, and we have got a great springboard going into this coming fiscal year. We're very happy with our results this past year, and we look forward to staying in touch with all of our investment community. Thank you.