Everyone, and welcome to the Mach7 Q2 FY25 Business Update. My name is Françoise Dixon, and I'm Head of Investor Relations for Mach7. Today, our CEO, Mike Lampron, will provide an overview of our Q2 result. We will then open it up for questions, which will be answered by Mike and our CFO, Dyan O'Herne. If you have a question, please submit it via the Q&A text box at the bottom of the screen. I'll now hand over to Mike for the Q2 update.
Thank you, Françoise. Good morning, everyone, and welcome to Mach7's FY25 Q2 Business Update. You know, I'll start off the way we typically do with these meetings: I'll start off with some highlights and then add some detail about some of the more important components that I think we really want to highlight. So, highlights for the quarter: Contracted annual recurring revenue, or CAR, was $31.8 million at the end of Q2. That's up 15.6% on Q1 from a reported basis perspective, up 4.3% in constant currency. The ARR run rate was $25.1 million at the end of Q2. That's up 14% on Q1 on a reported basis, and 2.9%, just about 3% in constant currency. Sales orders of $14 million in Q2, and that's compared to Q2 of FY24, which was $16 million, again, in constant currency.
Cash was great at $23.6 million at the end of the year, at the end of Q2, and at the end of January, well, January 29th. You will have seen that our cash was at just a little over $25 million. We did announce that we are starting to participate in a buyback program of up to $5 million. That's expected to commence in early March. I'll talk a little bit more about that when we talk about outlooks for the rest of the year. So, you know, as you can tell, the way we're highlighting this information this quarter, you know, exchange rates, you know, worked with us for the quarter, and so we actually gave you constant currency as well, just for transparency.
I think for those that would be interested, you know, we, from a currency perspective, we hold about 70% of our cash in USD, and the remainder in AUD. So just from a cash perspective. So the message really for Q2, everyone, is pretty simple: we're on track to meet FY25 guidance. We provided a solid quarter, and as we sign new contracts with existing customers, I think, you know, once again, proving the value of our land and expand model, along with the rationale for the investment we've made in customer intimacy. Throughout the quarter, we continue to invest our time and energy into our three strategic pillars of cloud enablement, customer service, and integration and interoperability. Those three pillars, we believe, will bring value to our customers today, enhance our ability to compete into the future.
So very important that we invest some resource, some time, some money into those very important three strategic pillars. So kind of getting to the meat of the announcement, let's talk about sales orders first. Our sales orders for Q2 were $14 million, and most of those sales were coming to us through the ARR type sale. ARR sales were $8.8 million. Our capital sales were $2.8 million. And then we also had about $2.4 million in professional services. And as a reminder, those professional services, those are the services that we sell to deliver our product. And the revenue for those professional services is recognized on a percent complete basis as our customers move throughout the implementation process. Overall, 67% of our sales in the quarter were add-ons and expansions. Renewals made up the remainder of that sales number.
You'll also note that we included a chart in our announcement around orders. You know, the intent really is to show the fluctuation quarter over quarter in our sales orders, showing that, you know, we really don't have seasonality so much. We simply have some lumpy sales that are somewhat difficult for us to predict quarter over quarter. It's very easy for something to slip from December 30th to January 3rd, as an example. So it's just some lumpiness there still. No doubt, for the remainder of the year, for the whole year, but certainly for the remainder of this FY , our focus is on net new customers in relation to sales, right? We still believe, just like last year, that we can bring in between two to four net new customers on the year. And we have line of sight to meet that statement.
We look forward to delivering that over the course of the next two quarters. Moving on from sales orders and talking a bit about revenue, usually start off with our annual recurring revenue. That's currently generating a little over $25 million. Run rate increased by about $700,000 since the end of Q1 in constant currency. It's important to note, though, that ARR will continue to grow as new customers achieve first productive use and existing customers expand their licenses as they add on new features, renew, increase price points, all of which are equally valuable to our overall revenue number. The CAR number is at $31.8 million at the end of Q2, an increase of a little over a million, $1.3 million since the end of Q1.
That equates to the $25.1 in ARR, plus the $6.7 million in subscription, maintenance, and support fees that are not yet recognized as revenue. And once again, as a reminder, the gap between CAR and ARR, that represents future revenue once first productive use is achieved for new customers, as well as additional revenue from existing customers from the effective date of the renewal, or once first productive use is achieved for something that's an add-on sale. And CAR is based on contracts that we have in hand as of the 31st of December, and that includes revenue associated to anything that came in through Q2. Moving over to cash, cash receipts from customers in Q2 were great. We were at $9.6 million, up 34% compared to $7.2 million in the same quarter of last year. Our operating activity payments for the quarter were $1.2 million, lower compared to Q1.
That included some annual fees of approximately $900,000 related to the company's investment in our strategic pillars, so not recurring costs, you know, that will happen every quarter, of course. We collected $9.6 million, spent $8.7 million on the quarter for a cash inflow of $900,000, so we were operating cash flow positive in Q2, which we typically have not achieved in the past in Q2 due to RSNA expenses, and it's really kind of a timing of when salary actions hit for our employees as well, so this outcome is great for us. It'll help improve our year-over-year operating cash situation and has given us confidence knowing that Q3 and Q4 are typically strong quarterly cash quarters for us, so great news on the cash front for the quarter, and we continue to evaluate and capitalize our R&D costs as appropriate for the business.
In Q2, that amounted to around $200,000. We'll have a more complete view on this with our first half results after our audited results are in, so just a general outlook for us, and a couple of things I want to highlight for everyone. RSNA, I mentioned, it is our most expensive marketing initiative every year, and this year was no different. Our products were showcased at over 10 vendor booths across RSNA, along with our own booth, generating a 78% increase in net new leads. Powerful RSNA for us, where we had a chance to highlight our proprietary integration and relationship with NewVue and our collective new product called eUnity, and this continues to generate new leads for us. We have some marketing campaigns that are ongoing and some new ones that are coming out over the coming months.
Look forward to traction with that eUnity product. Another highlight from an outlook perspective is, you know, we continue to have a strong financial position, no debt, growing cash balances, and we do take a disciplined approach to costs and cash management. We're committed to our shareholders, and as a team, we feel very confident in our business and in our future. With that, you know, we announced an on-market buyback yesterday. We think that currently this represents an efficient and opportunistic capital management opportunity for us as we head into what we think will be a very good second half, especially considering the historical results of Q3 and Q4 for the business. I think the last thing I'd like to really make a comment on, and it wouldn't be a quarterly report if I didn't make a comment about our NTP deployment.
We fully expected that customer to go live by the end of the year, but we did suffer some further delays on that project, and we have a new go-live set for the end of Q3 of this fiscal year . There isn't a specific reason I can give you for the delay beyond the fact that this is a multifaceted, complex deployment, and we have a lot of interlinked moving parts from various companies creating this solution. So there's no one place that I can point my finger to tell you there was a specific problem. It's more of a team decision between the vendors and between the customer to make sure that the customer is positioned to be successful when they do go live. And again, right now, collectively, we're in agreement that that will be the end of Q3.
I guess I'll end just by saying that, you know, we continue to have a strong pipeline. We're reaffirming our FY25 guidance for a 15%-25% growth in CAR and revenue, and a commitment to our OpEx growth that'll be less than our revenue growth, getting us incrementally closer to profitability, which is the ultimate goal. We're committed to cost management as our growth continues. And I just say that I will ensure everyone on the call that both cost containment as we grow and commitment to executing against initiatives are equally important and vital to the long-term success of the business. So there's a fine line there where we need to be super cautious of how we spend and super cautious of where we invest.
And I feel that we've made good investment in the business, and I think we're starting to see some good results from that investment that we made at the early part of fiscal year, or the early part of calendar year 2024. So with that, I think, Françoise, I will hand it back over to you, and I can take on any questions I get.
Thanks, Mike. We've received several questions via email from Mike Goodall, and so I'll start with these. How confident are you that some of the VISNs will sign up in FY25?
Well, look, I, you know, we would have expected to see one or two VISNs in the second half of this fiscal year, so from now to June. That, of course, was predicated upon the customer going live. We always said that phase two will start after phase one goes live.
So with the delay in phase one, you know, there's going to be a bit of a delay in phase two. But we do have visions lined up. We have good relationships with them. We continue to have good conversations with them. I continue to have faith in phase two. We just need to stay focused on phase one right now, get the customer live, and get them using our software, and then we'll worry about phase two. Right.
Thanks, Mike. The second question from Mike Goodson was, incumbents have been noted as the biggest competitor. In recent experience, what percentage of contracts are you seeing being won by the incumbent?
Yeah, good question. Look, I'll make an assertion on this.
Of course, you know, off the top of my head, I don't have specific numbers, but I would say that, you know, at least 50%, maybe 40%, but I would say probably 50% of the people that we see coming through our pipeline, they'll stick with their incumbents as they work through the process, and then maybe eventually they transition away. But it's usually like a multi-year process, right? You start working on a lead, it turns into an opportunity. You work with that opportunity for a couple of years. And during those couple of years, you know, it takes them that long to decide if they're really going to move away from their incumbent vendor. So I would say a good portion of the RFPs we see clients still maintain, end up maintaining their relationship with the vendors.
Part of that is that they're, to a degree, held captive by those vendors. They end up in a managed service contract where it's very difficult for them to extract themselves from the hardware and services that that vendor is providing. It's expensive to move and sometimes cost-prohibitive.
Thanks, Mike. I'll now turn to the live chat. We've had several questions on the VA, and most of those questions you've answered. Peter Cooper did ask a question on phase two, and I'm just going to read it out. If you feel there's anything you want to add, please add. Mark, can you please advise when Mach7 will make its final submission for the VA phase two contract, and when Mach7 will be advised if it was successful?
Yeah, it's not really working like that, right? The contract's been awarded for phase two already, right? So now each VISN has the opportunity to decide if they want to participate in phase two. So it's not a bidding process. It's not a proposal process. The bid's already been out there. The bid's already been awarded. VISNs can choose to take advantage of that awarded bid, or they can choose to go out to bid on their own for a third-party solution that's unrelated to the contract. They're not forced to abide by this contract. So it's not like there's an open bid out there that we're competing against now. People shouldn't get confused by the fact that the VA, and you're hearing conversation in the marketplace around the, I think it's called the NEIS, National Enterprise Imaging Solution.
That's entirely different, an entirely different program designed around replacing their VistA product, which is a homegrown solution, has nothing to do with phase one or phase two of NTP, but it is out there. That probably won't be awarded, I'm going to guess, for at least another year, year and a half, but has nothing to do with phase two. And look, we hope to see VISNs move over to phase two as they see success with phase one.
Thanks, Mike. Our next question comes from Andrew Tan. Read your FY25 guidance for 15%-25% growth in CAR. Is this on a constant currency basis?
Yeah, look, when we came up with our guidance, what we were working off of what our CAR was at the end of FY24, right? We weren't taking into consideration any specific, you know, fluctuation in FX rate, right?
So I would say that, you know, look, we were basing it off of reported, you know, dollars and would expect to be doing the same at the end of the year.
Thanks, Mike. Our next question comes from Samuel Yang at Microequities. What gives you confidence you can land new logo clients in the second half? Are these tenders awaiting decisions or in contract negotiation stage?
Yeah, a little bit of both. We have some that are in negotiations, and we have some that were final vendors. So a little bit of a diverse pipeline there at the end of the pipeline with deals that we have high confidence in, that our sales team has high confidence in, makes us feel good about the second half of the year.
Our next question is from Iain Wilkie at Morgans. I'm interested in the RSNA showcase in over 10 booths. Is this direct through Mach7 or possibly several service providers who use your products?
Yeah, so this was partners of Mach7 that are using our product. So as an example, our product was shown in the AWS booth. Our product was shown in the Nuance booth. Our product was shown in Blackford. You know, amongst all these different partners that we have, that's where our products were being displayed. NewVue is another one of our more recent customers or partners. So, you know, yeah, it was partners that are reselling our software or partners that are important to us and are using our product as part of their product. Like, as an example, Nuance uses our viewer as part of their product, right, for PowerShare. So a combination there.
We have another question from Iain Wilkie. If you had to quantify the new leads from RSNA, maybe not in dollar contract terms, but in percentage versus prior years, that would be great. Better than prior years or about the same?
Look, definitely better than prior years. I'll say that the pipeline growth coming out of RSNA is changing. When I look, if I look to stratify those deals, you know, I'm seeing an influx of opportunity from radiology groups, from what we call the ambulatory section, right? I mean, just to make it a little broader statement. Ambulatory teleradiology is picking up in interest. And we're getting a lot more interest too out of the Middle East. The Middle East seems to be opening up. And, you know, it's always been unpredictable, and it remains an unpredictable region, but interest is picking up, and our brand recognition is picking up in the region. So that brings us some good opportunity there as well.
We have a question from Andrew Ribeiro. What happened with the company's contract with Trinity Health?
Nothing has happened with the contract with Trinity Health. That's still an active contract, and Trinity Health has our VNA and our eUnity viewer. I think what people are probably thinking of is they saw an announcement from Pro Medicus where they won their PACS solution, which they certainly did. Just remind everybody that there are a lot of customers out there that have the Visage front end for radiologists, and they use our VNA as a backend and use our Enterprise Viewer as a distribution software across the rest of the enterprise. Trinity will not be the first customer that has that type of a configuration and most likely won't be the last either.
Our next question comes from Carlos Gil. Just to clarify, the guidance of +25% in ARR is in Australian dollars. That is not in constant currency.
It is in Australian dollars, and it is not in constant currency.
Our next question comes from Andrew Brest. Had you considered a capital return to shareholders rather than a share buyback?
No, look, you know, we as a board have had these conversations on and off, and we've had the idea of buybacks brought up to us, geez, over the last couple of years. The question continues to come up. So the board is oftentimes thinking of capital management. I wouldn't say that, you know, a direct cash back to the shareholders was the direction we would have thought to go in. We think that going with the route that we did, more of a traditional on-market buyback will give a good return and give a good boost.
Ultimately, you know, hopefully, you know, give the market some confidence that as a team, as a board, we do have a lot of confidence in our delivery and where we stand as a company.
Before handing back to Mike, I'll pause in case there are any final questions. Mike, we have no further questions, so I'll hand back to you for closing remarks.
Super. Thank you all. Thanks for attending the Q2 update. Just as a reminder, in very short order, at the end of February, we'll be coming out with the first half-year results to give everybody some further clarification on where we ended the first half of the year and projections for the second half of the year. Look forward to having the opportunity to talk with you again soon. Thank you, everyone, for your attendance.