Austco Healthcare (ASX:AHC) Presentation, FNN Investor Event, March 2022

Company Presentations

Austco Healthcare Limited (ASX:AHC) CEO Clayton Astles presents on the company's new products and technology, real-time locating, supply chains, strategic objectives, and revenue and operational strategies.

My name is Clayton Astles, I’m the Chief Executive Officer and Managing Director of Austco Healthcare. Thank you for taking the time to join us for the presentation with the Finance News Network.

The company had a very strong year despite ongoing challenges related to the covid-19 pandemic. Austco’s positive results can be attributed, in part, to increasing demand for our products. Product development is a key component of our strategic plan and we’re maintaining our investment in R&D this financial year. We’ve developed high value hardware and software solutions which are helping drive strong growth in our sales funnel.

Our latest and most advanced product includes Real-time-Locating, or RTLS built into our hardware. This is the product that most of our customers are excited about and is responsible for much of the recent growth in our sales funnel and order book With RTLS, we can record the location of staff, patients and assets. Using that location data, our customers can correlate measurable metrics such as caregiver time at the bedside to patient outcomes. RTLS is expected to be a game changer for our business.

As with most manufacturing businesses, we’ve faced challenges related to the global supply chain crisis, which has impacted our ability to secure the material needed to build our products. But it’s not all negative…There have been some positive things to come out of the supply chain crisis for Austco. To mitigate some of the supply chain risk, we partnered with a 3rd party supplier, who have the most advanced touch screen enabled IP phones on the market, to develop a new master station for our Tacera product line. So really, the supply chain adversity gave us an opportunity to develop a solution that’s far superior to what we had before the pandemic.

Another product we’ve developed is a modern version of the hallway annunciator that we’ve manufactured for many years. With this new product, we have the ability to display non western characters - so simplified Chinese – and there’s a lot of interest in translations of right to left languages like Hebrew and Arabic. So it opens some doors for us, as far as potential customers in regions where we don’t have a large presence. The great news is, we’ve already secured a large order for this product, which is part of the recently announced $3.4 million KTPH contract in Singapore. Our goal is to design flexible, and intuitive solutions that have a modern look and feel.

Austco’s app station, the new master station and the LCD annunciator offer a lot of customisation options and similar interfaces, which makes our systems easy to use for the end-user. The product that’s emerged as the key to the evolution of nurse call, is mobile collaboration apps. “Clinical Care & Communication” apps are the combination of nurse call functions, like managing alarms and alerts, as well as managing other system’s alerts like telemetry, bed flow and EMR. With advanced CC&C, it really doesn’t really matter which vendor’s hardware generates the alarm… It’s about collecting that data and doing something with it . And we continue to add features to our products that support the transition to CC&C. The industry’s largest players are moving towards a total communications platform. Austco’s product suite and roadmap reflect this.

We start with the core system: traditional nurse call, and our Built-in RTLS feature. Austco’s Tacera Pulse platform is our suite of software products designed to work seamlessly with our Tacera hardware.

Pulse includes our primary alarm and notification software, including our master and touch screen stations, workflow, and our advanced annunciation applications, our clinical care, and collaborative mobile app. Pulse Reports is our enterprise reporting application. Pulse Manage is the interface on top of our APIs. It's a management suite for administrating our sites and integration engine for additional integrations with other systems. We have a few opportunities to build out our portfolio. In some regions, remote patient monitoring is gaining ground quickly. This is a post discharge monitoring in the patient's home. There's a large market for this type of solution and this is an area of focus for Austco.

With all of these pieces, we have a very good care communications platform, and this is the message we want to communicate to the industry. Austco makes software-driven, healthcare communications solutions. And the vision is that all these components share their data in real time internally and externally with other systems. The data is the real product, not buttons and lights.

The latest trend, especially for large acute-care customers, is something called a real-time health. And real-time health simply means that data from any system can be shared with any other system. Healthcare providers use data from all of their systems to improve patient outcomes – so nurse call, telemetry, lab results, electronic health records – are combined to help improve decision making, automate workflows and make communication more efficient. Our customers are especially interested in location data from real-time-locating systems.

Supply chain challenges remain for our business and many others and they are expected to remain for FY22 and possibly beyond. To mitigate the risks of supply chain interruptions we have invested in additional inventory. Increases in raw material costs and additional freight costs will continue to test margins, however this is partially offset by Software and SMA revenues as well as higher margin new hardware products e.g. RTLS enabled call points. With a diversified contract manufacturer base currently located across five countries we have de-risked country specific supply issues.

Now let’s have a look at our strategic objectives. These are some of our key strategic objectives for FY22. Now that we’ve invested in developing high value hardware and software solutions and have streamlined our operations by centralising manufacturing, we're in a strong position to drive revenue growth. In late 2019, we went to the market and raised capital to expand our sales and marketing capabilities. But, with Covid, we had to put many of our recruitment plans on hold.

As countries have started open up, we’ve resumed recruiting salespeople. For the business to grow organically, we need to have more sales people on the ground, and for us, the growth opportunities are in the US and Europe, so that’s where we’re focusing our recruitment efforts.

Another way we plan to drive new sales, is by adding resellers in new and existing markets. Typically, our resellers have their own salespeople who have relationship and connections in the healthcare industry, so it allows us to scale faster. We’re also focusing on winning national accounts. National accounts are those that have multiple facilities spread across a geographical area.

Another important element of our growth strategy, is to explore acquisition opportunities that help drive exponential growth. We want to look at potential targets that complement our core business, including technology that fits in to our product portfolio, and system integrators who can help us sell and install our solutions.

A large part of the value in the solutions we sell, lies in the software we’ve developed for enhanced workflows and improved patient outcomes. We have an opportunity to accelerate revenue growth by increasing sales of high-margin software and maintenance agreements. In the last 12 months, our sales funnel for software products has grown rapidly, so we really expect to see growth in software and SMA revenues in FY22.

These are some of our Operational Strategies for FY22. As we mentioned, the company’s gross margins have remained strong. Those margin improvements can be partially attributed to our strategic focus on operational improvements including transitioning the business to contract manufacturing and distribution.

We also want to build brand awareness in growth markets, and we plan to do that through partnerships with market leading healthcare technology companies in strategic markets.

And finally, we’ll continue our focus on innovation. Over the last few years, we’ve released some great products that have been instrumental in the growth in our order book.

The outlook for the company has never been better. Austco is positioned for growth well into the future. We have great products designed for the evolving healthcare market, and changes in technology requirements are going to come rapidly as countries invest more in healthcare after Covid. There’s also a strong and growing global market for our solutions. We have a strategic plan to grow the business through investment in sales and marketing resources.

While Covid uncertainties will likely be with us through 2022, those risks may be offset by our large order book, which, as I mentioned, sits at almost $23 million. So, the future for Austco Healthcare has never looked stronger.

With that, let's start looking at our financial results. Despite the difficult market environment, the Company generated $16M million in total revenue in the first half, which is up 15% on the prior corresponding period. Software and SMA revenue for the first half was 15.3% of total revenue. Margins increased to 52.9% for the half over the same period last year. EBIT climbed to $1.8M, up an impressive 65% and NPAT was up 83% over the same period last year. Cash remains strong at $7.1M, which was a slight drop since June 2021 due to strategic inventory purchases to mitigate the supply chain risks.

As mentioned earlier, despite the difficult market environment, the company had a strong year, and produced a 15% increase in total revenue over the prior comparative period due to improved sales and access restrictions to hospitals and aged-care facilities being reduced. Installation revenues were up 55% on pcp to $3.6m consistent with overall slightly fewer site access restrictions. Software and SMA revenues at 15% of total revenue from customers remained impacted by Covid-19 restrictions as high solution sales require face to face interactions, although they were up $0.5m on pcp. Once restrictions are eased, we expect to recover deferred revenues.

Despite some of the challenges presented by Covid, the Company has consistently grown its order book, which are confirmed orders that have not yet been delivered. Our order book currently sits at $23.3 million, and we expect much of that order book to be converted to revenue as Covid restrictions continue to be lifted around the world.

Since the beginning of Covid-19 we have observed a material build up in our confirmed orders. Strategic investments into inventory levels will allow for these orders to be converted to revenues once access restrictions ease across our markets. Our recent investment in more sales resources in line with our organic growth ambitions will further add to the expect growth in revenues over the next few reporting periods, noting that our industry’s sales cycle is up to 18 months.

Gross margin percent in the first half was 52.9%, which was slightly up on the pcp but down from 2HFY21.
There have been a number of contributing factors, supply chain cost increases have put some pressure on our margins, a weaker Australian dollar over the reporting period, the revenue mix during the period impacted margin. Installation revenues, our lowest margin revenue stream, grew by 55% compared to pcp. Software and SMA revenues increases to 15.3% of total revenues, and we continue our focus on growing this revenue stream, which will add further growth to our margins over time.

The most significant risk for the Company remains a global shortage of certain semiconductors, which has resulted in higher prices and historically long delivery timelines. To offset this we have invested in higher inventory levels to ensure supply and take advantage of opportunities.

Reported NPAT is $1.5m for the first half compared to $0.8m for FY21. The second half NPAT of $2.6 million drove the full-year result as we benefited from a rebound in revenues, particularly in the last quarter. Cash on hand remains strong at $7.1m. The December 2019 capital raising proceeds have now started to be deployed. We have invested in strategic inventory and put on a number of new sales resources in North America and the Middle East to pursue our organic growth objectives.

Some of the increases in inventory were strategic buys of raw materials to ensure continued supply. The balance represents inventory held up by site access restrictions is some markets. The Company has no effective debt. And our strong cash balances allows us to explore M&A opportunities. Thank you.


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