Four colombians walk into a bar

Introduction

IMEXHS which stands for Imaging Experts and Healthcare Services is an enterprise imaging software provider. The company was founded by two neuroradiologists and two software engineers in 2012 in Colombia and listed on ASX in 2018 through a reverse takeover.

What does enterprise imaging software mean? There are a few layers.

Core layer is PACS - Picture Archiving and Communication System. There are different types of medical images like X-ray, CT (computer tomogram), MRI (magnetic resonance image), etc. PACS allows physicians, radiographs and radiologists to capture, store, view and share the images.

Next layer is RIS - Radiology Information System. RIS helps with workflow management and facilitates operations within a healthcare organization. A physician requests a scan, patient goes to a clinic to get an image, then radiologist has to have a look at it and provide feedback, etc.

RIS/PACS software together most of the time oversee the entire event flow from patient entering a hospital to billing.

Last layer is advanced post-processing which includes services like artificial intelligence diagnosis and analysis or 3D visualization.

Historically only large clinics could afford RIS/PACS solutions which required expensive on-premise equipment and software installation. As a result, a large part of the market remained underserved either because they could not afford the expensive solutions or because the affordable ones were not good enough.

With advent of cloud technologies these services became cheaper and hence SMEs are just starting to see the benefits of the software as well. IME’s goal is to democratize access to world-class imaging software for the underserved SME market.

It is also worth noting that radiology is the most mature “ology” in the enterprise imaging software market. PACS solutions have been restricted to a specific communication protocol – DICOM (Digital Imaging and Communications in Medicine) and could not service other departments in hospitals like cardiology, pathology or gastroenterology. The current worldwide trend is a shift towards vendor neutral archive (VNA) systems which allow solutions to be capable of storing and processing any type of images (DICOM and non-DICOM) from all the departments.

IMEXHS offers all the layers described above for radiology, pathology and cardiology departments.

Products

At the heart of IMEXHS software offering is Hiruko platform. Hiruko is a modularized zero footprint web-based software suite for managing workflows in a healthcare facility.

Hiruko platform’s core is PACS module. Next core module is teleradiology which allows radiology professionals to view, interpret and exchange images on any device or platform in any location.

Next, there are more sophisticated offerings which facilitate end-to-end operations: Aquila for radiology, Alula for pathology and Anteros for cardiology. Pathology and cardiology sectors are as mature (although very promising) and most of the revenue is coming from Aquila.

There are two types of Aquila – Aquila Custom and Aquila in the Cloud.

Aquila Custom is an enterprise imaging solution tailored to customer’s specific needs. Customization is usually needed for larger customers who have chains of hospitals or clinics. IMEXHS has been successful in displacing customer’s existing providers and, in turn, never lost a customer to a competitor.

Aquila in the Cloud (AiC) is a standardized imaging software solution targeted at SME businesses. AiC was launched in May 2020 and quickly hit the road generating a lot of market interest. AiC has already landed 111 active contracts with expected $2.5M in ARR which makes it around $22,500 per contract. Number of total contracts have been growing steadily since the launch – 41 contracts from May to December in 2020 and 70 contracts in CY 2021. IME mainly uses distribution partners to sell AiC. Number of distributors grew from 24 to 35 in FY2021. As the number of distributers and their size has been growing, I expect the rate of contract wins to accelerate. Management claimed that company has been continuously trying to do everything possible to speed up the implementation time which is now 13 days (actual software implementation takes less than 48 hours, 13 days is the period between signing a contract and a first use of the platform).

AiC geographical growth is impressive too. It started in Colombia, then expanded to LATAM, US, Australia and Thailand. IME has recently signed a partnership agreement with Neusoft Medical, a global clinical diagnosis and treatment solution provider. Neusoft has more than 40,000 installations in 110 countries. Signing partnerships with large companies does not necessarily guarantee sales success and we are yet to see the results in the future, but this does look promising.

IME has also entered a partnership with Berli Jucker Group which is one of the leading distributors of medical equipment and healthcare services in Thailand. AiC has already received its first order in Thailand.

The first mention of AiC was in Q2 2020 report – “First sales of new Aquila in the Cloud product targeting small and medium-sized medical practices”. Company had used standard language like “we are continuing to invest in our technology” in the prior reports. There were no “we are excited about our up-and-coming product” statements. AiC was not mentioned during AGM which was held after Q1 2020 either. I am not 100% sure what to make of this observation but I found it interesting. May be nobody at IMEXHS expected for AiC to generate as much interest as it eventually did.

RIMAB acquisition

RIMAB is a radiology diagnostic and interpreting service provider in Colombia and Spain. It was founded by the CEO German Arango and the CMO (chief medical officer) Jorge Martin. RIMAB uses IMEXHS software and there were constant related party transactions going on between two companies which turned off a lot of investors. To eliminate the related party transactions and increase transparency IME decided to purchase RIMAB which had turned investors off even more. Well, rightfully so (may be not?). There was a choice between keeping RIMAB as is with related party transactions clouding the financials or buying it and cleaning things up. I think they made the right choice.

I think the most important part in this acquisition is its structure. The price was $8.5 million of which $1.4 million was in cash and the rest was in IME’s shares (share price at the time was $1.76). This transaction made the CEO even more vested in the company and also made him the biggest sufferer of company’s share price decline in 2021.

IME and RIMAB consolidated financials were reported for the first time in the latest quarterly report (Q4 2021). By the looks of it RIMAB acquisition brought the company closer to being operationally cashflow positive ($1.5 million dropped to $500k).

The number of medical images and their quality has been increasing exponentially within the past decade. There is already a lack of radiologists around the world and this shortage will only keep increasing. Even with huge growth of AI services in medtech industry no major decisions influencing patients will be made without professional’s approval in the foreseeable future. Therefore, I think radiology side of the business will not only not go away but grow.

Competition

The market is very fragmented with everyone trying to get their piece of the pie and claiming they are very unique. There are big companies, small companies, private and public ones. Some companies offer full end-to-end solutions and some just integrate a specific service into an existing infrastructure of a healthcare organization.

I don’t think one company can stand out with something extremely unique when it comes to enterprise imaging solution software. Of course, product has to be modern and intuitive as there is image storing and viewing, workflow operations, billing, patient data and more. But there is only that much software can do. I can see that in the future an AI offering could be a big differentiator for a company (say, a substantially higher accuracy rate in determining a disease). Too early though. The key factors of success in this industry besides offering a quality product are proper distribution channels and price.

Let’s briefly look at the few players.

Pro Medicus Ltd (PME.AX) is a multibillion-dollar company listed on ASX with 20-plus-year history and is the most established enterprise imaging player in Australia. Pro Medicus has a sophisticated offering with rich features and they mostly target the very high-end market customers. They serve nine out of twenty “best hospitals (according to certain ratings)” in the US. PME recently received FDA approval for their breast density AI algorithm. This is an interesting trend to watch. In FY2021 Pro Medicus did $68 million in revenue and $30 million in profit which is phenomenal. They trade at 100(!) times EBITDA.

Mach7 Technologies Ltd (M7T.AX). Mach7 only used to offer PACS solution. In 2020 they acquired Client Outlook with their eUnity viewing platform which supplemented their current offering. Now Mach7 claims to have a leading end-to-end enterprise imaging solution on the market. Mach7 employs 90 people in five locations globally and serves customers in 15 countries. The company has a solid management (who is not very well aligned with shareholders and I think overpays themselves) and has been adding a lot of senior people lately. It doesn’t seem that Mach7 has their own AI solution but they partnered with Nuance Communications to close the gap. They reported $19 million of revenue in FY2021 and are valued at $180 million.

Volpara Health (VHS.AX) is a med tech competitor but they are mostly focused on mammography and tomosynthesis (which is 3D mammography) side of the market. They claim to have 32% market share in North America, have 175 employees, have $28 million in ARR and trade at more than ten times of that.

Carestream and Agfa are two large international players in medical imaging industry and IMEXHS has been successful in displacing them.

Aidoc – not a direct competitor but an interesting company to mention here. Aidoc is an Israeli technology company that provides AI solution which analyzes medical images. Aidoc raised USD$66 million in 2021 and is quickly penetrating the US market. I would say Aidoc competes with Stella AI which is an advanced post-processing service developed by IME in-house.

AuntMinnie is the largest online community of medical imaging professors. They run different competitions in various sectors of the industry annually. In 2019 IME reached semi-final for the best new radiology software which was a great result. Aidoc won the award.

I would say IME’s competitive advantage is in its ability to play through the entire market spectrum. IMEXHS has high quality products at a very competitive price for customers of all sizes. They range from a standardized offering (AiC) targeted at SMEs to sophisticated and custom offering for large multi-clinic healthcare institutions.

Leadership

Company is led by a co-founder Dr German Arango – a neuroradiologist who has more than 15 years of experience as a practicing radiologist in Colombia. From the presentations I’ve watched German communicates his ideas in a concise clear manner and answers questions without weaving. He owns more than 10% of the company (should be a higher number now after RIMAB acquisition).

Douglas Flynn and Damian Banks are two directors who came to IMEXHS in 2020 after selling their company Konekt to a private equity company APM for $52 million in 2019. They also seem to have brought their CFO with them – Reena Minhas. Douglas Flynn is a current director of NextDC – a multibillion-dollar Australian company listed on ASX, which develops and operates data centers.

Douglas Lingard was a co-founder of Pittwater Radiology Partners which after a series of mergers and acquisitions listed on the ASX in mid-2000 as Medical Imaging Australasia Ltd (MIA) and became the largest supplier of radiology services in Australia and a major supplier of diagnostic imaging to the NHS in the United Kingdom. In mid-2004, MIA was acquired by DCA Group Ltd for $700m to become one of the world's largest radiology businesses, and the leading practice in Australia known as I-Med. Mr. Lingard is also a chairman and founder of peak charity in Australia for helping people with mitochondrial disease.

Carlos Palacio is an Australian tech entrepreneur who founded global cloud-based managed services business - CrossPoint Communications. He has almost 30 years of experience in IT, telecommunications and strategic management. Carlos started advising IMEXHS from the times they were still private and owns approximately 6% of the company.

It is difficult to ignore the fact that the DDD trio – two Dougs and Damian – is extremely bullish about the company. Together they have bought more than $1.5 million worth of shares at prices higher than current in an open market since 2020.

I think we have a strong and capable board that is well-aligned with shareholders.

Financials

What do we have? Market cap is $32 million, cash in the bank is $4.2 million, expected ARR is $20.4 million of which $13.3 million is from radiology services and $7.1 million is from software. Aquila in the Cloud contributed $2.5 million to the software segment.

Last quarter company spent roughly $2 million - $450k in operating activities, $1 million for RIMAB acquisition and $400k for capitalizing IP. Management mentions that FY2021 includes one-time expenditure of $700k which is related to transaction costs of RIMAB acquisition. I think this cost is heavily weighted towards Q3 and Q4.

Conservatively, after excluding one-time payments, we have $1 million per quarter cash burn with $4 million in the bank. We cannot eliminate the possibility of the cap raise at this point but I think management will do their best to avoid it. Something like recent win with Colombia National Police which adds $1.1 million in ARR would definitely help. I am morally prepared for the cap raise at these prices as long as growth rate of AiC contracts is decent. What is decent? AiC won 70 contracts in CY2021. I would want to see 140 new contracts in CY2022, or at least 100. IMEXHS has started to gain a certain name recognition for their product (AiC) and shook hands with significantly large distribution partners. If contract signing rate doesn’t accelerate in 2022 it will raise a red flag for me.

Anti-thesis

Company burned all of the IPO cash, overpromised and had to raise more capital. Company listed on ASX just to use it as an exit vehicle for the related-party buyout. Company is based in Colombia and most of the money currently comes from Latin America and “who knows what’s going on there”. There is a currency risk, there is a “this is not a Western-world-based country” risk, there is a capital raise risk. These seem to be valid points for a lot of investors and hence we see the share price sitting where it is today. I have an opposite opinion. I think company did make a few mistakes, learned from them, cleaned up the structure and with the new board’s guidance is well positioned for the future.

Conclusion

Since going public in 2018 IMEXHS appointed experienced board of directors, went through share consolidation, expanded to developed markets like US and Australia, launched world-class yet affordable cloud-based product, which gained $2.5 million in ARR in less than two years, acquired RIMAB to eliminate third-party transaction issues and increase transparency, won various awards and signed global partnerships with renown industry leaders. The company has almost 200 employees, which include skilled radiologists, senior software engineers, support engineers, data scientists, business analysts, who work together, innovate and keep coming up with new products in a growing market. We also have high-caliber directors who cannot stop buying shares in an open market. And all of this market values at $32 million. I think the market is wrong. Time will tell.