Craneware : Interim Report H1 2024

Craneware plc

("Craneware", "The Craneware Group", the "Company" or the "Group")

Interim Results

4 March 2024 - Craneware (AIM: CRW.L), the market leader in Value Cycle solutions for the US healthcare market, is pleased to announce its unaudited results for the six months ended 31 December 2023 (H1 FY24).

Financial Highlights (US dollars)

• • Revenues for the six months increased 8% to $91.2m (H1 FY23: $84.7m)

• • Adjusted EBITDA1 increased 8% to $27.5m (H1 FY23: $25.5m)

• • Adjusted profit before tax2 increased by 8% to $17.0m (H1 FY23: $15.7m)

• • Profit before tax increased by 13% to $5.9m (H1 FY23: $5.2m)

• • Adjusted Basic EPS increased by 4% to 42.8 cents per share (H1 FY23: 41.0 cents per share)

• • Annual Recurring Revenue3 of $171.4m increased by 3% (H1 FY23: $166.4m)

• • Cash conversion of EBITDA over last 12 months of 91% (H1 FY23: 77%)

• • Cash reserves of $63.9m (H1 FY23: $90.8m)

• • Total Bank Debt of $59.2m (H1 FY23: $107.9m)

• • Interim dividend of 13.0p (16.51 cents) per ordinary share (FY23 Interim dividend 12.5p)

  • 1 Adjusted EBITDA refers to earnings before interest, tax, depreciation, amortisation, share based payments and acquisition and integration related costs

  • 2 Adjusted profit before tax refers to profit before tax, amortisation of acquired intangibles and acquisition and integration related costs

  • 3 Annual Recurring Revenue includes the annual value of licence and related recurring revenues including transaction revenues as at 31 December 2023 that are subject to underlying contracts and where revenue is being recognised at the reporting date

Operational Highlights

• • Positive response to recently launched Optimization Suites as a means for hospitals to strategically address challenges of the healthcare market

• • Significant increase in sales to both existing and new customers, demonstrating improving market backdrop

• • Customer retention strong, at above 90% in the period across all measures

• • Partner programme contributing to revenue growth, made possible through the Trisus platform with a pipeline of additional partners being assessed. Expected to contribute to ARR growth in future periods

• • Continued investment in R&D and innovation to capitalise on the significant market opportunity

• • Increasing data sets within the Trisus platform, now approaching 200 million unique patient encounters, increasing our competitive strength, and providing further opportunities for product enhancement and new product development to the benefit of our customers

Outlook

• • Market backdrop strengthening with US healthcare and hospital customers re-focusing on their future

• • Continued and growing high levels of contracted Recurring Revenue

• • Confident in delivering results for the year in line with current consensus and see clear potential for growth acceleration in the near term

Keith Neilson, CEO of Craneware plc, commented,

"Our growth in the first half of the year is tangible evidence of the return of healthcare providers' focus to their strategic priorities and their increasing investment in technology to provide the insights to achieve them.

"Through our investments in the Trisus platform, Craneware is well positioned to support our customers in this transformation of the business of US healthcare, providing us with a sizeable opportunity and growth lasting for the long term.

"We have entered the second half of the year with good sales momentum and focus. We remain confident in the delivery of results for the year in line with current consensus, further growth acceleration over the near term, and our ability to create further long-term value for all stakeholders."

For further information, please contact:

Craneware plc	[phone]
Keith Neilson, CEO
Craig Preston, CFO
Alma Strategic Communications	[phone]
Caroline Forde, Joe Pederzolli, Kinvara Verdon	[e-mail]
Peel Hunt (NOMAD and Joint Broker)	[phone]
Neil Patel, Paul Gillam, Kate Bannatyne
Investec Bank PLC (Joint Broker)	[phone]
Patrick Robb, Cameron MacRitchie
Berenberg (Joint Broker)	[phone]
Mark Whitmore, Richard Andrews, Dan Gee-Summons
About Craneware

The Craneware Group (AIM:CRW.L), the market leader in automated value cycle solutions, including 340B management, collaborates with U.S. healthcare providers to plan, execute, and monitor operational and financial performance so they can continue to deliver quality care to their communities. Customers choose The Craneware Group's Trisus data and applications platform as their key to navigating the journey to financially sustainable value-based care. Trisus combines revenue integrity, cost management, 340B performance, and decision enablement into a single, SaaS-based platform. The Craneware Group - transforming the business of healthcare.

Learn more atwww.thecranewaregroup.com

Chair Statement

At the time of our Final Results announcement in September last year we noted an improving outlook for the business, based on a return to more normal conditions in our end markets and a positive start to trading in the new fiscal year. I am pleased to report that those green shoots of recovery have continued, and as a result we have seen a good performance across our financial metrics in the first half, driven by growth in recurring revenues and a small, but increasing, contribution from partner revenues.

Acceleration in revenue growth

The Group has seen an acceleration in revenue growth in the period, increasing by 8% to $91.2m (H1 FY23: $84.7m), with adjusted EBITDA also increasing by 8% to $27.5m (H1 FY23: $25.5m), in line with Board expectations and maintaining our target EBITDA margin of 30+%. With much of the sales success in the period still to convert to revenue in line with our revenue recognition policy, Annual Recurring Revenue ('ARR3') has grown 3% to $171.4m (H1 FY23: $166.4m) whilst retaining a Net Revenue Retention of 100%.

The Group has accelerated the use of its cash reserves to offset the Revolving Credit Facility (RCF), in addition to its scheduled term debt repayments, thereby reducing interest costs. The resulting lower interest rate charges combined with the growth in the period, contributed to an Adjusted EPS of 42.8 cents per share (H1 FY23 41.0 cents per share), an increase of 4% over the comparative prior year period.

The Group has a strong balance sheet, with total bank debt reduced to $59.2m (H1 FY23: $107.9m) while maintaining a further $60m of available RCF and healthy total cash reserves of $63.9m, (H1 FY23: $90.8m,); providing the Board with confidence to maintain investment levels in the business, to support our continuing growth aspirations.

As announced in January 2024, the Board has agreed it is appropriate to extend the share buyback programme, which was due to expire on 17 January 2024, for a further three months to 17 April 2024, under the same terms as previously announced.

A healthy outlook

Through Trisus, our cloud-based data analytics and intelligence platform, our extensive customer base and data sets covering approaching 200 million unique patient encounters, we can be a leading player in the digitalisation of US healthcare. The team is focused on capturing this opportunity through product and partner expansion and the delivery of value to our extensive Provider customer base.

The improving market backdrop, along with a positive response to both the recently launched Optimization Suites and innovative new partnerships, means Craneware has entered the second half of the year in a strong position.

The Group's balance sheet strength, high levels of ARR and increasing customer confidence, leave the Group well positioned for the remainder of FY24 and beyond and the Board remains confident in the accelerating growth momentum and the return to double digit growth rates in the near term.

Will Whitehorn

Chair

4 March 2024

Strategic Report

We are pleased to report on a positive performance during the first half of the year, in which we delivered growth in revenue and EBITDA, while executing on our strategy. Our focus on the expansion of the Trisus product offering, through both our own development and innovative partnerships, has successfully delivered expansion and revenue growth. Our newly launched Optimization Suites have improved our new customer wins, providing more strategic solutions to address their challenges, as well as driving increased upsell within our existing customer base, enabling them to unlock additional benefits from the Trisus platform.

We continue to see the US healthcare market returning their focus to strategic priorities, leading to an improving market backdrop and confidence in continued revenue acceleration in future years.

Digitalisation of US Healthcare

The US healthcare market continues to experience challenges across three broad areas: clinical, financial and operational. These include the opioid epidemic, a mental health crisis, the increasing cost of prescription drugs, medical procedures and associated insurance premiums, the shortage of healthcare professionals and wage inflation.

The combination of these factors means our customers are consistently being asked to do more, with less, while improving patient care. We believe the key to successfully achieving that is through accurate, accessible and meaningful data and insights, providing the ability to deliver enhanced services, improved infrastructure, governance and the ability to make more informed choices around resource allocation.

However, to make those choices our customers need to be able to manage and analyse vast amounts of data, which presents significant and costly challenges for hospitals, like scalability, interoperability, processing costs, security, and compliance.

Our vision is for the Trisus platform and its applications to address these challenges, through connected technology in the cloud.

Trisus combines revenue integrity, cost management and decision enablement into a single cloud-based platform. The platform brings together siloed data from the various existing software systems in a hospital or healthcare system, normalises that data and applies prescriptive analytics to provide insights to support informed decision making regarding a hospital's finances and operations, in one place.

We provide customers with the ability to build effective strategies related to revenue, pricing, cost, and compliance to mitigate the internal and external challenges described above, delivering real financial returns and freeing up resources that can be re-invested and re-deployed by healthcare providers to support the clinical care of their communities and tackle their clinical challenges.

We believe the digitalisation of healthcare and improvement of processes using data insights will provide the foundation for value-based care and enable the transformation of the business of healthcare.

Growth Strategy - innovation to profoundly impact US healthcare operations, which will drive demand and expand our addressable market.

To date, our growth has been driven through increases in market share and product set penetration (land & expand). In recent years, we have invested in the development of the Trisus platform; a sophisticated cloud delivered data aggregation and intelligence platform which will be the foundation for our future growth.

We are building on top of Trisus to strengthen our current products, leverage our data assets to expand our offering, integrate third party solutions to the platform and benefit from the scalability of cloud-technology.

Through our 20+ year history in the US healthcare market, we have collected our own unique and extensive data set, which we believe contains the insights that will generate our products of the future. While we have always had a team analysing this data, the growth in artificial intelligence ("AI") and machine learning ("ML") means it is now easier and faster to do so, particularly when combined with the large language training capabilities of our own proprietary data. Meanwhile, we are also using AI across the organisation for efficiency and productivity gains.

Two Growth Pillars

Our growth strategy has two fundamental growth pillars:

1. Platform enhancements to increase ease of use and interoperability of the platform

With all customers now connected to, and benefitting from, the Trisus platform, our focus is on enhancing the attractiveness and value of the platform. This includes three areas of work:

• • the ongoing reengineering of existing offerings into cloud-based applications;

• • the growth of our data sets within the platform, to support future product expansion; and

• • our Data Foundations programme which aims to increase the speed and ease of hospitals' interaction with the platform and interoperability of applications on the platform.

Existing product improvements

The continual improvement of our existing offerings is an ongoing process. Combinations of new technology and their novel applications give speed, productivity and efficiency gains that benefit the ease of use of our offerings by our customers.

Growth of our data sets

The depth of our product offering continues to grow through the mining of the proprietary and regulatory data that we collect, identifying new ways the data can illuminate and support decision making within the hospital provider environment. We now have datasets for nearly 200 million unique patient encounters, providing incredibly valuable insights for our customers.

Whilst our Revenue Integrity and 340B related software applications sit on different technology stacks within the Trisus platform, they both supplement and further enrich the Trisus data sets. Eventually the work we are doing with our Trisus Data Foundations programme will enable the full integration of these stacks, making our offerings even more attractive to customers as the speed and depth of insights available is increased.

Data Foundations

As part of our Data Foundations programme of work, we are utilising the advances in AI and ML data processing to increase the interoperability and connectivity of our applications, while making the platform's back-end processes more efficient and effective.

2. Value driven Customer Expansion

With the first stage of cloud-based enhancements for existing products now complete, we can turn our focus to the development of new applications and the extension of existing applications, to expand our capabilities and the benefits derived by our Provider customers. We anticipate our customers' successwill in turn encourage new Providers to visit or re-visit the Craneware Group's solutions, which will facilitate a greater level of cross sale and product penetration across our extensive customer base and the wider US Hospital market over time, driving further growth in ARR as part of an ongoing cycle of transforming the business of healthcare and winning new customers.

Growth in ARR

ARR at 31 December 2023 increased by 3% to $171.4m (H1 FY23: $166.4m), demonstrating the Group's continued high levels of contracted revenue visibility. We continue to see the opportunity to accelerate ARR growth over the medium term, both as our initial partnership programs mature and begin generating demonstrable recurring revenue and we unlock the considerable cross and upsell opportunities within our enlarged customer base. Group Net Revenue Retention was 100% for the six months to 31 December 2023. Customer retention for the period exceeded 90%, which is testament to the value Craneware brings to its customer base.

Six Trisus® Optimization Suites

The Trisus software applications and corresponding service offerings have now been grouped into six Trisus® Optimization Suites, bringing together the solutions that address specific strategic and tactical issues facing healthcare providers and are powered by the same sub-set of customer data. Through packaging the applications into suites, we aim to make it easier for our customers to identify which of our multiple additional applications are likely to unlock immediate value and address their challenges most effectively, based on their existing data within the Trisus platform.

The Optimization Suites are: Trisus Pricing Integrity, Trisus Data Integrity, Trisus Business of Pharmacy, Trisus Revenue Protection Optimization, Trisus Charge Capture Optimization and Trisus Value-based Margin & Productivity.

We have seen a very strong response from the market to these suites and their ability to address issues being faced by hospitals at a more strategic level, providing hospitals with a single vendor rather than multiple point solutions.

Sales mix

We have seen a significant increase in all sales segments, further demonstrating the US healthcare industry's returning focus to strategic priorities out with the Healthcare emergency of last year. The proportion of sales coming from each segment remained broadly consistent with the prior year.

Expansion sales to existing customers represents 78% of our total 'new' sales in the period (H1 FY23: 79%), demonstrating the positive response of our customers to the increased ROI derived from the uptake of our partner programme, our additional cloud applications and the packaging of applications and services into our Optimisation Suites.

Sales to new customers as a percentage of our total new sales is 22% (H1 FY23: 21%).

Positive market response to newly launched Trisus Labor Productivity

We are pleased with the level of initial sales following the launch of Trisus Labor Productivity towards the end of the financial year. TLP enables our customers to optimise their staffing by department or organisation, providing insights into daily staffing and productivity outcomes using detailed analytics and predictive modelling, thereby reducing costs and confusion for greater efficiency.

Growing partner revenues

We see an overwhelming advantage in enabling select third parties and third party application providers to sit on the Trisus platform. Our Provider customers will benefit from increased value from the thirdparties' solutions being provided in an efficient and secure manner through the Trisus platform. The application providers can benefit from access to our unique positioning and data sets, and we can benefit from new revenue opportunities and additional business models.

Revenue from these partnerships, which are not directly derived from Trisus applications, are initially categorised as Other Income. We will seek to transition the majority into recurring revenue models, adding to our ARR, although the nature of the offering may be such that this is not applicable.

We now have our initial partners successfully generating revenue, and a building pipeline of additional partner opportunities, which will be rigorously assessed prior to inclusion in our partner programme.

M&A

While organic growth across our portfolio remains the priority, we continue to evaluate the market for M&A opportunities and will continue to pursue strategically aligned companies that will accelerate our growth strategy. We maintain the same four key acquisition criteria of which target companies must fit into at least one, being: the addition of relevant data sets; the extension of the customer base; the expansion of expertise; and the addition of applications suitable for the US hospital market. We view our partnering programme as a potential source of future M&A activity, provided this would deliver mutual benefits to all parties.

Our Community, People & Environment

Community, People & Environment are the three focus areas for our ESG efforts. Our solutions benefit society; they continue to deliver value for our customers, through the provision of accurate financial data, insight and analytics, that can be reinvested to support our customers in the provision of care to their communities. In addition, our 340B pharmacy solutions enable our customers to generate cost savings which go directly to the provision of care for the underserved in their communities. The Craneware Group is also directly involved with the 340B Matters initiative, which aims to educate the market regarding the importance of the 340B program for the non-profit healthcare facilities that provide accessible and affordable care within their communities.

In the period our customers have seen almost $1bn in benefit from utilising our solutions, helping to stretch scarce federal resources as far as possible, reach more eligible patients and provide more comprehensive services.

Complementing our purpose and reflecting the causes which are important to our employees, we continue to develop programmes and opportunities to positively and directly impact the communities around us. This is achieved through initiatives driven by our employees through Craneware Cares and the Craneware Cares Foundation. In the period, employees have supported a number of charity events such as walking the seven hills of Edinburgh for Cancer Research UK.

We recognise the value of our people and that supporting our customers and the achievements of the Group is due to their efforts. Our team is a talented mix of employees from diverse backgrounds, which brings a high level of innovation and collaboration. We believe in the importance of fostering a team environment while also celebrating the individuals within the team. We continue to invest in the team, our facilities and working practices and we welcome feedback and suggestions for improvements through a range of employee engagement mechanisms. In the period we have held sessions under our Craneware Spaces DEI programme and relaunched our Employee Advisory Group.

We continue to focus efforts on progressing our environmental initiatives. In the period we have closed our Atlanta office and made significant progress in the relocation of our office in the Deerfield Beach location both with a particular view to minimise our environmental impact. As previously committed, in FY24 we will also progress our climate scenario planning and identifying metrics and KPI's towards our pathway to net zero.

Financial Review

As announced in our January trading statement, we are pleased to report 8% increases in both Revenue and EBITDA in the period. Revenue has grown to $91.2m (H1 FY23: $84.7m) and there has been a corresponding increase in Adjusted EBITDA to $27.5m (H1 FY23: $25.5m). These results reflect the improving US Healthcare market landscape, as US hospitals shift from their day to day tactical survival, necessary in recent times, to strategically planning for their future.

We were pleased to see growth in our contracted Recurring Revenue in the period, consisting of Software licencing, Transaction and recurring Professional Services revenue, as well an initial contribution from partners. We have not yet seen the benefit from new sales secured in the period within our reported revenue. Due to our revenue recognition policies, these will start to contribute in future periods.

In last year's report, we identified the effect the macro-economic environment, especially increasing interest rates, was having on our results, primarily to Adjusted EPS. To mitigate this, we took the strategic decision to utilise the cash reserves of the Group, to accelerate the reduction in our overall levels of Bank debt. In addition to our scheduled term payments we have offset the outstanding balance on our Revolving Credit Facility (bank debt) by $20m in June 2023, and then by a further $20m in August 2023 while retaining access to the overall Facility of up to $100m, if required. The resulting lower interest rate charges combined with the growth in the period, partially offset by increased UK corporation tax, share based payments and amortisation have contributed to an Adjusted EPS of 42.8 cents per share (H1 FY23 41.0 cents per share), an increase of 4% over the comparative prior year period.

A small but important part of the success in the period has been our partnership programme announced last year. These partnerships build on our ability to leverage the Trisus platform in new and innovative ways. This can be through the use of the data assets within Trisus to directly support our customers or through hosting third party applications on the platform. Initially, these revenues are not deemed to be recurring in their nature and as such are reported as "Other Income" and, as a result the $5.6m reported in the period, is not included in our ARR. However, we expect many of our partner opportunities to ultimately become recurring and add to our future reported ARR.

Investment in R&D

We believe the digitalisation of healthcare and the improvement of processes using data insights will provide the foundation for value-based care and enable the transformation of the business of healthcare. Our enlarged portfolio of products means we can do even more to support our customers in their strategic needs. The real financial returns our solutions deliver, can be re-invested by our customers to support the clinical care they provide for their communities. It is therefore essential we continue to make the right investments in our future as we develop further ways of supporting our customers.

We have continued to invest in R&D, increasing spend in the period by 10% to $25.0m (H1 FY23: $22.7m). The amount of this investment capitalised in the period has remained consistent in percentage terms at approximately 31% of the total investment, being $7.9m (H1 FY23: $7.0m), the balance of $17.1m (H1 FY23: $15.7m) has been expensed as incurred. We maintain strong controls over the amounts we invest in R&D, including any that are capitalised to ensure that they will bring future economic benefit to the Group, and we confirm this by monitoring the value of contracts sold for these new products, once launched comparing these against the costs that have been invested.

Cash Reserves

We continue to maintain healthy cash reserves, which at the period end were $63.9m (H1 FY23: $90.8m Restated) with an undrawn RCF of $60m. These balances include headroom that will be used to service amounts due to customers of $68.5m (H1 FY23: $51.4m). Our total bank debt has reduced to $59.2m (H1 FY23: $107.9m), which represents a comfortable level of debt for the business given our levels of EBITDA.

From our cash reserves, we have returned $7.0m to our shareholders through dividends and the ongoing share buyback programme detailed below as well as making the made the $25.0m investments in R&D. Our business model is highly cash generative, and we continue to deliver significant levels of operating cash conversion, in the last 12 months we achieved 91% cash conversion.

Whilst it is clear that macroeconomic challenges remain, it is pleasing to report that both the Craneware Group and our end market continue to navigate these, and the green shoots of recovery identified in our last report, have continued.

Underlying Business Model and Professional Services

The new software contracts we sign with our hospital customers provide a licence for the customer to access specified products throughout their licence period. At the end of an existing licence period, or at a mutually agreed earlier date, we look to renew these contracts with our customers.

In addition to the core licences, our 340B customers can add further licences to provide 340B coverage to eligible patients who, rather than return to the hospital for their prescriptions, have these filled at local contract pharmacies or mail order specialised pharmacies. These further licences often include transactional based licence fees and other services. Due to the transactional nature of these licences, revenue recognition begins after the pharmacy go-live rather than, the standard, on contract signature and software becoming available. These transactional services, whilst highly dependable, will see some variation month to month dependent on volume of transactions.

Under the Group's business model, we recognise software licence revenue and any minimum payments due from our 'other long term' contracts evenly over the life of the underlying contract term. Transactional services are recognised as we provide the service, and we are contractually able to invoice the customer.

In addition to the licence revenues recognised in any year, we derive revenue from providing services to our customers. These revenues are usually recognised as we deliver the service to the customer, on a percentage of completion basis. We have also launched our partnership programme, which is described above, initially and whilst this revenue is not deemed recurring in its nature, it is separately disclosed as "Other income" and recognised as we are able to invoice. Over time we expect much of this revenue to become recurring and as such will be reported within Software licence or Transactional revenue, as appropriate.

Annual Recurring Revenue

By renewing our underlying contracts, and ensuring we continue to deliver the transactional services to our customers we sustain a highly visible recurring revenue base, which means sales bookings of new products to existing customers or sales bookings to new hospital customers add to this recurring revenue.

Our ARR metric identifies and demonstrates the Group's continued high levels of contracted revenue visibility. It is defined as the annual value of licence and recurring revenues including transaction revenues as at 31 December 2023 that are subject to underlying contracts and where revenue is being recognised at the reporting date. We also report our Net Recurring Revenue metric which identifies the contribution from our existing customer base, and in the period was 100%. The Group's ARR at 31 December 2023 is $171.4m (H1 FY23: $166.4m). We expect further growth in this metric as additional revenues generated from our partnership contracts are identified as recurring.

Share Buyback programme

The share buyback programme (of up to £5 million) announced in April 2023, has continued throughout this period. The shares purchased through this programme are held in treasury and will be used to satisfy employee share plan awards.