Discl: Held IRL 1.12% and in SM

A lot to like with ALC’s 1HFY26 results. The SM interview with Kate earlier this morning was helpful in providing additional context. Despite a string of good news, the ALC price has barely budged around 10-11c as the market does not appear to have noticed the progress at all. With maiden full-year NPAT appearing very likely in FY2026, think it is time to top up from my current very small allocation to at least 1.5%.

SUMMARY

• Very good 1HFY26 results
• Revenue up sharply, expenses under control, on-trend EBITDA, maiden 1H NPAT which should see ALC achieve maiden full year NPAT in FY2026
• Good sales and revenue momentum with the naterial UHSussex deal to be completed in 4QFY26 
• $14.2m cash, no debt - nice, clean balance sheet
• Growth strategy still focused on Canada and Middle East - there is progress made on both fronts
• M&A is in the mix, but will be focused on new customer acquisition, market share expansion or geographic expansion, rather than new products.

OVERALL RESULTS

A good set of results, but not surprising given strong indication from the earlier Appendix 4C release

REVENUE AND GROSS MARGIN

• ALC’s seasonal pattern is such that (1) 1H Maint & Support revenue is stronger than 2H - recognition of Leidos annual licence revenue occurs in 1H (2) Capital Licensing revenue has been stronger in 2H than 1H but (3) 2H Total revenue tends to be higher
• 1HFY26 was a significant 44.4% jump from 1HFY25 and a 10.0% jump from 2H2025, a sharp above-trend outcome
• Driven by (1) full year impact of new customer wins in FY25 (2) expansion of the Leidos (ADF) contract
• The HoH increase over 2HFY25 is actually rather significant given that $8.4m of 2HFY25 revenue was from lumpy Capital Recurring licenses which did not recur in 1HFY26 - the jump in HoH revenue from Maint & Support and Product Impl & Services alone, was a whopping 62.2% - this is shown in the chart below
• Direct Costs were up 96.0% YoY, but moderated to 76.4% HoH
• Total Expenses were 18.1% up YoY, but only 1.3% up HoH 

EXPENSES

Employee Benefits (full) has been trending downwards and remained flat HoH - in the SM interview Kate was clear that ALC will not go back to the pre-reorganisation 2024 headcount, AI is allowing ALC to do more with the same, but there has been some hiring of UK sales & marketing and deployment staff that could add ~$1m per annum, so instead of a downward trajectory, there will be an uptick in 2HFY26 and the trend should flatten instead

No concerns with this as the headcount increase in the UK makes sense given where things are at with the NHS

PROFITABILITY

Gross Margin

Gross margin was sharply lower, driven by material 3rd party partnerships signed during 1HFY26, Mizaic (North Cumbria) and Leidos. As this is recurring, gross margins will likely moderate closer to 82.5% moving forward

EBITDA, NPAT

Both EBITDA and NPAT are trending up very nicely indeed

While NPAT was already positive in 2HFY25, 1HFY26 is ALC’s maiden 1H NPAT - assuming nothing adverse occurs, in 2HFY26, ALC should end FY2026 with a maiden full-year NPAT

BALANCE SHEET AND CASH

$14.2m cash, no debt, 2H is historically higher for cash receipts - no concerns

SALES MOMENTUM AND DEPLOYMENTS

This was a good slide summarising the sales momentum

UHSussex - ALC is the preferred supplier, deal should be locked in in 2HFY26, ~$35.0m

GROWTH STRATEGY

Unchanged, but in the SM meeting, Kate has clearly stated that M&A is primarily focused on adding customers, market share or geographic expansion, not to add new products

OUTLOOK