Pinned valuation:
Lowering my M7T price target/ valuation based on 3rd qtr. FY23 Update as my previous growth assumptions were too ambitious.
However, Mach7 still expects to remain operating cash flow positive for FY23 as it has in the preceding three financial years.
I'm reasonably happy with the trends that are shown in this report and still have a positive outlook on the company's prospective future.
Q3 FY2023 Highlights
FY23 sales order target of A$36M exceeded; Q3 FY23 sales orders of A$11.3M (TCV1) up 156% on A$4.4M in Q3 FY22, bringing year to date sales orders to A$37.1M
Contracted Annual Recurring Revenue (CARR) of A$20.6M; (A$20.0M at 31 Dec 2022)
Annual Recurring Revenue (ARR) run rate of A$17.2M; (A$16.4M at 31 Dec 2022)
Adventist Health System final sales orders received and deployment phase commenced
Cash on hand A$19.4M; (A$20.6M at 31 Dec 2022 )
Sales orders for the third quarter of FY23 were A$11.3 million (TCV), up strongly on the A$4.4 million2 achieved in Q3 FY22.
• Annual Recurring Revenue (ARR)-type sales of A$6.2 million (or 55% of total sales orders) representing support & maintenance fees and subscription fees which will be recognised as revenue over the contract term when the customer achieves First Productive Use (FPU),
• Capital software sales of A$3.6 million (or 32% of total sales orders) which will be immediately recognised as revenue upon delivery in FY23, and
• Professional services sales of A$1.5 million (or 13% of total sales orders) to be recognised as revenue over time upon completion of services.
Sales orders from existing customers featured in Q3 FY23 with 95% (or A$10.7 million) of sales generated from healthcare organisations with which Mach7 already has a commercial relationship.
Existing customer, Adventist Health, signed sales orders for its remaining 15 (of 22) hospitals yet to deploy Mach7’s PACS. These latest orders have a value of A$7.1 million including scope expansion and comprise the bulk of the Expansion/Fulfilment sales orders
By his own admission, CEO Mike sets conservative revenue targets and is adopting a "relaxed approach", aiming to achieve ARR to cover the opex base "over the next two years". By these I mean that $M7T are happy to sell either on a capital or subscription basis.
Clearly the Adventist contract helped them blast the revenue target out of the water. It will be interesting to see what sales goal is set for 2024 at the FY presentation. I'm guessing 20% on this years target of $36m, which would be $43m. So if that's the case, how much of it do they get a head start on in the last Q of FY23? (which is what they did last year)
In the Q&A he sounded pretty bullish about upcoming future signings in the Middle East and APAC.
Overall. this was a good result and I am happy to hold. (I agree with your valuation of c. $1.20. I'm not adding today because history indicates that these initial bumps unwind over the coming week or two, but I am thinking about adding on any further SP weakness. Today's bounce has simply corrected for the last couple of months and taken us back to where we were around the 3Q report.)
Disc: Held IRL and SM