Alcidion Group Limited

ASX:ALC

Alcidion Group Limited

ASX:ALC
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$0.064 (-3%)
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#24
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Reports (14) My Report Forum Investors
Forum Topics ALC ALC Management Meeting Notes

Pinned straw:
jcmleng
Added 9 months ago

My notes from this arvo's chat with Kate Quirke, ALC CEO. Have rearranged the notes into logical headers as a lot of ground was covered in the call.

My Thoughts Reflecting on the Call

  • Institutions are still backing ALC - Aust Super and new Substantial Holder, Salter Brothers Emerging Companies took a 5.11% stake 2 days ago.
  • Walked away from the meeting not feeling that there has been permanent or structural change and that today’s challenges appear “transitional” (for 12-18M) rather than permanent. 


@nerdag 's bullish thinking is increasingly resonating. Salter Brothers clearly acted on this.

The only way forward is up (by how much is another question altogether), with a base revenue position of ~$120m over the next 5 years anchoring the viability of ALC. This does not feel like a $0.00 company at all, which is the max loss from here.

Might actually be a very good time to average down - buy when everyone else is fearful. It feels like we are in peak pessimism mode now on what FEELS like a transitonary problematic period.

Discl: Held IRL and in SM

-------------

Summary of Meeting

  • A mixed feeling of “defiance” and “resignation” is the feeling I walked away with
  • Defiant - ALC is clearly going through a rough patch, as is every other competitor, but Kate remained clear and had high conviction that there is a lot of growth ahead once ALC gets past the current NHS challenges - she flagged another year
  • Resignation - doing all they can within what is controllable, will need to be patient for the NHS spend to be unlocked, resigned to the negativity in the meantime, weathering it as best as it can


Overall Challenges

  • Confluence of micro and macros issues, compounding each other
  • Challenge is acknowledged and FY2024 will not be a good year
  • All competitors face the same pressures as everyone is impacted
  • Another year to run, after which ALC’s focus will move from Tier 0 hospitals to the more matured Tier 2 hospitals


Downsizing

  • Taken $6m out of the cost base
  • Comfortable with executing the downsizing now as the focus in the last 18M was on developing repeatable processes as ALC scales, which is bearing fruit with the downsizing


R&D

  • R&D has not been sacrificed with the downsizing as - resources to support the ADF contract reached end-of-delivery, creating capacity post downsizing


Cash Position & Cash Forecasting

  • $120m of contracted revenue in the next 5 years, business is now rightsized
  • Have the ability to forecast cash flow pretty well, very little bad debts
  • Expect to sign more contracts
  • Capital raise was an “insurance policy” prior to downsizing
  • Cashflow positive target will be met after incorporating the cost of downsizing redundancies


UK NHS Activity

  • Significant uptick in tender activity
  • Budget is severely constrained this year to recover from Covid spend, budget for the next year is looking to be in catch-up mode
  • As ALC’s buyers are government buyers, they are driven by/guided by what spend is permitted
  • Buying cycle is long as ALC is focused on meeting the needs of Doctor’s and Nurses to increase their efficiency as their primary objective, not the Patient’s needs (who benefit from better service from the NHS)
  • The NHS is still a key ALC revenue stream:
  • Very significant growth opportunity in a sizeable market funded by the government
  • Sale of additional modules to existing NHS customers
  • Largest employer in the UK
  • Good launch pad to other countries eg. Canada


ALC Platform Competitive Advantage

  • ALC’s platform & modular approach allows it to position against the current “moment in time EPR focus” as well as the changing NHS focus over the years - ability to mix and match modules to solve healthcare problems
  • ALC has, and will continue to detect emerging trends in healthcare challenges and build the platform response early - the Silverlink acquisition and integration into Miya precision allowed ALC to position itself to solve the current EPR challenges that the NHS is facing
  • Have already built in AI into the ALC platform for many years and will continue to incorporate elements of AI


M&A

  • A lot of increased M&A activities/opportunities, but is not ALC’s focus at the moment, still very much focused on organic growth and demonstrating the value from the ALC platform
  • ALC is at a reasonable level of scale already, presently


Competition

Nerve Centre in the UK

  • Main ALC competitor in the NHS, a small company based in the Midlands and is doing well in the UK
  • ALC is more focused in the North of the UK
  • Nerve Center is only now just building a Patient Admin module - need a proven reference case in NHS tenders
  • ALC has the advantage of a ready-to-go platform and has modules in areas where Nerve Center does not


Telstra Health in Australia

  • “Copying” ALC
  • Is trying to be all things to all people - still trying to work out its unique proposition
  • Acquired a lot of companies, has a different architecture, different technology stack


Other Opportunities Discussed

  • Management of Medications - lots of localisation and legislative requirements required, EPR players in Australia already have a module for the large hospitals, remain open to this
  • Aged Care - very poor state of IT, but profit margins in the sector are too thin to make investing worthwhile


On Hindsight

  • Would have executed downsizing earlier but they had to find the right balance against the then-reality of NHS moving at pace - classic IT company conundrum
  • Would have combined Silverlink and Miya solutions earlier
  • Better marketing of the business and value proposition and would have spent more time in marketing to counter the massive marketing teams that ALC’s competitors have (their competitors are also laying off people)
Seymourbutts
Added 9 months ago

Good discussion from all involved on this thread. I haven't watched the meeting yet, but will be catching up later this week.

Sticking with the theme, Alcidion released this announcement to market this morning regarding a contract extension with DGT NHS Trust. Their longest customer using Miya in the UK.

Key points:

  • Alcidion extends contract with Dartford and Gravesham NHS Trust for an additional 3 years for Miya Precision and associated modules to deliver electronic observations and assessments, manage patient flow and support electronic documentation
  • The contract value is $3.4M (£1.7M) over the new contract period of 3 years
  • The contract extension will include a move to cloud based delivery


Small in the relative scheme of things but it has to be seen in a positive light. However, I am still eagerly awaiting a larger, more material contract win.

Held.

22
thunderhead
Added 9 months ago

Thank you for your notes and observations @jcmleng, and for all the excellent follow up contributions from the others.

The market has reacted positively to the call and Salter emerging on the register. We'll see if it lasts :)

11
mikebrisy
Added 9 months ago

@jcmleng Thanks for the summary - I just finished catching up on the SM Meeting and broadly agree with your assessment.

For some independent context, I note the following from NHSDigital, which says that 90% of NHS Trust have now implemented EPR systems, that GBP400 million was spent last year, and that GBP500 million is ear-marked to be spend this year. The article is dated November 2023, in which it is reported that Hilligdon Hospital and Sheffield Health and Social Care Trusts bring the list of trust to have implemented EPRs up to 189.

https://digital.nhs.uk/news/2023/90-of-nhs-trusts-now-have-electronic-patient-records

Sheffield selected Servelec's Rio platform and Hillingdon selected Cerner.

Clearly, $ALC has had a slice of last year's GBP400 in the renewals and extensions signed, and the reference to an NHS budget/plan for GBP500 million in 2024 is consistent with Kate's report that they have a lot of tenders in progress.

It really is hard to know whether this is about protracted procurement delays (which have been reported in the industry press, independently) or competitive pressures, as other firms are being awarded contracts. However, the deals are still being signed by the competition.

I guess the only SP catalysts will be a) a material contract award, or several moderate sized deals or b) and M&A offer.

Disc: Not held; on watch list

25
NewbieHK
Added 9 months ago

@mikebrisy I just wanted to confirm and get better clarity on a few things.

Of the 400m spent in EPR systems last year the best ALC could do is basically renewals and extensions?

They have tenders in for the 500m earmarked for EPR systems in 2024?

After the 500m to be spent in 2024 this will represent 90% of NHS Trust EPR systems?

Thank you

(@jcmleng thanks for your summary)

14
mikebrisy
Added 9 months ago

@NewbieHK I had another look at the article, and need to make an important correction.

  • The GBP400m spend relates to 2022
  • The GBP500m spend relates to 2023
  • The 90% relates to the overall NHS target to have 90% of trusts with some form of EPR by end of 2023 - this appears to have been achieved
  • The 100% target is for end of 2025

It is not clear to me how much of the original GBP1.9bn remains to be spent. Assuming GBP900m was spent in 2022 and 2023, then that leaves GBP1000m for 2024 and 2025.

I guess a Trust ticks its contribution to "% coverage" target at the first module to "go live", which probably explains the 90% coverage at <50% spend. That would indicate that we are probably building up to a peak rate of IT $ deployment during 2024 (makes sense, 3rd year etc.)

$ALC have most recently reported that they are involved in tenders for contracts with "TCV of $200m+" so read that as GBP110m+, which also makes sense if there is GBP1000m to be spent in two years. They are billing for 11% of the remaining spend ... it is a market with a lot of players, and they can't offer all solutions.

The key message, however, is that the money is being spent and contracts are being let, and the target of getting "something" in each NHS Trust appears to have been ticked.

I only write this because you can come away from the engagements with Kate with the impression that everything is being held back. There is ample evidence to indicate that is not the case, even though there are reports of delays (as is not uncommon anywhere, public or private with an IT roll-out of that scale.) We've been hearing the "delayed procurement" message from $ALC for over a year now (I think) and all I am pointing out is the NHS has been spending a lot of the planned money, broadly in line with what you might estimate is the planned rate. Or in other words, in the time we've been hearing the "delayed procurement" key message, it appears GBP500m has been spent. Not contracted, spent.

I imagine there is rather a lot of "devil in the detail" and I don't want to give the impression that I have any deep or unique insights on this. I don't. I just always try to triangulate what I hear from management. Always.

As far as I can see with the $ALC disclosures over calendar 2023, is that the material disclosures relate to existing customers (South Tees renewal and extension, and Leidos extension). There is one undisclosed value of an Incremental Extension for an existing customer (Bolton NHS) in 2H 2023, as well as several "new" customers where the sizes of the contracts are undisclosed, as far as I can see.

My hypothesis is that the new customer contracts are quite small. This is not surprising. A new customer - given the option - is likely to go ahead and try one module first. (For technical reasons, as well as the poltical one of "ticking the box").

However, as far as I can determine, it has been some time since we had a new customer with a material contract where the value has been disclosed. I don't follow $ALC super-close, so I may have missed something, But that is as it appears to me.

The UK budget and the state of the NHS is a big issue at the moment. So another question is, "what happens to NHS IT spending after 2025"?

We should get an indication in this week's budget. However, the Tories are committed to tax cuts. Equally, they are almost certainly going to be kicked out in favour of Labour at the next election, which could be as early as May although likely later in the year.

Kate is alert to this because on the SM call, she referred to priorities in the NHS evolving every few years.

My bet, is that once the GBP1.9bn is spent, there will be the need for a lot more spending and eventually, a program for 2026 and beyond will be developed by the government of the day.

This is all a little bit close to home for me, as I have family members in the UK who are currently involved with the NHS. Without oversharing personal details, all I can say is that as of today their experiences are not very digital, coordinated or connected. When I read the NHS IT Strategy Paper, I feel like I am reading about another country.

Not sure that clarifies any of your questions.

19
NewbieHK
Added 9 months ago

@mikebrisy thank you for the comprehensive response to my questions.

I think it is concerning that with all this money being spent they simply are picking up crumbs. For me I think it says alot about their product offering.

10
mikebrisy
Added 9 months ago

@TPI1 you make a very good point. The initial flurry of activity to get core EPRs in during 2022-2025 could then arguably seed a follow-on wave of incremental module purchases, from a very wide customer base.

Question is whether you buy your modules from the core provider (Epic, Cerner, etc.) or from more focused players like $ALC. I just don’t know.

It may well be that we see $ALC come back with all guns blazing. I just don’t have any conviction in that thesis, so that’s why I am out. But it might happen.

22
nerdag
Added 9 months ago

@mikebrisy, having used Epic, Cerner and Orion (as well as a smattering of others including Miya) over the last few years, most of them don't work all that well as standalone modules, and integrating them is a right royal pain.

One factor IMO is that the big dog with momentum being Epic, is just very American in how it feels to use and navigate. Its not a good fit for how we provide care in Australia and particularly with our peculiar mixed public/private funding arrangements and how that's measured. Orion and Cerner are less so.

The UK hospital system is much more like Australia in terms of culture, funding etc. I'd be very surprised if Epic managed to get a foothold in the UK market with the current product offering.

That doesn't mean Alcidion is a shoe-in, but the user experience aspect of how the EMR is organised and whether it fits the culture of UK health services is an unmeasurable factor to consider.


27
nerdag
Added 9 months ago

And FWIW, NHS management aren't going to prioritise clinician friendliness if there is a significant contract saving to be had. For a cash strapped NHS, it's bottom line any day of the week and twice on Sunday.

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