RBC quick take on ALC 1Q25 Activities Report

1Q25 Activities Report - 1Q cash typically weak, positive FY25 EBITDA guidance reaffirmed

ASX: ALC | AUD 0.05 | Sector Perform | Speculative Risk | Price Target AUD 0.09

Sentiment: Neutral

ALC reported negative operating CF of -$3.9m (vs -$14.5m in 1Q24 and RBCe $1.1m). While we had been expecting ALC to deliver positive operating CF, we acknowledge our forecasts did not properly consider the typical seasonality of low cash receipts in 1Q. Therefore we do not view the negative operating CF in 1Q25 as a negative for ALC. Management said the 1Q25 cash receipts and operating CFs were in line with their expectations. The company announced new TCV sales of $5.2m in 1Q25 which exceeded our expectation of $2.9m, however we note the value of unannounced New TCV sales of $1.2m is below historical levels. Total contracted and scheduled renewal revenue for FY25 has increased slightly to $28.5m at Sep 24 (vs $28.0m at Aug 24) and management reaffirmed its target of being positive EBITDA in FY25 target. Overall, we view the 1Q25 activities report as neutral for ALC

DISC: Held in RL & SM

FWIW this from RBC (Royal Bank of Canada)

Alcidion Group Limited

4Q24 Activities Report - Softer FY24 Revenue Guidance, Subdued 4Q New Sales

ASX: ALC | AUD 0.08 | Sector Perform | Speculative Risk | Price Target AUD 0.10

Sentiment: Negative

Our view: ALC's 4Q24 new TCV sales was slightly below our forecasts, albeit the company achieved a record high in customer cash receipts which was above our expectations. Net operating cashflow turned positive from last quarter, but was below our forecasts due to higher than historical R&D costs. Management guided FY24 revenues to be slightly below RBCe and Consensus forecasts, with higher recurring revenues than we were expecting. Overall, a weaker result comprising a few misses across the top-line, new sales and operating cashflow

Key points from the 4Q24 activities report:

• ALC achieved 4Q24 new sales with TCV of $5.0m (vs RBCe $7.0m) with $0.9m to be recognised in FY24 (~18% of 4Q24 TCV vs ~48% in 3Q24)
• Operating cashflow was $5.6m (vs RBCe of $8.2m, and -$1.3m in 3Q24). This was supported by record high customer cash receipts of $18.6m (vs RBCe of $12.6m) which was up 5% vs pcp, combined with the realisation of cost savings initiatives which reduced staff costs to $6.3m (vs $8.1m in 3Q24). However, this was offset by increased R&D costs to $2.7m which sits above previous average R&D spend ~$1.1m
• FY24 revenue is expected to be $37m-$37.5m (vs RBCe $38.4m, Consensus $38.9m), comprising ~74%/26% recurring/services revenues (vs 70%/30% in FY23)
• With the UK elections now over, management are starting to see FY24 tender activity move through the selection processes and are pleased with the progress of several opportunities in both the UK and ANZ. Management is also optimistic for FY25
• ALC's cash balance was $11.8m (vs RBCe $14.2m, and $6.5m in 3Q24)

DISC: Held in RL & SM

FWIW RBC (Royal Bank of Canada - Sydney Branch) today released their update on ALC - some summary snippets from their (15 page) report

Alcidion Group Limited 1H24 result - delayed optimism

Our view: ALC's 1H24 revenue and underlying EBITDA was below RBCe and management's expectations due to continued delays in procurement and budget constraints across all of ALC's markets. The company no longer expects positive underlying EBITDA for FY24 and has not provided a timeframe for achieving positive EBITDA. Consequently, we lowered our revenue and employee costs forecasts and expect negative EBITDA in FY24 and a break-even position in FY25. Our PT has reduced to $0.08/share (from $0.11) and we retain a Sector Perform rating given our cautious near-term outlook for the stock

Key points:

Result summary. Total revenue of $19.1m (vs RBCe $21.1) was flat YoY. Gross profit was $16.7m (vs RBCe $18.2m), implying a gross margin of 87.8% (vs RBCe 86.0%). Underlying EBITDA was -$2.8m (vs RBCe -$0.1m). Underlying EBIT was -$4.4m (vs RBCe -$1.7m). Reported NPAT was -$4.3m (vs RBCe -$1.3m). Reported EPS was -0.34c (vs RBCe -0.10c). No interim dividend was declared (vs RBCe 0.0c). Management no longer expects a positive underlying EBITDA in FY24, albeit does expect 2H to improve vs 1H

Revised underlying EBITDA guidance. Management no longer expects underlying EBITDA to be positive for FY24. This is the result of the continued challenging healthcare environment which has resulted in procurement delays and budget constraints in both ALC's UK and ANZ markets. In 1H24, underlying EBITDA fell by 162% YoY to -$2.8m. However, 2H EBITDA is expected to improve vs 1H. Management also expects 2H revenue to be at least equal to 1H revenue of $19m. This implies FY24 revenue of ~$38m which is down -6% YoY

Right-sizing its cost base. Management announced further cost savings to those already announced and implemented in 2Q24. Cost savings are primarily related to headcount reduction. Though, it was emphasised that it will not impact ALC's ability to win larger EPR contracts. A combined $2.2m of cost savings will be realised in FY24 with an annualised exit run rate of $6.4m at the end of FY24

Forecast changes. We have lowered our revenue growth assumptions and employee costs in 2H and FY25. The net impact of these changes has led to EBITDA and EPS reductions between FY24-FY27

DISC: Held in RL & SM

From Fintel & Nasdaq

Alcidion Group (ASX:ALC) Price Target Decreased by 31.25% to 0.11

The average one-year price target for Alcidion Group (ASX:ALC) has been revised to 0.11 / share. This is an decrease of 31.25% from the prior estimate of 0.16 dated October 31, 2023

The price target is an average of many targets provided by analysts. The latest targets range from a low of 0.08 to a high of 0.14 / share. The average price target represents an increase of 53.70% from the latest reported closing price of 0.07 / share

What is the Fund Sentiment?

There are 6 funds or institutions reporting positions in Alcidion Group. This is a decrease of 1 owner(s) or 14.29% in the last quarter. Average portfolio weight of all funds dedicated to ALC is 0.00%, a decrease of 30.59%. Total shares owned by institutions decreased in the last three months by 18.66% to 922K shares

DISC: Held in SM & RL

Well the details of the SPP were released ...

https://www.marketindex.com.au/asx/alc/announcements/share-purchase-plan-announcement-3A629872

The SPP aims to raise up to $1.0M via the issue of up to approximately 13.33 million fully paid ordinary shares (‘SPP Shares’). The SPP is not underwritten

Alcidion’s existing eligible shareholders will be the given opportunity to subscribe for a maximum of $30,000 per shareholder in SPP Shares at the same offer price as the Placement of $0.075 per SPP Share

Given that you can currently buy the shares on market for less than the SPP price ...

With all this very interesting discussion on ALC at the moment (great insight) ... FWIW RBC one of the few brokers who cover ALC have released two report updates in the past two days

This before ALC's webcast:

1Q24 activities report reveals weak CFs, contract delays and an equity raising

ASX: ALC | AUD 0.10 | Outperform | Speculative Risk | Price Target AUD 0.16

Sentiment: Negative

Our view: After the market close, ALC has released its 1Q24 activities report. We were surprised by ALC's weak CFs in 1Q24 (particularly the -$8.0m of negative operating CF), as well as the need for an equity raising given the company had net cash of $14.6m at Jun 23. While the company has been awarded a new contract with a new NHS trust customer and has increased its contracted revenue for FY24, the company notes there has been continued delays to larger contracts being awarded and the board believes it is prudent to raise capital to ensure there is a strong cash balance

Key points from the announcement:

• Net operating CF was -$8.0m in 1Q24 (vs RBCe +$0.5m), which is the company's largest negative quarterly operating CF in our record of quarterly activities reports going back to 3Q17. The weak net operating CF was attributable to lower than expected cash receipts of $6.4m (vs $12.0m in 1Q23) arising from a smaller number of new sales in the prior quarter and continued delays to larger contracts. Management notes that the 1Q of the year is typically a lower cash receipt period. Management noted there were also several larger one-off cash costs ($0.6m for FY23 staff bonuses, $0.3m for annual software and insurance renewals and a larger VAT/GST payment of $2.3m)
• New Total Contract Value (TCV) sales were $2.5m in 1Q24 (vs $1.8m in 1Q23 and $2.7m in 1Q22)
• Total contracted revenue was $35.3m at the end of 1Q24, which has increased slightly from $33.7m at the end of 4Q23.
• ALC has been awarded a new contract to provide its Miya Precision Emergency module (its newest module) to a new NHS trust customer
• The company had a net cash balance of $6.5m and no debt at the end of 1Q24
• The ongoing delays in electronic health procurements has led the Board to believe it is prudent to raise capital to ensure
• there is a strong cash balance. Therefore the company is undertaking an institutional placement to raise $5.0m and it has an intention to raise up to a further $1.0m via a share purchase plan. The funds raised will be used to support the ongoing business operations and provide confidence to shareholders that ALC has a strong balance sheet to execute on its market opportunities. The placement will result in the issuance of ~67m fully paid ordinary shares at an issue price of $0.075 (which represents a 23% discount to the last close and a 25% discount to the 10-day VWAP)
• The company maintains its expectation for an EBITDA and operating cashflow positive result for FY24

and then this from after:

Cautious on the near-term outlook - downgrade to Sector Perform

Our view: We have become more cautious on ALC's near term outlook considering ongoing delays to health technology procurement processes and the pace of deterioration in the company's cash position in 1Q24. We acknowledge ALC's operating CFs can be volatile between quarters, but nonetheless we are wary of further CF weakness in the near term. While there remains a large growth opportunity for ALC over the long term as the healthcare sector gradually adopts digital health solutions, we downgrade the stock to Sector Perform (Speculative Risk) with a revised PT of $0.12/ share from $0.16/share given our caution on the near-term outlook

Key points:

Weak F1Q24 CFs. Net operating CF was -$8.0m in 1Q24 (vs RBCe +$0.5m), which is the company's largest negative quarterly operating CF in our record of quarterly activities reports going back to 3Q17. The weak net operating CF was attributable to lower than expected cash receipts of $6.4m (vs $12.0m in 1Q23) arising from a smaller number of new sales in the prior quarter and continued delays to larger contracts. Management noted there were also several larger one-off cash costs ($0.6m for FY23 staff bonuses, $0.3m for annual software and insurance renewals and a larger VAT/GST payment of $2.3m). While we note ALC's operating CFs have been volatile between quarters, we were surprised by the magnitude of the operating cash outflow in F1Q24

Equity raising to strengthen capital position. The ongoing delays in electronic health procurements has led the ALC Board to believe it is prudent to raise capital to ensure there is a strong cash balance. Therefore the company is undertaking an institutional placement to raise $5.0m and it has an intention to raise up to a further $1.0m via a share purchase plan. ALC plans to use the funds raised to support the ongoing business operations and provide confidence to shareholders that ALC has a strong balance sheet to execute on its market opportunities. We were surprised by the deterioration in ALC's cash position and the equity raising given the company had $14.6m of net cash at F4Q23

Management maintains a positive outlook. Despite the continuing delays on larger contracts, ALC management maintains a positive outlook and expects to be EBITDA and operating CF positive for FY24. Management highlighted it signed a contract with a new NHS trust customer in F1Q24 and total contracted revenue for FY24 was $35.3m at the end of 1Q24 (vs $33.7m at F4Q23)

Forecast and recommendation changes. We have made slight reductions to our revenues to reflect ongoing procurement delays and have incorporated the $5m private placement and an assumed $1m SPP. We downgrade the stock to a Sector Perform (Speculative Risk) given ongoing delays to larger contract awards and our caution on the near-term outlook 

DISC: Held in SM & RL

Figured with all the ALC discussion lately I'd drop in some of what one of the few brokers which cover ALC think - read into it what you will ...

From RBC Capital Markets (from their updated report dated 27/04/23) - they have an Outperform rating with a 12m price target of 20c

Longer sales cycle impacting revenue and profitability in the short term

Our view: ALC's 3Q23 activities report was mixed with new sales coming in higher than we forecast, however net operating cash flows were slightly below our expectations and management has flagged the risk of not being EBITDA positive for FY23 due to delays in customer procurement programmes. Consequently we have reduced our revenue and earnings for FY23 and are now forecasting an EBITDA loss and negative operating cash flow in FY23. We retain an OP given the positive outlook over the medium term and high TSR implied by our PT

Key points:

Higher-than-expected contract wins. ALC achieved 3Q23 new sales with TCV of $4.0m (vs RBCe $1.8m). At the end of 3Q23 the company had $36.0m of contracted revenue expected to be recognised in FY23, with a further $0.5m of scheduled renewal revenue from existing customers expected to be converted in FY23. Management noted the company's current pipeline is the strongest in its history

Delays in customer procurement impacts near-term outlook. While the company has been winning new contracts, management noted there have been delays in customer procurement that may have an impact on revenue that is able to be recognised in FY23 and consequently the company may not be able to deliver a positive EBITDA in FY23 as intended. However, management considers this to be a short-term timing impact

Operating CF weaker than expected but management projecting a strong 4Q23. Cash receipts were $10.4m for 3Q23 (vs RBCe $12.0m) and net operating cashflow was -$0.8m, which was below our forecast of +$0.7m. However, management expects 4Q23 to be the strongest quarter for cash receipts this year based on current debtor balance and already signed contracts

Forecast changes. We have reduced our revenue and earnings for FY23 to reflect a lower amount of new contracts. We are now forecasting an EBITDA loss and negative operating cash flow in FY23. We make some minor changes in subsequent years to reflect the slower award of contracts

Valuation and recommendation

Outperform, Speculative Risk rating with a $0.20/share price target

Our $0.20/share 12-month price target is derived from our base-case DCF valuation. We use a three-stage DCF valuation model in which we forecast cashflows to FY31, followed by a 10-year horizon period where cashflow growth gradually slows from 4% to our terminal value growth rate of 2.5%, and then we calculate a terminal value 

Valuation

We value ALC using a DCF methodology with a 9.6% WACC, a 1.35 beta, 5.5% equity risk premium and a 2.5% terminal growth rate. Our $0.20 price target supports our Outperform, Speculative Risk rating and is based on:

• A new Miya Precision contract awarded every 2-3 years in Australia and the UK
• No integrated EPR contract awards in the UK
• No new contract awards received in New Zealand
• Long-term EBITDA margin of ~16%
• We retain a Speculative Risk qualifier given the unpredictability of future events related to the Frontline Digitisation programme, and stock price volatility that could result in substantial upside/downside swings not anticipated in our valuation
• Upside scenario
• Our $0.36 upside scenario has the following assumptions versus our base case:
• The NZ business wins 3 Miya Precision and 3 Patientrack contracts between FY23-FY31
• The UK business wins 3 integrated EPR contracts between FY23-FY31
• Long-term EBITDA margin of ~22%
• Downside scenario
• Our $0.07 downside scenario has the following assumptions versus our base case:
• The UK business loses the majority of its revenues during the Frontline Digitisation programme
• The company wins no new contracts in Australia or the UK
• Long-term EBITDA margin of ~12% 

Investment summary

Tailwinds from increasing adoption of digital health solutions. ALC is a beneficiary of the trend of greater adoption of health technology and health digitisation as organisations seek to become more efficient because of ageing demographics, hospital crowding, increasing complexity of case mix, rise in chronic disease conditions, Government funding pressures, staff shortages and cost pressures. The UK's Frontline Digitisation programme is providing ALC with an opportunity to win new contracts

Modular and interoperable solutions. ALC has a modular product suite offering that allows customers to vary their scale of investment and change, and also means installation can be significantly quicker compared to a large-scale platform. ALC's products are also interoperable and augment a customer’s existing investment in health systems

Ability to offer integrated EPR solutions. Following a series of acquisitions, ALC can now offer a full integrated EPR product to address primary clinical and administrative requirements

FCF and EBITDA positive. ALC has been investing to develop and sell its product but has now reached a critical scale and became FCF and EBITDA positive in FY21. We expect ALC’s EBITDA margin to gradually improve with more contract wins leading to operational leverage in the business. We forecast the company’s EBITDA margin reaching a sustainable level of 16% in FY31

Risks to rating and price target

• Strong competition leading to contract losses and/or inability to win new awards

• A different number of contract awards compared to our assumptions could provide upside or downside to our forecasts and valuation

• Labour shortages limiting the ability to hire staff for product development and business development, as well as increasing operating costs above our assumptions

• Changes in regulation leading to a slower adoption of digital health solutions could provide downside to our forecasts and valuation

DISC: Held in SM & RL

The recording of the Q2 FY23 Business Update webcast is now available online

https://vimeo.com/793957357

From the Coffee Microcaps Technology Conference:

Day 2 (09/11/22) included presentations from SP3, ALC, SPZ, SYM, & AVA

Youtube link to Alcidion's presentation by Kate Quirke

Alcidion Investor Newsletter - April 2022

The beginning of the new year has brought both new faces and new customers to Alcidion. In particular, I am pleased to welcome Florian Stroehle to the leadership team as Director of Strategy and Business Development along with two new additions to our UK team in Steve Leggett (UK Head of Strategic Markets) and Dr Paul Deffley (UK Chief Medical Officer). I look forward to working with them all as our team and product offering continue to grow.

From new partnerships to extensions of current agreements, I am extremely pleased by the momentum of deals which have been finalised by our team in recent weeks. Dartford and Gravesham NHS Trust were the first NHS site to procure Alcidion’s new Miya Emergency module alongside new partner Provation®’s anaesthetics module iPro. NHS Tayside are the third Scotland based board to implement Miya Observations, a milestone that recognises the benefits of the solution realised at NHS Fife and NHS Lanarkshire. We welcome our first community trust in Herefordshire and Worcestershire Health and Care NHS Trust who will deploy Miya Flow, the foundation module of Miya Precision. Contract renewals for use of the Silverlink Patient Care System (PCS) solution were signed with Moorfields Eye Hospital and Liverpool Heart and Chest Hospital – existing customers gained as part of the Silverlink transaction. Congratulations to our UK team for continuing to develop our relationships across the NHS.

With the new year has come the return of in-person conferences in some regions and we welcomed the chance to catch up with colleagues and customers at the Australasia Institute of Digital Health (AIDH) Digital Health Summit in Melbourne in February and Digital Health Rewired in London in March. These conferences provide Alcidion the opportunity to present the latest releases and products to the market and we look forward to the return of further opportunities as the year progresses.

On a personal note, I have recently joined the board of ANDHealth in the role of Non-Executive Director. ANDHealth is Australia’s leading provider of accelerator, incubator and commercialisation programs for digital health technology companies. As someone who has participated in ANDHealth’s programs and international delegations, I strongly support the work of the organisation and the demonstrable impact it delivers to CEOs and executives at all stages of digital health commercialisation and look forward to what we can achieve together.

We are looking forward to returning to our offices this year noting that we have implemented a hybrid model where our staff can balance their in-office and working-from-home time so that we remain engaged and effective.­

Sincerely,

Kate Quirke

Managing Director

Alcidion H1 FY2022 Results Investor Webcast

Now available on Vimeo: https://vimeo.com/680677024