Further to their announcment of Investor Presentation~Aquisition of ExtraMed

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02363825-3A565332?access_token=83ff96335c2d45a094df02a206a39ff4

they have also announced

Alcidion and consortium partners selected as preferred provider for Department of Defence contract

• Alcidion, as part of a Consortium, has been selected as the preferred provider for a major healthcare IT project to capture data and support clinical decision making across the Australian Defence Force
•  Alcidion will provide the Longitudinal Health Record via its Miya Precision product
•  Potential value of contract to Alcidion of approximately $21M over 5.5 years
•  Subject to final negotiations and Commonwealth funding approvals, final contracts expected in calendar Q4 2021

Also they have a webinar at 11:00 today

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02363845-3A565344?access_token=83ff96335c2d45a094df02a206a39ff4

Brace yourself folks. Trading halt announced today on a pending acquisition. I really hope it is Nervecentre, the question is how much to pay for the next acquisition? Alcidion has $12M in the bank and will be raising more for the upcomming acquisition. If it is more than $20M then the company is making a serious bet. We will know on 16th April.  

Here are list of competitors in the space, there should be more but these are the ones I have for now. Require more due dilligence on my part.

Competitors:  

Nervecentre - UK

Cerna - AUS

Telstra Health - AUS

Phreesia - USA

Nervecentre Presentation

Edit: Whoops, even though I despise hotcopper the jig is up it is ExtraMed. Here are more details: 

"Alcidion has bought a UK healthcare software company [ExtraMed]. 

The company was on the hunt for a $17.5 million capital injection on Wednesday to re-stock its acquisition kitty, after funding the $10 million ExtraMed deal with its existing cash reserves.

ExtraMed provides patient flow management software to the UK healthcare market, helping hospital staff better keep track of patients under their care.

It services nine NHS trusts in the UK, and Alcidion already provides services to three of those trusts. As a result, the acquisition will boost Alcidion’s exposure to 27 NHS trusts, from 21.

Funds were told the purchase would boost Alcidion’s revenue by $3 million and earnings by $500,000.

New shares in the raising were being offered to funds at 32¢ each, which represented a 5.9 per cent discount to Alcidion’s last close, and a 2.3 per cent discount to the 10-day VWAP, according to terms sent to funds."

So what I don't understand is how much they are paying for ExtraMed? From my understanding, it's $10M acquisition netting $3M revenues for $500K EBITDA. They are paying 3x sales which is a bargain considering the revenue expansion opportunities with the rest of Alcidion's product suite. 

They plan to raise $17.5M? If so, that is a very smart thing to do at a very high valuation. I would participate depending on how the market view the acquisition.   

Albeit today's announcement by ALC is small in the context of revenue, however when you look at the slice of the market that is up for grabs by this business (refer to the attachement slide pages 6 to 9), you will see there is a large target market for them that excludes the US. I think Kate has made the right decision to stay focused on the European and ANZ market than follow into the US. This may happen when the business has a more solid balance sheet. It has hard doing business overseas and you see a large amount of Australian business's chewing on more than they can handle with that transition. Kate has proven an astute CEO in my view just on this point alone.

The exciting thing about this announcement is that ALC has now signed up 21 NHS customers and I would say this will continue to grow. Alcidion's software being implemented is gaining momemtum as more hositals sign on. I view it as a sign that the current contracted NHS sites are happy with what ALC has to offer and as the word spreads of its advantages more hospitals will follow. We have to remember that hositals dont change their software overnight but once they do, they become sticky long term customers.

ALC has competitors yes, but their first mover advantage in the UK with the NHS bodes well for them if they continue to please their customers.

As a long term holder I like these small announcements as it helps to keep track of how they are gaining customer numbers which over time an accumulation of them will drive increased revenue, improved margins and profitabilty..

ALC makes a song and dance about a contract worth $0.4m annual revenue ($2.2m over 5 years). This represents a mere 1-2% of the company's market cap.

Can someone explain why a $0.4m annual contract value is price sensitive to this company? Even at a 10x revenue multiple, that is a $4m increase in market cap or 1.4% increase. This is not material, nor price sensitive. This is normal course of their business to win these types of contracts.

If this is the best announcement they can come up with, I owuld be a bit worried about whether the growth is there. As you are indeed paying for it. 

East Lancashire Hospitals NHS Trust to deploy Patientrack and Smartpage at all five hospital sites

Highlights:

• Alcidion has signed a deal with East Lancashire Hospitals NHS Trust for Patientrack and Smartpage to be deployed at all 5 hospital sites, representing a total contract value (TCV) of $2.2M
• Alcidion now counts 21 NHS Trusts as customers

MD Kate Quirke's presentation for the ASX Small and Mid-Cap Conference this week can be viewed on YouTube.

Worth a watch for anyone interested in their Miya Precision product and the UK opportunity.

Watch here

Alcidion signs Medications Management contract with NZ DHBs

Highlights:

• First strategic implementation of OPENeP in Southern Hemisphere with Te Manawa Taki DHBs (total of five DHBs) in New Zealand
• Initial pilot project will be undertaken to the value of $0.6M over ~6-7 months
• Should the pilot be successful, a subsequent rollout to up to 5 DHBs is covered by the contract
• Builds on Alcidion and Better relationship in the UK (Dartford & Gravesham and South Tees) and provides a reference site for further contracts in New Zealand and Australia

Great to see Alcidion achieving another first; I have full confidence that in ~6-7 months we'll see another announcement announcing its success!

My notes attached on the QnA for Alcidion.

Given that this is one of my key holdings, I put a fair bit of time into prepation and took plenty away from this call.

Also, @G3xu8 - "There is $12.5M of cash on hand but I have to consider that there is still a possibility of another capital raising being needed before ALC gets to profitability."

I'm not sure how you can conclude ALC will need to capital raise again considering how close they are to the inflexion point. Even given that they currently cash flow negative, the amount of cash burned is very low (2.9m in the entire of FY20, and will be less than that in FY21 given my calculations). Unless things go horribly wrong for management and new sales, I can't see them coming anywhere near a cap raise in the future. (apart from an M&A deal or something similar).

I am really liking Alcicion as my current best pick of companies that are pre-profit or not yet at positive cash flow.

They have some good reference sites so prospective customers have actual real use situations to look at when making a purchase decision. 

Customers seem quite sticky and I expect low churn as it is not so easy to change once you have a system embedded.

From the conference call I took out the impression that growth in expenses should slow going forward and as there is a good pipeline of opportunities new sales should provide a good boost to the bottom line.

With the recurring contracted revenue the company revenue is pretty easy to predict and there is upside potential from any new contracts. Alcidion saw a 36% jump in first half revenue to $11.1m and the great thing is that revenue already contracted for FY21 is $21.7m.  Without any new contracts that is already going to be revenue of 17% above FY20 full year result.

If there is continued contract wins and growth in recurring revenue that should see the share price increase over time.

There is $12.5M of cash on hand but I have to consider that there is still a possibility of another capital raising being needed before ALC gets to profitability.

I think a this stage the company is a low risk with a good upside potential.  I hold and am hoping for good things over the coming years for this company.  Hoping to see recurring revenue growth for years to come.

Here are my notes on what I felt was important: 

• Decent revenue growth. We already knew that in the previous quarterly reports. EBITDA loss, they are growing so it is expected and I am not concerned. 
• Reclassification of Gross Profit.
  • Alcidion would put corporate expenses (salary , product management, product development) under operating expenses. 
  •  Fees paid for resellers, cloud hosting, travel & accommodation for the sale would be under Gross Profit.
• 60% of non-recurring revenue is essential as that is product implementation cost. 85% gross margin on recurring revenues.  
• UK market works under a framework not tender process (This I did not know) 
  • Procurrement process is much faster under a framework and that's how South Tees signed up very quickly. 
• My internet connection went in and out so I could not hear their forecast for Operating Expenses. I think it was $22M annualised, but prefer if someone here took note on that. It tells me that Alcidion is expanding the sales force and product development. 
• For the UK market, the product with most demand would be Miya Precision but it depends on region. 
  • In Australia, patientrak is not used as there are many competitors in that space - like Cerna. 
• Miya Precision is what Kate defines "Orchestral data layer that sits on top of EMR". 
  • UK NHS Trusts are second guessing themselves with large EMR investments. 
  • The current procurrement process is software specific and lacks integration. Hence NHS are questioning why they are spending lot of capital buying new systems without integration. 
• NHS trust only procure more if the government give money. There is a NHS Digital Health fund.  
  • Matt Hancock announced 2nd round funding lead to South Tees buying Alcidion's product suite after (6-8 week product demonstration, usually it take 9 months). 
  • Timeline for the South Tees sales 
    • March 2020 - Negotiations with South Tees. Then covid hit, halting negotiations. 
    • (July 2020 - Septmeber 2020) - Renewed talks with South Tees leading to virtual product demonstration.  
    • September 2020 - Signed contract with South Tees under the NHS framework. No tender process required. 
• My question was on 2nd half sales pipeline + NHS trust negotiations and competitors in UK
  • Sales pipeline is strong, and I believe Alcidion will only give revenue guidance at the end of the financial year. 
  • They have engaged with multiple NHS trusts. Hopefully that leads to more contracts like South Tees. 
  • Alcidion view competitors differently. Competitors are focused on a particular aspect of the EMR value chain. Alcidion looks at the whole value chain and expand product offering such that customers provide services on top of the Alcidion layer. Alcidion is the design layer with a key focus on scalability. Cerna for instance solve one part of the value chain, but not everything. 
    • Product additions like NLP was developed using Alcidion's Miya Precision and delivered to NHS Dartford.
• Sales team target customers that have not developed EMR systems. It is an easier sell than convicing customers to shift away from a competitor. 
• Nervecentre is a UK competitor and doing very similar things to Alcidion. That is a company to keep an eye out after looking at their offering.
• If there is a reason why I am still bullish on the company. Alcidion secured 2 out of 223 NHS Trusts (Dartford + South Tees). Plenty of growth left with multiple NHS Trust currently in discussion. 
• Really interesting question on pricing 
  • The contracts signed by customers have a clause where Alcidion can increase price annually on the recurring revenue portion. 
  • For NHS trusts, the first one Alcidion signed was Dartford and it was introductory level pricing. They aim future NHS trusts reflect South Tees pricing, but Kate also said that they will price accordingly with new products added to the suite. Are Alcidion planning to increase revenue per customer long term? 

Things for further research

Nervecentre Website

NHS Framework guide

Alcidion H1, 21 results are out - see @ Strawman's post.

The link to the webinar & presentation can be found here - https://www.alcidion.com/wp-content/uploads/2021/02/Alcidion-Half-Year-Results-and-Investor-Webcast-Notification.pdf

Given that ALC are currently unprofitable, they still report under the 4C requirements dictated by the ASX. With this knowledge the results out today have already been flagged to market when the Q2 results were released on the 29th of Jan, 2021.

I've attached a screenshot of my financial model for ALC's quarterly reports to market dating back to 2016 for anyone that is interested. **

I'm looking forward to asking Kate some questions and will provide my views to Strawman @ a later date.

** I tried to attach my excel file but noted that Strawman does not allow for the attachment of excel workbork files. Is there any chance for us to change this, so i can share some of my financial models....?

Alcidion saw a 36% jump in first half revenue to $11.1m, with gross profit up 38% due to an improved margin.

Revenue already contracted for FY21 is $21.7m, already 17% above FY20 full year result.

The business is right on the inflection point of break even, reporting an EBITDA loss of $0.9m. And with the fixed costs base now largely stabilised, we should see a big improvement on this front in coming periods. (although some new costs added in H1 will have a full half's impact in the full year results)

Cash receipts were strong up 17% and the business now has $12.5m cash at the bank.

Doubling that latest sales numbers, you get a P/S of around 11.

All told, the business has good sales momentum, a solid pipeline of opportunities, attractive economics (when at scale), and conditions seem to be returning to normal post covid.

Results announcement here

Disc: held

Interesting price movement today given the 4C was announced on the 27 February so I wouldn't be expecting anything new. Bell Potter has initiated with a 28c Price Target so maybe movement coming in closer to their report on the back of this TP. Or maybe a nice surprise with another contract announcement. Waiting in anticipation.

Waiting for the quartely for ALC and now it is climbing up. Looks like something is happening. Any news that I have missed?

ALC Breakout today +9.3% to $0.235.  Went above the resistance level of $0.22. Bell Potter initiated coverage on 10 Feb 21 with a 12 month TP of $0.28.  [Not held]

Q2 FY21

• $12.6M revenue added in Q2, up 163% on the prior quarter and $21.7M of revenues to be recognised in FY2021. This is an amazing achievement from the sales team and we are only halfway through FY21. 
• Strong cash reserves of $12.5M as at 31 December 2020, strengthened by further receipt of $3.0M in early January 2021. Alcidion is safe from a balance sheet perspective. 
• Some key contracts they signed this quarter
  • NextGate – expanded reseller partnership to include UK and Ireland
  • NT Health – program management services contract extension
  • ACT Health – contracts for further integration services
  • NSW Health – an extension to Child Data Hub (CDH) technical services contract
• The contract extension from existing customers is increasing the revenue per customer. Providing value-added services drives margins long term.
• Alcidion is making great progress in both fronts (UK NHS and Aus), will revalue the business. Great quarterly as they have proven that they can execute during difficult macro conditions. Plus, their products and services are essential post-pandemic.     

Alcidion's latest quarterly results are encouraging. The details have already been posted (thanks mmff), but i have added a few thoughts after listening to the conference call:

• Ongoing push from NHS to digitise is a strong tailwind, and ALC's ability to leverage existing systems without a full rebuild is an appealing option.
• Inbound inquiries are growing. New sales hires performing well.
• Dealing with covid challenges, and indeed the situation has helped underscore the value proposition 
• Cost base to stabalise in coming quarters with widening operating margins expected thereafter
• Quarter would have been cash flow positive except for a $3m South Tees payment that was received on first business day of Jan (i.e. a timing issue)
• Cash position strong
• revenue growth will depend on timing of sales -- expect some lumpiness as big contracts are secured.

I think ALC should be able to recognise ~$30m in revenue for FY21, which would put them on a forward price to sales of ~6.7. This doesnt seem ambitious for a business with a long runway and that is growing the top line at such a rapid rate. 

Highlights:

• $12.6M revenue added in Q2, 163% up on the prior quarter and 260% up on pcp (Q2 FY2020)

• Revenue of $21.7M able to be recognised in FY2021 as of Q2 FY2021 (i.e. 6 months remaining in the year), already 17% greater than FY2020 full year revenue of $18.6M

• Further $23.0M of sold revenue to be recognised out to FY2026

• Milestone $11.3M five-year deal with South Tees Hospitals NHS Foundation Trust for Alcidion’s full suite of products and services including Miya Precision & Better’s OPENeP

• Strong cash reserves of $12.5M as at 31 December 2020, strengthened by further receipt of $3.0M in early January 2021 relating to the South Tees contract

• Other significant contracts signed or announced in Q2 FY2021:                                          o NextGate – expanded reseller partnership to include UK and Ireland                                          o NT Health – program management services contract extension                                        o ACT Health – contracts for further integration services o NSW Health – extension to Child Data Hub (CDH) technical services contract

Regarding the South Tees extension, the added contract value is for using Microsoft Azure to host Alcidion’s Smart page clinical communication solution and business change management services. This is exactly what I have been thinking about during March this year when Satya Nadella said: "5 Years of digital transformation to be deployed into 2 months". This was not going to happen when companies and institution cut technology spending during the height of the crisis. 

NHS was one of the big talking points on Microsoft earnings call during the early part of the pandemic and I was worried that Microsoft would provide the technical solutions instead of Alcidion. However, I am proven wrong, Microsoft will provide the tech platform and Alcidion will build the capability. That's $2M to put hospital data into Microsoft Azure.

On a broader economic view, technology spending is happening again meaning we are at early stages of the recovery. The recession had a surprisingly fast rebound. Different countries will grow at different rates depending on how the vaccines get distributed across the globe.      

Alcidion has reported that South Tees Hospitals NHS trust has extended its contract by a further $2m to $11.3m over 5 years, to include the Smartpage product, cloud hosting and some managed services.

The original contract was only signed in November, and included MIYA precision and Better OPENeP systems.

South Tees are now using the full suite of Alcidion products, as well as a variety of managed services. South Tees manages over 1000 hospital beds, and aside from a significant contract win will represent a vital reference site for their UK sales team.

ASX announcement here

25 Nov 20: ALC - Has been able to absorb the initial profit taking and continues to break out higher.  It reached a new high of 23c but was sold down to close at 21c. Up from a low of 12c in September after annoucing their largest every contract in the UK.

Expansion of reseller agreement with NextGate. 

Currently NextGate was used in AU-NZ and now the product suite will include the UK

If I understand things correctly, we will have a good 4C either Q2FY21 or, more likely, Q3FY21. This would be mainly driven by the recent $9.5M South Tees' contract for the following reasons:
 

• The £28 million Digital Aspirant programme is only available for the first year
• The programme was announced by the UK Health Secretary in December 2019, but the 23 selected NHS Trusts were only confirmed by NHSX in March 2020.
• In the UK the financial year began on 1 April 2020, and runs until 31 March 2021, for the purposes of government working out their finances and budgets
• There is an emphasis on the selected NHS Trusts to utilise their grant funding in the financial year to which the funds are granted, as reiterated by Kate in the webinar

Because the South Tees contract is structured in such a way that it is heavily front loaded with approximately $5.48M of the total contract value is planned to be recognised as revenue in FY2021 (subject to milestone achievement), I suspect there is a sense of urgency in dispensing the grant funding as soon as practicable before the end of the UK financial year and therefore potentially boosting the cash inflow in either Q2 or Q3 of FY21. However, there can be a small difference in the timing of the cash inflow and revenue recognition.

Key takeaways for me are:
 

• Profitability - first time (I believe) this has been publicly stated. I still believe FY21 to be a year of accelerated revenue growth and that just maybe, profitability in FY22.
• Revenue growth - question is how many more contracts can they win and how high can the total FY21 revenue figure be? As at 19 November 2020, Alcidion is expected to recognised $20.2M of revenues in FY21, with seven more months to go. Management has repeatedly stated that they expect accelerated revenue growth for 2HFY21
• Operating leverage - cost base expected to stabilise at 1HFY21 levels. In my view, the key revenue threshold is around $30M. Once revenue exceeds this figure (assuming all else being equal), operating leverage will kick in and the majority of any new revenues will flow straight down to the bottom line. To be sure, Alcidion has a highly scale-able business model and is easily capable of generating sales in the several tens of millions of dollars with just a few NHS contracts.
• Regulatory tailwinds - still intact and accelerating. Traction in key markets such as NZ (Simpson Review) and UK (Digital Aspirant program). Important to note that for some such as the latter, the funding is there - £28M in the first year and further funding to be provided over the next four years.
• Progress on GP and community system - interesting developments taking place in this space. For context:

Key players from the NHS, big tech and pharmaceutical companies have been in discussions over the potential to commercialise 65 million NHS medical records, valued at up to £10B a year. Plans are for a “single, standardised, event-based, longitudinal patient record” pulled together from GPs, hospitals, mental health professionals, demographics registers, prescription records as well as information from the private health sector, with the aim of improving improve outcomes for clinical trials, drug discovery and medical technology.
 

• Growth strategy - Alcidion's success in the short to medium term will continue to be heavily reliant on the UK market. Current growth strategy in that market of focusing on early adopters and digital exemplars to establish reference sites and leveraging off the NHSX Clinical Communications Procurement Framework makes sense to me.
• Near term catalysts - Management noted the strong potential to expand scope of initial customer contracts signed in Australian market. My guess is that there have been discussions with some health districts in NSW in particular. Also, do not discount the potential for some catalysts from NZ. Remote patient monitoring will also will also be increasingly be a new market.

Separately, my understanding is that there have been some movements in the share register:
 

• Cyan Investment has increased its holdings
• Two nominees (Citicorp and JP Morgan) have also been buying. Question is for whom? Also, I wouldn't be surprised if they are not behind the repeatedly 1 share after market trade (as have yet happened again today!)
• Donald K has sold down some of his holdings via (presumably) an arranged trade with Kate
• Found of Patientrack (Michael Buist) has sold down some of this holdings. Good on him, he deserves a nice payoff.

17 Nov 20: Since ALC annouced it's largest ever contract, the share price had a break out to $0.18.  It fell back down to $0.155 but the buyers have soaked up all the selling and now it has broken above the trading range is hit a new high of $0.195.

Claude Walker from A Rich Life does a great breakdown of the recent deal here.

Update: Alcidion CEO Kate Quirke has gotten back to me and said: “The announced total contract value of $9.5M over 5 years includes all components of the total solution sold, including the resold OPENeP ePMA solution.  This solution however represents less than 20% of the total value of the 5 year contract.”

Overall, this is good news for shareholders as it suggests at least $6.5 million of recurring revenue from Miya, over 5 years. This in turn translates to about $1.3m per year in recurring revenue from Miya. That’s great news, and roughly in line with other contracts (albeit a bit bigger).

Alcidion Signs $9.5 million deal with South Tees Hospitals NHS Foundation Trust.   

Here are a few extra details; 

One of the hospitals within the trust includes The James Cook University Hospital which is a large, 1,024 bed major tertiary referral hospital.

The hospital is also a tertiary training centre for Newcastle Medical School. Which consistently ranks in the top 10 medical schools in the UK.  

Alcidion currently provides services to follow NHS Foundation Trust's; 

- Manchester university hospital
- Basildon and Thurrock university hospitals
- Westerns Sussex hospitals 
- Fife

These hospitals all provided training for medical students, junior doctors and allied health.

In my opinion, if Alcidion can continue to provide quality services within these organisations it will have a large positive impact on the future perception of Alcidion's products by the junior medical and allied health professionals who are now coming through the pipeline of training and education. This group of people will be one of the important voices of feedback regarding product efficiency and quality which has a large weighting on long term success. 

9/11/20 up 40%  Alcidion signs milestone $9.5M deal with NHS Trust

Alcidion has signed its largest ever deal for the Miya Precision product, worth $9.5m over 5 years. The vast majority of which represents recurring revenue. 

The deal is with the South Tees Hospitals NHS foundation trust. 

More than half of the contract value is to be booked in the current year, which takes locked revenue for FY21 to $20.2m, with 7 months of the year still remaining. Alcidion booked $18.6m in all of FY20.

Aside from the financials, this is a very positive step in my opinion.  It represents further evidence of traction in the UK market, as well as provides an important reference site and social proof.

ASX announcement here 

This is the largest Miya Precision contract they have signed to date. 

• $5.48M to be recognised in FY21 which brings total revenues to $20.2M with 7 months left to go in this financial year. 
• South Tees is the largest hospital trust in Tees Valley in the United Kingdom, with over 1,000 beds and employing approximately 9,000 clinical and operational staff and providing care for more than 1.5 million people. Not surprised that this contract win took a while to execute. 
• Alcidion is integrating to the heart of the NHS digital strategy. This is becoming an incredibly sticky product while forging strong relationships with the NHS. 
• The question you should consider is would the UK government still fund NHS. If they don't then the NHS do not have enough capital to procure technology solutions. I believe they will and they have during the pandemic. Alcidion is one of the first companies in line.      
• In terms of valuation from this contract alone: 
  • Current Revenue ~ $15M, market cap = $123M, share price = $0.125,
  • Future Revenue ~ $20M, market cap = $164M (based on 33% increase in revenue), share price = $0.165 
  • So a 33% jump in share price today is a possibility when market opens

*I'd like to start off by saying I do own some ALC shares and the purpose of this straw is to play devil's adovcate and highlight some risks.

On the back of the Q1FY2021 result, we can see that there was a net cash outflow for the quarter of $1.2m. Given the incoming receipts of $6.4m, this implies a cash burn of $7.6m p.q

Extending this to a yearly basis gives a cash burn of of ~$30m indicating they should hit profitability around revenues exceed $30.4m (which is a lot higher than the current $18.61m), given that the cost base stabilises which is what management have mentioned they expect in FY21.

Given the current rate of receipts of $6.4m per quarter, they will reach ~$25m in revenue by year end if NO NEW CONTRACTED REVENUE IS SIGNED. I approximate in my head this figure will be closer to $26m given that the last quarter of each FY has tended to have higher receipts.

Given that last JH20 had a negative NPAT of ~$2m, i expect that the EPS/NPAT this FY will be further negative unless more sales are brought in this year. Given that the Murrimbidgee site is only a 12-month contract, we must hope that ALC are able to renew this. (I did ask Kate during the Q1 Presentation this week and she told me "they are in talks over renewal" which is somewhat positive".

Given the number crunching, i put a lot of thought into the sales pipeline for ALC. COVID has obviously made this process harder, but hospitals in general are extremely slow-moving when it comes to embracing change. To supplement this, there is plenty of commentary regarding the lack of change in hospitals from posters on Strawman (@Chagsy wrote a straw I believe). 

The sales pipeline in the UK is more difficult than that in Aus due to the need for a tendering process and all the political/legal crap that is involved with this. In saying that, the industry & ALC still face a tailwind moving forward - the digitisation of the medical industry but I think it is further in the future than we imagine and I believe Alcidion's sales plan is lofty.

Like some other posters, the results were largely in line with expectations.

Key takeaways

• Reasonably well-managed company with its growth path underpinned by structural tailwinds. Hospitals and trusts have platforms/systems that will eventually need to be digitalised/automated
• Key target markets appear to be delaying its decision points (for good reason) but the required changes are a necessity and not optional. Normality has resumed in some markets.
• Contract with Murrumbidgee LHD runs out in December. Negotiations over an extension has already commenced - possibly an impending catalyst?
• Alcidion is one of only two supplier to the Victorian health incident management system under option 2. Under option 1, the 86 public health services can elect to remain with their current vendor (if they can provide the service to meet the prescribed requirements). If not, it is either Alcidion or Dialog Information Technology
• Managing Director noted that acquisition remains a possibility, particularly referencing the UK market
• Managing Director seems confident over sales pipeline, as evidenced by the forward-looking contracted revenue pipeline. She also noted there are already some progress from the scaled up sales and marketing team. Cash receipts from customers in Q1 FY21 is also looking strong, compared to previous corresponding periods

My thoughts

• Normality should resumed soon to the business administration side of the public healthcare system now that they better understand what they need to do on the front/last line. Perhaps, things should pick up from here on. Personally, I expect at least one more announcement before end of year and would be somewhat disappointed if we don't get it!
• Recent expenditure to scale up sales and marketing capability is expected to slow down and stablise over the next few quarters. I expect the cost base to stabilise around the $4.75M per quarter mark. Give or take, all else being equal, Alcidion needs consistent cash receipts of approximately +$7.6M to achieve positive cashflow. Based on the Q1 FY21 cash receipts, we are approximately 85% of the target figure
• Going by the above rough numbers, Alcidion will probably hit profitability when revenue exceeds >$30M. Like all SaaS companies, profitability will really accelerate when recurring revenues inched closer to the cost base.Given the FY20 revenue figure of $18.6M, profitability is still some time away even if I apply various revenue growth rate for FY21. This is why FY22 is the main game for me - possibly make or break of my investment thesis on Alcidion
• Although the 4C reads okay to me, I still expect the share price to face downward pressure despite any short term bounce for two reasons: (1) there appears to be a party still drip selling; (2) the 'huge' opportunity cost of holding on to ALC in the current relatively bullish market
• To break the current downward trend, we need a catalyst (and a damn good one!) to provide the liquidity for the seller(s) (including frustrated retail holders) to exit. For example, an integrated product offering for a trust over 5-years around the $7M to $8M range. In the absence of any 'news' to break the current cycle, the share price will continue to drift in no man's land, particularly with so many stocks running hard in the technology (e.g. cyber security and gaming) and commodities sector which are capturing the market's attention. To be honest, the medical technology sector is not exactly 'sexy' to the average punter at the moment
• Because what Alcidion is offering to the healthcare market is revolutionary in some sense (e.g. AI via Miya), it is going to take ongoing time and effort to educate the healthcare professionals and administrators. The big positive for Alcidion is that it now has the reference sites plus PoC from the Murrumbidgee LHD and that the networks it could leverage off recent hires (for example, Alcidion's General Manager of Business Development in Australia and New Zealand (Steve Lutz) previously worked with eHealth NSW on the statewide community health and outpatient care (CHOC) and electronic medications management (eMeds) programs
• Pure speculation on my part regarding the NSW Single Digital Patient Record, it is almost certain Alcidion would partner up with another party to go for that contract, against the traditional big boys such as Epic and Allscript. Check out the background of our executives and then check out which EMR that Miya has already been successfully proven to work alongside with - join the dots. On its own, Alcidion will have no chance as it would be deemed too small and risky. But together with this partner, they can offer a very 'compelling proposition' via a locally proven evidence-based proposal

**I have taken for of an opinionated view of the Q1 report  to differentiate my straw to @GetSmart's

October 27th, 2020 – Q1 FY2021

Headlines

·         Q1 revenue at $4.8m (30% versus sequential and 92% on pcp)

o   This reflects the new contracts signed over the past 12 months. (NHS, Murrumbidgee..)

·         Total contracted (pre-sold) revenue for FY2021 is at $14.7m (14% increase pcp)

o   Though last year, the pre-sold revenue for FY2020 was $12.9m (which was a 16% increase from that of FY2019)

o   Hence the rate of change in growth has slowed (2%) – i.e the second derivative of revenue growth has become negative (thanks high school maths)

·         Cash outflow for Q1 of ($1.2M)

o   We know ALC have dipped back into cash flow negative as the cost base has been rising

o   This cost base expected to flatten out over this current FY2021

·         Cash receipts @ $6.4m

·         Reclassification of non-recurring revenues as recurring revenues

o   Product license fees that were previously recognized as non-recurring as now counted as recurring. This results in a $269k or 3% increase.

o   These license fees “nearly always continue” hence the reclassification

·         Presold revenue

o   $32.8m revenue sold out over the next 5 years, equating to ¬$6.5m per year presold.

My thoughts

·         Rather in line with expectations, slight changes to accounting and classification for revenues make may things look attractive, but these results are in line with previous expectations

·         The announcement mentions a new NHSX ‘Clinical Communications Procurement’ that ALC are involved in where the NHS is turning to tech for its health departments, but no details provided regarding revenues etc…

·         Cash reserves at $14.7m, which gives them around 5-6 quarters of continued cash outflows before they need to tap up shareholders for capital again

·         The recent announcement of employee incentives was not a good look, as these incentives become activated if ALC manages to outperform the market between now and FY2023

o   6.5m performance rights given that TSR is positive and/or greater than the market (S&P/200) by JH23, which is not an overly ambitious goal in my view.

{I hold ALC shares, though I have lost some confidence on the back of some of the latest decisions by management as well as some of the reports from some healthcare workers here on Strawman}

27 October 2020

Q1 FY2021 Business UpdateStrong first quarter of sales, investment in growth continues

Melbourne, Australia – Alcidion Group Limited (ASX: ALC) today released its Appendix 4C for the three-month period ended 30 September 2020 (Q1 FY2021) and the below business update.

Highlights:

• Strong start to FY2021, with $4.8M new contracted revenue sold in Q1 – up 30% on previous quarter and up 92% on Q1 last year;
• Total contracted revenue to be recognised in FY2021 stands at $14.7M at end Q1, up 14% on Q1 last year;•Cash receipts from customers were $6.4M in Q1, a 34% increase on Q1 FY20;
• Net cash outflow of $1.2M, reflecting ongoing investment in growing the business with cash reserves of $14.7M at end Q1;
• Significant contracts signed or announced since 1 July 2020:

* Sydney LHD –12-month contract for Miya Precision to support COVID-19 virtual care

* Murrumbidgee LHD – 12-month contract for Miya Precision platform including Miya Memory

* NHS Lanarkshire – 5-year agreement to implement Patientrack across boardoACT Health – 2-year extension to long term integration support contract and further project work

* Queensland Health – additional work on the Referral Services Directory(RSD) platform

* Lancashire Teaching NHS Trust – 5-year Smartpage contractoPanel contract with Vic DHHS for implementation and support of the Victorian Hospital Incident Management System

Kate Quirke bought 1.5M shares worth $195k today at $0.13 share price. During the March pandemic sell-off, she bought at $0.10. In total, she now owns around 60M shares. The crazy thing is that she owns ordinary shares, not options. She is aligning herself with shareholders which is what every investor hopes in seeing.  

Sometimes the best thing to do is follow management and buy with them :) Kate would not buy shares if she thinks Alcidion is worth multiples of what is valued today. The market is very short term focused. 

More inside buying from Kate (1.5m shares at current price), which pushes her total to over 58m. The share price has been held back for quite some time now, so maybe this backing from management (once again) can help get things going. Holders have been asked to be patient with this one and we are hoping the next quarterly doesn't disappoint. 

Alcidion Group Limited (ALC) are a healthcare technology-based firm that engage in the development of software products to be used in hospitals, with the overall aim of improving systems deployed in hospitals and ultimately saving lives. They are based out of South Australia but sell products in Australia, NZ & the UK.

Most recent contract wins (most are recurring revenues)

·         Townsville hospital

·         NHS Fife (UK)

·         Murrumbidgee LHD

Products they offer

Patientrack – tracks patient status and uses predictive and recursive algorithms to support time-critical care.

MIYA Precision – combines AI-based Predictive analytics and a Clinical Decision Support (CDS) to create a dashboard for hospital staff. Used for decision making, patient flow monitoring and track patient deterioration risk using data.

MIYA MEMRE – Creation of a mobile platform for MIYA precision, allows for a mobile patient record.

(I hold)

9th September 2020 – FY20 Results Presentation

Headlines

·         $18.6m revenue – 10% gain on FY19

·         $12.8m presold revenue to recognised in FY21 – (this is 9% more than presold revenue from FY19 recognised in FY20)

·         Cash reserves currently at $15.9m (cash burn has been estimated at $2m p/a so it gives them some time to get CF positive)

P&L highlights

·         Recurring revenues as a % of total sales has risen from 46% to 56% - This is a positive sign for me as that switch to a SaaS model and that revenues are ‘locked in’ for future periods

·         Cost of Sales has risen with highlights in the following

o   Sales/staff & commissions up 48%

o   Product development costs actually DECREASED

o   Salaries/wages for staff up 56%

o   Marketing costs DECREASED

o   Operations admin costs DOUBLED

So breaking down these highlights, the market knew ALC was pushing back the expected date for cashflow breakeven and these results mostly reflect that. I don’t see the massive drive in operating costs over FY20 as bad as it sounds, I believe it is a necessary cost that helps build the footing for the company in the future. We could compare it to the 1991 Paul Keating quote “the recession Australia had to have”. The notion here being that ALC needed to bolster its sales staff & operating spending for the business for any success to be achievable in the future.

I found it surprising marketing costs were slightly down though, but I’m not 100% sure of the tender process ALC go through in winning new contracts and what role marketing plays in this.

Overall, an expected result as indicated by Kate & co through previous announcements. FY21 is a key year for these operating costs to flatten out and management begin to execute their plan and get some contracts on the board!

For the sake of writing down my thoughts, here is what I took away from the Digital Health webinar.

Everything was well-presented and quite straight-forward. It didn't feel like a sales pitch, which was the issue with a previous Digital Health article on ALC. Malcolm went into great detail about the practicality of Miya Precision and how the data it collates and displays can be used by clinicians effectively and productively.

It was great to hear from Neil Perry, the Director of Digital Transformation at Dartford and Gravesham NHS Trust. He went into great detail about the selection process of why they chose Miya Precision, noting that clinicians and technical professions showed a preference to Miya Precison and pushed for it over other options, and that management are happy with the results they are seeing. The partnership aspect was an important factor to them, meaning there was no need to 'rip and replace' their previous system.

Furthering on the partnership aspect of the business, Kate mentioned the partnership with eHealth NSW, noting that it was the customer who approached them with the intention of overlaying the existing Cerner EMR with Miya Precision to strengthen it's capabilities. This resulted in what is effectively a partnership between ALC and Cerner. In another answer, Kate focused on the partnership aspect of Miya Precision, noting is their focus to build upon the strengths of other PAS/EMR systems, negating the need for hospitals to replace the systems they currently have in place.

I was aware of the capability of Miya Precision to work with other PAS/EMR systems and this presentation has increased my confidence that there isn't a need to worry when competitors win contracts, eg. Epic's recent contract with ACT Health. This should negate some of the risk for hospitals when making the decision of digitalisation in regards to the money & time investment that is often a hot-topic when hospital contracts are discussed.

For those that wish to watch, the presentation is at the bottom of the page linked below.

https://www.digitalhealth.net/events/introducing-a-new-kind-of-technology-for-the-nhs/

Introducing a new kind of technology for the NHS: Alcidion’s Miya Precision platform

https://www.digitalhealth.net/events/introducing-a-new-kind-of-technology-for-the-nhs/

As I mentioned in a previous Straw, there was a webinar on the Digital Health website last night about Alcidion and its introduction to the NHS. The webinar is now available to watch at the bottom of the page linked above.

Worth a watch for any shareholder, new or old!

Alcidion's full year result pretty much came in as expected.

Ongoing investment in sales and marketing capabilities continue to delay cash flow break even. But this is a necessity to capitalise on the market opportunity. In fact, I think the structural shifts that were occurring prior to Covid19 and subsequently accelerated by the pandemic makes first mover advantage in the emerging land grab more the important.

Increased cost base is expected to stablise in FY21. Colin mentioned in the previous 4C webinar that he expects costs to stabilise around the $4.75M per quarter mark. Give or take, all else being equal, Alcidion really needs consistent cash receipts of approximately +$7.6M to achieve positive cashflow.

Going by the above rough numbers, Alcidion will probably hit profitability when revenue exceeds >$30M. This probably means profitability is still a few years away given the FY20 revenue figure of $18.6M. Like all SaaS companies, profitability will really accelerate when recurring revenues inched closer to the cost base.

Having said that, the timeline will be dramatically shorten IF Alcidion manages to secure a major contract. the Managing Director mentioned that she envisaged a integrated product offering for a trust over 5-years would be around the $7M to $8M range. Obviously the actual number might differ depending on the number of individual hospitals and beds involved, but it still provides a useful reference on the size of contract that could potentially eventuate.

The Managing Director also kinda hinted that she expects revenues to accelerate in the second half of FY21. All the necessary building blocks are slowly being placed in position to facilitate the emerging market opportunity. It all comes down to execution now.

The only bit of the webinar that I had me a little concerned is the CFO's explanation for cost of sale of goods and services, in response to Alcidion's low gross profit.

In the FY19 Annual Report, Alcidion stated the following:

NOTE: The Cost of Sale of Goods and Services for 2019 and 2018 differs from that presented in the unaudited Preliminary Financial Statements which followed the presentation used in the 2018 Annual Report, which deducted only the cost of third party product and hardware (i.e. cost of sale of goods only) from revenue to determine Gross Profit. This was inconsistent with how Gross Profit was presented in the 2019 Half Year Review where the cost of direct labour used to deliver services and develop, maintain and support product was also included in the Cost of Sale of Goods and Services. Accordingly, the cost of direct labour has been reclassified from the total Directors and Employee Benefits Expense amounts shown above to Cost of Sale of Goods and Services and the calculation of Gross Profit reflects this

I previously queried Alcidion on this change and their response is pretty much that it was permitted by standards, auditor did not raise concerns and that it was more reflective of the nature of their business.

In yesterday's webinar, the CFO acknowledged that their approach has made the result look much worse that it actually is, compared to if the direct cost of labour (which is quite significantly) was to be put below the top line. He further flagged the possibility of taking those costs out next year to boost the gross profit margin figure.

I am not implying something dodgy is going on and is convinced every adjustment will be done in accordance to accounting standards etc, BUT can anyone with an accounting background explain this discretion for companies to change their reporting methodology as they see fit?

Alcidion's full year results came in pretty much as expected. 

Good to see the solid growth in recurring revenue, a healthy cash balance and some resilience in the face of covid.

Alcidion has a great product offering, important reference sites and good sales momentum. There's a big opportunity as healthcare goes digital, and they seem well positioned.

The company did stress the increased ramp up in investment needed to seize the opportunity. Scaling up began in earnest at the start of this calendar year and they expect the expanded cost base will start to stabalise during FY21.

This will delay cash flow breakeven, but I think it's a necessary investment. There's big first mover advantages when sectors are undergoing structural shifts. Not that the spend is guaranteed to deliver good results, but it's really unavoidable in my view.

On some rough numbers, assuming steady gross margins, it looks like ALC will not hit profitability until they get to close to $30m in sales -- which is likely a few years away.

They have over $15m in cash, and have a current operating cash burn of $2m pa, so they should be able to sustain themselves for a good while.

I still think $50m in sales by FY25 is possible, but with most of the growth in the second half of the period.

Anything can happen with the market price short term, but i think Alcidion remains a good bet for those working to a 3+ year timeframe

Re-energising the health tech landscape

https://www.digitalhealth.net/events/re-energising-the-health-tech-landscape/

There will be a webinar in conjunction with Digital Health at 7pm (Melbourne, Sydney) on the 4th of September, 2020. The webinar will take place on Zoom.

https://zoom.us/webinar/register/WN_IQz1RZrqRU6_Z8PULWRcpQ?timezone_id=Australia%2FSydney

From the article:

"A new type of technology is being launched into the NHS that will re-energise the health tech landscape.

Miya Precision – the very first smart clinical asset for the NHS – is already attracting the attention of healthcare organisations looking to accelerate their digital adoption. Whether they are pursuing an electronic patient record, best of breed digital programme or are an integrated care system joining up disparate systems, Miya Precision offers an intelligent solution to unlock value from existing investments.

Using its clinical decision support engine, Miya Precision provides the necessary automation to alleviate the cognitive burden faced by clinicians. Early communications about the smart clinical asset sparked significant reaction from Digital Health readers and now Alcidion is holding this webinar with Digital Health to share more detailed information.

This webinar will:

• Introduce how and why the NHS needs a smart clinical asset as a new type of technology
• Provide details of the solution and how it works
• Offer an opportunity to ask questions of those bringing the new product to market and supporters from the health sector

Speakers include:

• Kate Quirke, CEO Alcidion
• Malcolm Pradhan, Director, chief medical officer
• Lynette Ousby, general manager UK
• Tom Scott, sales director UK, Alcidion
• Other industry supporters (to be announced)

To promote a healthy discussion, below are my thoughts around key reasons on why the share price has been drifting down. I welcome ideas from both sides and agreeing/disagreeing in a constructive manner.

Revenues are not growing quickly enough

The market might be expecting stronger revenue growth that the 9% uplift in FY20 revenue (using lower end of FY20 guidance, $18.3M vs $16.9M in FY19).

As mentioned in my previous posts, there are many factors contributing to this with the most obvious being Brexit (government in care taker mode and a new government being formed) and Covid19. Not only have these occurred during what would usually be the busiest period for Alcidion, it has also obscure the view of what would have been the first 'clean' full year (post integration etc) of the new Alcidion (old Alcidion + MKM Health). Because of this, the market does not have full visibility of the revenue generating profile of Alcidion in a typical year.

Nevertheless, I still think for Alcidion to be able to achieve revenue growth and beat revenue guidance in these difficult circumstances is a good effort.

It is also important note that the healthcare industry is a very slow moving beast, particularly so in the public system where the biggest proportion of Alcidion business reside. Customers are sticky, contracts are typically between 3 and 5 years, long winded procurement process, risk avoidance trumping innovation aka inertia etc. Consequently, things take a much longer time than many anticipate - for example:

• customers would let their existing contract (if with a different provider) run down before they invest in a new system
• the tendency to go with big multinationals as they are perceived to be lower risk
• no one wants to be the first with an innovative product, safer to be follower than a leader (the concept of first movers advantage does not apply here!)
• contract negotiations take a bloody long time (the MidCentral DHB contract took around 2.5 years to negotiate and execute, based on my previous discussion with the ex-CFO and ex-Chairman)
• time lag between the scaling up of sales and marketing capability and growth

Alcidion has experienced the short term pain in Brexit and Covid19, but I think there would be some long-term gain. There will be an acceleration in the digitisation, data analytics and artificial intelligence because of regulatory compliance, demand for greater efficiency gains, capacity constraints etc.

Misinterpretation of contracted revenue figures

26% fall in FY21 contracted revenue of $12.8M vs. $17.2M in FY20 and also the perceived fall in recurring proportion of the contracted revenues

It is my belief that some market participants might have interpreted the 'contracted revenue' reported in the 4C of Q4 FY20. The contracted value relates solely to the start point of FY21. Without reading carefully the chart headings, some might assume there was actually a decline in contracted revenue performance.

However, if you compare it to the corresponding start point for FY20 (which was reported in the 4C of Q4 FY19, there is actually a 9% uplift. Not only is this a healthy starting point for FY21, there is also an increase in both the proportion of recurring revenue (up from $7.7M to $9.7M) and product revenues (up from $7.1M to $9.7M). Alcidion earns higher margins in revenues derived from recurring activities and products.

It can also be observed that the contracted revenue pipeline also gradually increase throughout the course of the financial year.

Growth in operating expenses has continued to outstrip growth in both revenues and cash receipts

Growth in Cost of Sale of Goods and Services is expected to outstrip revenue growth

In my view, Alcidion has been upfront in explaining this to the market for some time now. The focus is to increase top line revenue in the three key geographical markets, noting that the 'old Alcidion' pretty much did not have a sales and marketing team. The 'new Alcidion' therefore has to improve and enlarge its sales an marketing team and capability to cross and up sell the additional products and services.

As mentioned above, there is a time lag between the scaling up of sales and marketing capability and when growth actually flows through.

One of the key takeaway from the recent webinar is that the COO/CFO expects headcount to still increase but with the costs to stabilise around the $4.75M per quarter mark. Give or take, all else being equal, Alcidion really needs consistent cash receipts of approximately +$7.6M to achieve positive cashflow.

One might reasonably ask why is this important. Again, based on my previous discussion with the management, it is my understanding that some of the institutional investors that they have engaged with had given the feedback that Alcidion needs to achieve 'consistent' positive quarterly cashflow before they would consider investing, mainly due to risk management and their investment mandate.

A lot of optimism or expectations were baked into the market capitalisation

At market valuation >$120M, the market was valuing Alcidion as a typical SaaS business and expecting strong revenue growth and quicker execution of contracts. The current trajectory does not match this profile.

As mentioned above, the public segment of the healthcare sector that Alcidion is focusing on is notoriously slow. Perhaps I also have been previously guilty of valuing Alcidion as a typical SaaS business and using peer comparison without fully appreciating how slowly things can move.

I was quietly impressed with Alcidion's performance in FY20 despite the headwinds. But obviously the market holds a different view, partly explaining the recent share price decline following the release of the 4C of Q4 FY20.

But then market sentiment can change quickly - for better or worse. Hopefully, it will turn for the better as management continues to execute and hit some sixes for us.

Very much a novice here but just wondering what the market would need to see for Alcidion to increase its value? From what I have seen/read they have been increasing contracts and earnings but yet the share price has sat steady now dropping slightly.

Some additional thoughts from me for discussion...

Snapshots based on 4C from Q4 FY20

Pretty evident that:

• there is still an element of lumpiness in Alcidion's revenue profile but aggregated revenues have continued to trend upwards
• continual shift towards recurring revenues (approximately 76% of total revenues based on latest 4C, highest to date)
• revenues from products also make up approximately 76% of total revenues based on latest 4C, also highest to date)

For context on the upward trend in staffing course, listen back to the explanations from Kate and Colin in today's webinar once it gets uploaded onto Alcidion's website. From memory, Colin did mention that he expects staffing costs to stabilise at around +4M per quarter moving forward (can't recall the exact figure)

Valuation using a multiple approach

• Market cap/Revenue: approximately 8x sales (using today's closing price of 15 cents and lower end of revenue guidance for FY20)
• Enterprise value/Revenue: approximately 7x sales (using today's closing price of 15 cents and lower end of revenue guidance for FY20)

Latest 4C stated that Alcidion enters FY21 with a healthy sold revenue pipeline with $12.8M contracted to be recognisedin FY2021. Previously, Alcidion added $6.8M to FY20's starting position. Remember, we had Brexit and Covid19 which impacted what would ordinarily be Alcidion's strongest performing quarters.

Deferrals in projects, structural tailwinds etc should drive continue revenue growth. Applying a top line revenue growth of 20% to the lower end of FY20 revenue guidance (which I think is achievable given Alcidion did achieve (9% revenue growth in FY20 despite difficult circumstances) gives us a full year FY21 revenue of approximately $22.1M, of which 58% or $12.8M is already contracted.

Using an EV-R multiple of 7, FY21 revenue figure of $22.1M and reverse engineering, we get a FY21 share price $0.17. Discount it by 10%, we get a share price of 16 cents for FY20.

This suggests that the current share price/enterprise value is just about right, give or take.

For comparison purposes, the same approach using different multiples would give us the following implied share price for FY20:

• EV-R multiple of 8: 18 cents
• EV-R multiple of 9: 20 cents
• EV-R multiple of 10: 22 cents

I thought the quarterly reads okay to me. In fact, it has given me extra confidence that management is continuing to execute on their strategy, despite the current difficult times.

Key highlights include:
 

• Positive net operating cashflow - plus for me, wasn't expecting this
• Uplift in FY20 revenue forecast - from $17.2M (as at end of Q3 FY20) to the range of $18.4M to $18.7M (as at end of Q4 FY20). Also uplift from FY19 revenue of $16.9M. Bloody impressive in the context of Brexit and Covid19, if you ask me for the reasons Kate mentioned about resources being diverted to the front/last line!
• Continuing uplift in operating expenses - within expectations given management has reiterated this multiple times that the increase in sales and marketing investment/expenditure is to drive top line revenue growth. You have to be either living in lala land or not bother carry out some basic research before posting any criticism

Additional highlights for me include:
 

• Very low customer churn rate - Kate mentioned that she cannot recall a contract not being renewed once the product is embedded into the customer's system
• The is a level of pent up demand that will flow through
• Recurring revenues will continue to increase as contracts gets renewed based on a subscription model
• Developments in NZ as a result of the Simpson review. Well worth a read as it touches on digital and virtual care. One recommendation in particular caught my attention: 'priority for digital investment shouldbe given to initiatives that will accelerate interoperability'
• Alcidion currently in active discussions with a number of parties about their products
• Structural tailwinds remain intact or might have even accelerate - e.g. virtual care settings and ongoing increased focus on digitalisation in UK and NZ.

If I remember correctly, Kate also hinted at an uptake of Patientrack in NZ.

Based on 'current' operational performance and valuation, Alcidion's current market cap is probably about right or a bit tad higher.

But for some of us, we are investing in what Alcidion could be in 4 or 5 years time. For things to play out as we think it should, it requires a combination of luck, good execution by management etc. Things may either play out exactly the way we believe it should or turn shit house - all part of investing.

Everyone's valuation of Alcidion will be dependent on a number of factors, including: your investment horizon, confidence in management execution, view of structural tailwinds or headwinds, sustainability of growth rates, capacity of Alcidion to upsell and cross sell its products, etc.... hence my previous comment of Alcidion probably being a case of 'averaging up'...

Comparing to the end of FY19 (30 June), we have seen positive developments on the following fronts:
 

• Share price - up 15% (28/07/20 closing share price of $0.15 vs. 30/06/19 closing share price of $0.13). This also ignores the extra shares issued as part of the capital raise)
• Market capitalisation - up 40% (28/07/20 closing value of $148.6m vs. 30/06/19 closing value of $106m)
• Enterprise value - up 29% (28/07/20 closing value of $132.7m vs. 30/06/19 closing value of $102.9m)
• Revenue growth - at the end of Q4, contracted revenue in the range of $18.3M - $18.7M in sold revenue set to be recognised in FY2020, exceeding FY2019 full yearrevenue of $16.9M
• On market purchase by Managing Director and Chairperson - the former to the tune to $137,000
• Partnership signed with Healthscope for data and analytics - contract with a big private hospital operator (approximately 43 hospitals). It wasn't so much the $2.1mil contract number as it is the potential that it unlock
• Patientrack renewals, extensions etc - for example, NHS Fife extends Patientrack across Board and renews for five years
• PoC - Murrumbidgee LHD to expand and extend use of Miya Precision and Miya MEMRe

I am certainly not suggesting that everything is rosy but credit should be given to the management for the achievements to date, bearing in mind that Brexit had slowed things in Q3 FY10. Covid19 further slowed things down as all available health resources were rightly diverted to the front line. Hence, procurement, sales and marketing etc has all taken a back seat. This delay is not specific to Alcidion but is consistent across the various health companies that I follow.

Based on current available information, the risk-reward proposition has definitely changed somewhat because of the following:
 

• some revenue recognition would be pushed back possibly into FY21 due to performance milestones being delayed at customers' request as they are focusing efforts on the covid19 front
• similarly, lengthening in the sales cycle for the above mentioned covid19 reason, cancellation of trade shows, restrictions in air travel etc
• growth in operational expenses exceeding revenue growth (due to Alcidion's expansion strategy and hence recent increased spending in new hires and boasting their sales and market capability)

But on the other hand, the current pandemic should also accelerate the structural tailwinds that were already in play, namely:

• increased uptake of technological solutions in the delivery of healthcare
• greater emphasis to maintain hospital capacity (via moving people out of the hospital system quicker where possible)
• focus on seeking greater operational efficiencies and/or effectiveness of healthcare delivery etc
• increased healthcare spending

At this point in time, Alcidion is probably a company that one should consider 'averaging up' as management further earn their stripes as opposed to 'averaging down'. I suspect this is probably the approach some smart investors are adopting in respect to Alcidion.

Some potential positive developments include:
 

• PoC results from the evaluation study and possibility of a statewide roll out (including remote monitoring). Also the possibility of accelerated growth in other states if PoC results are positive
• Accelerated revenue growth in FY21 or FY22 from resumption of procurement, purchasing etc
• Shorten sales cycle and greater uptake of the higher margin Miya platform business due to cross-selling and possibly lower customer acquisition costs
• Potential M&A (unlikely but I can't help but feel something is brewing in the background). My guess is that Alcidion growth would be driven by acquisitions, mergers and organically. I am thinking any acquisition (should there be one) would have to be around the >$30 million market to deliver a substantial impact
• Further developments on the Healthscope and Calvary fronts (remembering that the development of a data warehouse is always the first phase of a more substantive piece of work) and the private hospital segment
• Geographical expansion and/or announcement of distributors in new geographical markets

If one take a longer view (>5 years), I really think that Alcidion is at a sweet spot - intersection of technology and healthcare. It is more likely to be a 'growth at reasonable price' company rather than one that would experience explosive growth rates. I would be extremely happy to be wrong though!

Alcidion's results were ok, with record cash receipts and cash flow positive for the qtr. $15.9m in cash at the bank.

FY revenue is expected to come in between $18.4-18.7m (up ~10% from FY19), and with $12.8m of contracted revenue already locked in for FY21. There's roughly another $4.5m locked in each year through to 2025.

For a business on >8x sales, it's really not enough.

$3.7m in contracted revenue was added over the quarter, double the same time last year. Over the past 12 months they've added around $14m -- but this is over multi-year contract periods.

It's great to be start starting FY21 with $12.8m already locked in, but remember that they started FY20 with $11.7m. Not all sales are recurring (~75% are), so there's still a lot of work to be won.

Still, i think that's possible.

With an expanded presence and resources, they should hopefully be able to build on the sales won last year -- especially given the covid tailwind. $6.8m in sales were added to FY20's starting position. If we assume $10m in new sales added for FY21, we'd get full year revenue of $22.8m in FY21 -- about 20% top line growth. 

$50m in sales by 2025 would require this growth to be sustained over that period.

Definitely achievable, but I wouldn't want to bank on more than that for valuation purposes.

ASX release here

Execution from management...?

This ABC article points out the major need for SaaS products such as that offered by Alcidion.

Winning contracts in the next 12-18 months is a MUST for the long term success of this company. When else is a major opportunity such as COVID going to present itself.

Kate & her team need to position the business in the best position to get contracts over the line rather than revenue going to competitors

Not huge news, but Alcidion resigning ACT Health for a further 2 years (in a deal worth $1.3m) for its patient management system is nice to see.

However, when the contract was last exteded in 2018 (see here), it was worth $1.27m for 2 years. It'd have been nice to see Alcidion increase the cost more (especially given the likely platform improvements over the last 2 years), or have bundled in other offerings.

So it's good that their solution is proving sticky, but would have been a very strong signal if they could have charged more. 

Really nice to see ALC winning a contract domestically(allbeit fairly small).

My investment thesis when i purchased ALC shares was on the basis that they can use COVID as a performance booster to nail down some contracts and boost sales growth.

This new annoucement with hospitals in Sydney (Concord etc) shows a foot in the door, and gives potential for further contract winnings. - very pleased

If anyone missed it earlier, the recording is now available on their website:

https://alcidion.com/asx-announcements/investor-conference-call-recording-q3-fy2020/

Q3 FY2020 Business UpdateSolid result with a strong pipeline despite COVID-19

Highlights:

• Solid performance amidst COVID-19 pandemic, highlighting importance of Alcidion’s platform; sales pipeline remains strong across all markets;
• At the end of Q3, $17.2M in sold revenue to be recognised in FY2020, exceeding FY2019 full year revenue of $16.9M;
• Solid start to H2 with $4.2M revenue from new contracts added in Q3, of which $2.4M should be recognised in FY2020;
• Total contracted revenue of $41.6M out to FY2025 (including FY2020 $17.2M) and a strong balance sheet with cash reserves of $15.9M; and
• Significant new contracts signed since 1 January 2020 include:

             - Townsville Hospital and Health Service contract to implement Smartpage;

             - An extension and renewal agreement with NHS Fife for a further five years;

             - The implementation of a data warehouse across all Calvary Health Care sites;

             - Systems integration contract for national Digital Pregnancy Health Record pilot; andoMurrumbidgee LHD to expand and extend use of Miya Precision and Miya MEMRe.

From the conference call I'm loving the idea that the platform can be used outside of the hospital environment and that management are considering this.

This means patients can be monitored at home. A feature that is extremely valid in the current environment but also forward looking (as stated on the call) for using the application for monitoring our aging population both in nursing care and in their own homes.

As one caller stated on the conference call, this effectively places a nurse, if not a doctor, at your home.

Here's a valuation that follows similarly to Painchek's; 

There's 4 assumptions;

- Revenue Growth

- Profitabilty 

- Reinvestment

- Cost of Capital 

In my story, I believe that revenues can grow at 25% compounded annual growth for the next 5 years followed by growing slowly at 15% from then onwards. This ultimately ends up being $120M in 10 years time. This is a big assumption as I am assuming that they can achieve revenues that is around 20% of FY19 Ramsay Healthcare in 10 years time. This is the number that I am still unsure about, as their average contract size is around $2M. Either they can increase exisiting contract size or get new larger contracts. China or USA is still untapped and I believe that's where they have to go in the near future to justify $120M. I assume in 10 years, they will be at the mature stage and can grow at a steady state.  

I expect Operating margins to be high, hence the profitability aspect of the story is that margins to remain healthy at 40%. Currently, it's at 35%. My justification for 40% is due to the nature of the contracts; they are long, revenues are diversified and the size per contract can change prior renewal. 

I expect Alcidion to reinvest at a normal rate, hence the sales to cap ratio of 3. This implies that for every $1 investment, the company to get $3 of revenue. I think it is a reasonable assumption considering their acquisition of Patient-track and MKM had 5x their annual revenue. Soo I trust their track record for sensible investments.

Cost of capital is a tricky one and ultimately define the valuation for me. I came to the conclusion that a cost of capital at 7.85% is a reasonable assumption. It is a complicated formula but in simple terms I took the weighted average of Market value of (Equity and Debt) with cost of equity and cost of debt. Market value of equity is a fancy word for Market cap. Market Value of debt is (Book value of debt (you can find in balance sheet) divide by (1+ pre tax cost of debt) ^ (average maturity of debt)). The 7.85% is the risk I place on future cashflows. I could have attach a premium on an external event like Coronavirus, if I believe the virus would impact cashflows. But, I think Alcidion has the unique advantage of customers relying on their products/services at a time like this. My big assumption with this, is that the cost of capital to go down to 6%. That means that they would not borrow more and focus their time on executing larger contracts. 

Using the calcs, I came up with $0.38. This is using Damodaran's spreadsheet.

Luckily anyone can play around using his spreadsheets. Here's how he goes about valuing tech firms like Uber. Very insightful way of valuing young companies when P/E and DDM goes to the trash can.   

https://aswathdamodaran.blogspot.com/2019/04/ubers-coming-out-party-personal.html

16 March 2020

ASX update:

"...

We recognise the uncertainty that exists relating to the potential impact of the COVID-19 virus on global healthcare in the coming months and no business will be immune from its impacts. However, what we do know is that there will be increasing demand on the healthcare services as the number of cases accumulate globally and ultimately technology has a role to play in supporting the response to this increasing demand.

The current crisis represents an important context for us to demonstrate the merits of our unique platform that can give hospitals a site-wide view of their patient flow, automate workflows, alert clinicians to patients who are at risk or in decline, and assist in better management of resources to reduce the burden on clinicians and optimise patient care.

Our unique technology platform has been proven to support healthcare organisations to manage resources by improving efficiency and patient flow, enabling hospital beds to be freed up. We have recently built a feature in Miya Precision to provide flags to identify patients with and at risk of COVID-19 which we are now in a position to deploy to those customers requesting it. We have also developed COVID-19 screening assessments in Patientrack which we will shortly make available to customers. We will continue to monitor the situation in close consultation with our customers and provide what assistance we can as they manage this outbreak.

Our business itself is well positioned to accommodate whatever measures are prudent for us to take to safeguard the health of our staff, our customers, our customers’ patients and the wider community. Many of our services are delivered remotely and all our staff can work from home if self-isolation measures are required, either for individuals or for an entire office. Following consultation with our customers, we will be implementing contingency measures for each of our current projects to ensure we can continue to support these projects and our customers.

From an investment perspective, the fundamentals of the healthcare technology market have not changed – recent global events serve to heighten the value of investment in digital technology to improve clinical workflow and the delivery of care. We continue to strengthen our sales pipeline in Australia, New Zealand and the UK.

Alcidion is well positioned to capitalise on the rapidly increasing investment in digital healthcare. We have a clear strategy to accelerate growth, which we are successfully implementing, and we have a strong balance sheet to sustain the investment through current volatile capital markets. Weakness in the share price is of course disappointing for all shareholders and earlier this week I took the opportunity to add to my shareholding with the on market purchase of 1,000,000 shares. Our Chair Rebecca Wilson has also purchased further shares.

..."

Curran & Co has slightly upgraded its 12-month price target for Alcidion to $0.30.

Main contributors to the higher price target include:

• a greater portion of revenue moving forward will be made up of higher margin product sales, rather then non recurring services.
• benefits from current investment in sales personnel etc will start to flow through in FY24 and beyond, with EBITDA lifting above its previous forecasts. However, EBITDA forecasts between FY20 & FY23 have been reduced to reflect the extra spending.

11/2/20

Alcidion has announced a further $1m in sold revenue since the end of the 2nd quarter, taking the total sold revenue so far in FY2020 to $15.4m. This compares to the $16.9m that was recorded in all of FY19.

The presentation also reiterates the size of the market opportunity, the increased investment in growth and the recently strengthened balance sheet. 

See here

24 February 2020

Alcidion Group-H1 FY2020 Results Solid start to FY2020 with significant contracts signed and investments for growth.

Highlights:

• H1 FY2020 revenue of $8.2 million, 12.3 % increase vs H1 FY2019
• Investment for growth underway in areas of sales, marketing and product development to capitalise on an increasingly favourable market opportunity in UK and ANZ
• Net loss of $1.8 million, as a result of investments made to accelerate operations in line with growth strategy
• $15.4M revenue already set to be recognised in FY2020, compared to FY2019 full year revenue of $16.9M with total sold revenue of $37.2M out to FY2025
• Cash reserves of $17.2 million, strengthened balance sheet from $16.2 million placement
• Miya MEMRe launched, following successful innovation Proof of Concept (PoC) at Murrumbidgee Local Health District (LHD)
• Important contracts signed including with private provider Healthscope, Dartford and Gravesham NHS Foundation Trust and our first NHS Global Digital Exemplar site, Taunton and Somerset NHS Foundation Trust

Below are some key observations from the Curran & Co research note.

As always, everyone should their your own research and be mindful of the fact that the entity was joint bookrunner in the recent capital raise, hence take some of their forecasts, valuation, methodology etc with a grain of salt.

12-month price target $0.29, upside of 38% from current share price of $0.21.

Valuation is derived using a hybrid of the Dividend Discount Model and Gordon Growth Model to derive the present value of dividends beyond FY25.

Uplift in revenue expectations beyond FY20 due to major capacity for growth in existing markets

Curran & Co is forecasting aggressive revenue growth, with 25% increase in FY20

Earnings growth will start to flow through in FY22

EBITDA forecast to reach $37 million by FY24

Profit growth in the near term will be constrained by extra costs associated with Alcidion’s expansion strategy

Massive opportunity for penetration into the EU and North American markets

Both markets collectively have approximately 1.1 million hospital beds

Alcidion may seek to enter both markets either by distributors or acquisitions

Validation of analytics capability from the recent Healthscope partnership

First major private hospital operator to utilise Alcidion’s services, paving the way for further penetration into the Australian private hospital segment

Q2 FY20 Conference Call

https://alcidion.com/wp-content/uploads/2020/01/Alcidion-Q2-FY2020-Quarterly-Results-Investor-Call-280120.mp3

Having re-read the announcement and listened to the conference call. I really feel that Alcidion is ahead of my expectations, following the acquisition of MKM Health and etc.

Investment thesis

The thesis here for Alcidion is very simple:

Alcidion is emerging as a disruptive leader in an emerging platform and data analytics market with strong structural tailwinds, disrupting a $1.63 billion market (across Aust, NZ and UK), where network effects and relationships are at play. This leaves Alcidion well-placed to secure market share as hospitals look to technology to improve delivery of healthcare and transition to digital maturity - creating a long runway for growth.

Positive momentum on the revenue front

Two things stood out for me on the revenue front

1. Revenue growth

Total revenue already set to be recognised for the 1H FY20 totaled $15.4 million, already totaling 91% of the FY18 revenue of $16.9 million,with the stronger half yet to come.

This was a pleasing result and reflects a company that is continuing to grow. As previously mentioned, the revenue figures also incorporate contracts win that were not announced to the ASX as they did not meet the materiality threshold. An example of this is the 5-year $160,000 contract win with the Queen Victoria Hospital for Alcidion's Patientrack solution via a competitive tender. This is therefore something for investors to bear in mind in between the time lag between ASX announced contract wins/extensions - many things are still happening in the background.

2. Revenue profile

Alcidion is continuing to transition to a more recurring revenue profile. In my view, recurring revenue will continue to accelerate.


The transition to a more recurring revenue profile is important because it promotes:

• greater revenue visibility and predictability
• better customer retention (provided they are kept happy and satisfied with service)
• higher margins
• investor valuation

Over time, there is a huge recurring revenue opportunity for Alcidion from its existing three key markets given all of them have yet to commence their transition to digital maturity. Given time, there is the potential for Alcidion to hit the $15-$20 million recurring revenue profile from the first phase of the digital transition from the existing three key markets.

Successful execution to capitalise on the opportunity won't happen overnightBUT the massive market opportunity is right in front of Alcidion to position itself as a disruptive leader in healthcare technology space.

What could go wrong?

Shit sometimes happen but there are definitely some risks associated with the potential reward - aka Alcidion's risk-reward proposition.

The risks that come to my mind include:

• new competitors
• technological advancement (potentially due to lack of investment in R&D)
• cash burn without a corresponding acceleration in sales (declining return on investment)
• bad acquisitions (empire building as opposed well-considered acquisition that would deliver an appropriate return on equity)
• slower rate of growth that cannot be appropriately explained by seasonality or other valid reason
• investors' impatience (both retail and institutional). Growth won't happen overnight and in a straight line, but management has to be given every reasonable opportunity to deliver before investors consider bailing out
• poor customer retention
• potential unorderly sell down by any top20 shareholders (if their personal circumstances change)

I wanted to point out that the "$15.4M revenue already set to be recognised in FY2020"  is very similar to this quote from their half year report on 25th febuary 2019 "Strong outlook for the Group with $14.8 million of contracted revenues to be realised in FY2019", one month off this time last year they had all there revenue for the fininacial year bar $2.1M. if that was to happen this year agian we would see that company have around a 2.2M increase in revnue at 17.6M an increase revenue of 4.1%. They have gotten an increase from 27.4 to 37.2 in total sold revenue a 36% increase from last year this time. This is surface level research however and i do not have he pdfs of the last years quarters, though i did have it writtern down that in there Q3 last year they had a 6.2M and Q4 with 6.1M in receipts. So they do have a trend of ramping up recognised revenue in there quarters towards the end of the year.  However there recurring revnue is up 27% which for ALC is what i watch the most and they have solidy increased contracts.If they do only get to around 17 to 18 million in revenue they are fairly valued.

The 15.4M in yearly perspective is not that impressive, yet we will have to see if they can manage to keep increasing that past the 2.1M of last year.

No major new insights this quarter in temrs of the broader, long-term narrative.

Business remains well placed, it seems, to continue strong growth, especially with an apparent pick up in the uk market. However, increased investment in development, sales etc have seen cash outflows increase (and will continue to next quarter). 

The business has already total confirmed revenue of $15.4m for the full year (compared to $16.9m total last year). Alcidion has $17m in cash and term deposits. 

Alcidion's 4C quarterly cash flow statement, ending Dec31 2019, highlights:

• $3.5m worth of contracts sold in Q2
• $1.8m cash outflow
• $17m in cash & term deposits
• $15.5m in revenue already recogonised for FY20 (last year $16.9m total)
• Recurring revenue up 22.7% over the year
• Q3 cash outflows to worsen as company invests in development, sales and marketing.

4C here

Alcidion has got their fingers in so many different pies that they do not even need to get everything right or to dominate the market. Just securing a portion of the overall potential revenue market should provide a meaningful re-rate.

My investment thesis on Alcidion really comes down to:
 

• strong structural tailwinds (changes in funding arrangement and inevitable adoption of technology in the healthcare sector)
• intellectual property (artificial intelligence and algorithm)
• growing data repository (internal data feeds)
• total 'global' revenue opportunity (across different markets and geographical locations), and
• management and board (track record and integrity)

Below are just some random thoughts from my perspective, an ordinary retail investor like most here:

1.) In my view, Alcidion only needs to execute and successfully capitalise on a few opportunities within the total 'global' revenue opportunity that exists (ranging from hundreds of millions to blue sky thinking of billions). With the strong tailwinds, I do not think it is unreasonable or unrealistic to achieve revenue sales of $50 million or so within the next 5 years or so. With high operating leverage and reasonable gross margins, net profits of $30 million or so does not seem very far-stretched.

2.) At this very time, we need news before the share price can move up again. Until that happens, the share price would probably fluctuate within a range, being tightly controlled going by recent trading patterns too. I have no doubt that news will come soon, what I am hoping to see soon is a high-valued contract win. If this happens, I feel the market will re-rate Alcidion accordingly as I believe the market is still somewhat sceptical about the scalability, revenue and profitability potential yet. However, I am also not discounting an acquisition announcement.

3.) A common factor in the recent re-rates by the market to technology companies such PCK, TNY, NHL and etc is the data that these companies hold. One of the key challenges facing many technological companies in the artificial intelligence and algorithm is that they need data - lots and lots of data. You either have to acquire it and/or collect it over a long period of time.

What the market perhaps is not appreciating is that Alcidion potentially holds a much bigger data bank than many companies. In fact, a huge data repository . Latest corporate presentation states that Alcidion currently has approximately 79 million observations. The repository is continually growing as more data points are being internally fed in via Patientrack and etc. The rate at which this internal feeding is taking place will also grow as more contracts are won.

More data points will continually refine the algorithm and ultimately lead to better and more accurate artificial intelligence models. I would not be very surprised if Alcidion comes out with a Miya 2.0 to headline its aggressive push into our key markets.

4.) I also think there is a massive opportunity for Alcidion to incorporate their algorithms into wearables. There are now measurable links between biomarkers such as sleeping cycles, heart and breathing rates, blood pressure and how those data can be used for automated health event prediction, prevention and intervention.