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

Q4 FY20 results 

• Yesterday, Alcidion announced their Q4FY20 results. Growth was flat in the final quarter despite signing/renewing numerous customers. 
  • NHS Fife – 5-year Patientrack extension across entire board
  • NHS Lanarkshire – 5-year agreement to implement Patientrack across board
  • Sydney LHD – initial 12-month contract for Miya Precision to support COVID-19 virtual care
  • Murrumbidgee LHD – 12-month contract for full Miya Precision platform including MEMRe
  • ACT Health – 2-year extension to long term integration support contract
• From the update, it was apparent that COVID-19 is an important catalyst for UK sales growth post pandemic. In UK their products are used by the NHS where contracts range from $1M - $2M over a 5 year timeframe. To grow sales, Alcidion is forced to either sign more NHS districts or increase the price of existing contracts. Currently, Alcidion does not have pricing power with the NHS. However, they can expand within NHS to grow over time. The link below contain all NHS England trusts currently in operation. I count 226 total addressable market for NHS England customers. https://www.nhs.uk/servicedirectories/pages/nhstrustlisting.aspx
  • Doing rough maths, they currently have around 20 NHS customers, my belief is that they can capture 30% of the England market in 10 years. This equates to 60 customers in total, giving ~ $18M ARR, assuming ($1.5M contract for 5 years). 
  • Depending on how many new customers sign up post pandemic, NHS is a large market opportunity. 
  • Looking at current customers like NHS Fife, we have seen them renew their contracts. This shows that customers like Alcidion products in particular Miya and Patienttrack during COVID-19. It is very good to see exisiting customers utilise the products extensively. Post pandemic, we could see sales uptick across NHS trusts. 
• The pandemic shows that Alcidion is a resilient business where the products and services are used extensively during the health crisis. Prior to Covid; Alcidion management conducted multiple visits to the UK, spend on marketing & trade shows to promote their products and convice hospitals to go digital. The pandemic forced Alcidion's customers to go digital and now they rely on Alcidion to manage ciritical processes and high volumes of patient data. Post crisis, I hope management either increase the sales pipeline or increase prices to drive revenues.
  • As a shareholder, pricing power makes the most sense as it lower CAC and increase margins.
    • However, it could also increase churn. The NHS is a public entity with their budget determined by the UK government. If more spending on NHS is announced, Alcidion should increase price to increase margins. 
• I have left out the Australian business as the quarterly & half yearly reports explain their progress in detail. Miya & Patientrack used in Australia are very sticky like UK. To me, Australia was always meant to be a testing market, with most of the growth coming from international markets like UK. Thus, virtual remote hospitals trials are tested in Australia before launching in UK.    
• The market "value" the company at ~ $150M, which is a fair valuation considering revenue growth is less than 20% p.a. However post COVID-19, Alcidion could win deals very quickly by converting customers from their growing pipeline. I see plenty of upside in the long-term, not in the short-term.          
• In terms of my prior valuation, I assumed 25% growth from 2020-2025 which gives ~ $50M in 2025. Despite the slow revenue growth in this Financial year, in subsequent years, I expect more investment into healthcare by governments. Alcidion will be one of the winners and it could lead to more customers using Miya and Patientrack. I maintain my valuation of $378M company which correspond to $0.38 share price.           

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

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. 

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

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.

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!

Alcidion appointed to UK National Health Service (NHS) Clinical Communications Procurement Framework

Mobile clinical communications improve clinician and patient experience

A new multi-million pound framework that will help the NHS ‘purge the pager’ provides NHS trusts in the UK with a means to quickly and easily procure Alcidion’s Smartpage messaging system without tendering.

NHSX has awarded Alcidion a place on its £3 million Clinical Communications Procurement Framework, a new procurement vehicle to help the NHS phase out pagers by the end of next year.

Smartpage allows instant two-way messaging between busy professionals providing them with read receipts and guaranteed delivery between all care team members, as well as the ability to share images and assign tasks. Healthcare providers using the system are also given organisation wide oversight in real time.

Lynette Ousby, UK general manager for Alcidion, said: “NHSX has shown a commitment through this framework to accelerate the spread of modern technologies in the health service that can help healthcare professionals communicate effectively during the busiest of times.

“The inclusion of Smartpage on this framework is an important independent validation for Alcidion’s Smartpage product. We look forward to helping trusts modernise their communications tools through a framework in a way that is affordable and straightforward.”

The new framework follows an order from health and social care secretary Matt Hancock for the removal of pagers from the NHS for non-emergency communications by the end of 2021. Speaking at the time in 2019, he said: “Every day, our wonderful NHS staff work incredibly hard in what can be challenging and high-pressured environments. The last thing they need are the frustrations of having to deal with outdated technology – they deserve the very best equipment to help them do their jobs”.

Alcidion has had significant success with Smartpage over recent months. Reliable and secure communication between clinicians is a critical component of digitally integrated and coordinated care across the healthcare sector. However, siloed information due to a complex mix of pagers, legacy phones and whiteboards is a cause of communication delays or errors in many hospitals today. This can lead to longer waiting times, delayed or missed care and lack of visibility into staff workloads.

To address these challenges, four leading healthcare organisations have chosen to implement or extend the use of Alcidion’s smart clinical messaging platform Smartpage: ACT Health, Nelson Marlborough District Health Board, Counties Manukau District Health Board and Townsville Hospital and Health Service.

Alcidion has signed an inital 12 month contract with Sydney Local Health District valued at $560k.

Sydney LHD overseas 5 hospitals including Prince Alfred and Concord hospitals.

This is in part a result of the customer needing to remotely manage Covid-19 patients, but will have application well beyond that when fully rolled out. It's a good foot in the door, and has potential to be extended and broadened once the initial term has ended

The market has responded by puishing shares ~10% higher.

You can read the ASX announcement here

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/

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'...

NHS Lanarkshire to deploy Patientrack across entire board

Highlights:

* NHS Lanarkshire to deploy Patientrack to all three Lanarkshire hospitals and into the community setting, covering approximately 1,250 beds

* $1.52M total value to be recognised over five years to 2025

* NHS Lanarkshire is the second NHS Scotland Health Board to implement the Alcidion Patientrack solution
 

Murrumbidgee LHD signs contracts for Miya Precision

* Contracts signed for Murrumbidgee LHD continued use of Miya Precision and Miya MEMRe

* COVID-19 and out-of-hospital monitoring capabilities incorporated into the solution

* Miya MEMRe to be rolled out to up to an additional 200 doctors

* Total contract value of $686k for 12 months from Jan 2020

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.

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?

ALC have generated a strong array of products/services that are unique to the healthcare/technology sector, especially the MIYA MEMRE product. This allows for patients to be monitored at home.

On the back of COVID we will expect to see a lot of funding driven into patient management, not necessarily to deal with another pandemic, but to better improve the healthcare system and management of patients by hospitals. This will be particularly focused on the UK, with NHS massively struggling with the COVID outbreak. (still applies in Australia, not as strong as a case however). The overall hope here is that there is a great demand for electronical medical records (EMR’s) on the back on this pandemic and that ALC management are able to execute a plan that sees large revenue growth in the coming years.

They have been winning a fair number of contracts and have performed very strongly in the first half of FY20 respective of FY19. Currently ALC only operate in the UK, AUS & NZ as far as I am aware. This leaves the US market (amongst others) completely[at1]  untapped, which leaves room for great potential in the future.

In terms of financial metrics, they have no debt and cash reserves of $17.2 million. (due to cap raise) in H12020. Overall revenue in h1 FY2020 grew by 12.3%, and hopefully we can see continued growth down the line.

 [at1]

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)

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 Managing Director Kate Quirke said, “Despite challenging market conditions during the final quarter of the financial year, as the COVID-19 Pandemic (“COVID”) continued globally, we are pleased to deliver a healthy sales performance in the final quarter. Whilst COVID has delayed the signing of some contracts, with frontline healthcare organisations focused on the provision of critical care, we are pleased that the pipeline of potential business has continued to grow and we remain confident of our further growth.”

“The benefits that our technology can deliver; in managing risk, assisting clinicians to monitor patients and manage resources, both in the hospital and remotely, has been highlighted during COVID. This environment, and the enhancements we have made to our product suite to help healthcare providers manage COVID-19 risk, have contributed to us securing new customers and contracts in Australia and the UK.”

“Our involvement in the Monklands digital hospital experience run by NHS Lanarkshire was a springboard to our first Patientrack contract with this NHS board, further expanding our presence in NHS Scotland. We are also pleased to see the use of Miya Precision expand across NSW, with both Sydney LHD and Murrumbidgee LHD signing contracts for initial 12-month periods.

“Despite the current global climate, we are pleased to report growth in Q4 and FY2020 overall. We enter FY2021 well prepared to drive further growth, with a solid base of contracted revenue, much of which is recurring revenue, and a healthy pipeline of potential sales. In the current environment the strength of our value proposition to support both short term COVID-19 management and the longterm digital transformation of healthcare, is being increasingly recognised.”

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!

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.

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

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

Considering all things (Brexit and Covid19), it was a decent result.

My takeaways from the conference call on the 4C are:

Areas of interest

• Alcidion appears to have a strong working relationship with eHealth NSW due to its expanding role in the Child Digital Health Record PoC. Available information suggests that Alcidion is now involved in all four project initiatives, with the potential for the project to be rolled out nationally
• Currently building a data lake for Calvary to consolidate data from various clinical and non-clinical IT systems. Importantly, this is the important first step before data analytics and AI can be applied in the subsequent stage in a brand new world of prevention, new personalised models of care,intelligent decision support and business efficiency. I personally think that there is a strong likelihood for this contract/relationship to go further
• Huge validation of Miya MEMRe as Murrumbidgee has committed to an extended 12 month use across its hospitals even though the results of the PoC has not yet been published. Also involves extending the use to 300 additional clinicians and implementing a COVID-19 dashboard for remote monitoring
• Coivd19 has highlighted the reality of resource constraints, compelling hospitals to accelerate the movement of patients through the system and explore out-of-hospital care using technological solutions. Huge potential for remote solutions as, for example, chronic patients are still taking up a lot of hospital resources

Financial

• Revenues continue to be on a growth trajectory with strong structural tailwinds and the covid19 being an important catalyst when viewed over longer term

• Limited disruption due to, among other things, recurring nature of revenue profile, customer base (predominately public sector) and longer duration of contracts
• Continual shift towards a recurring revenue model with revenue smoothed over a 3-5 year period as opposed to a larger upfront revenue boost
• Some deferral in revenue recognition to FY21 as resources are redeployed to the front line

Corporate

• Alcidion has already scaled back on some spending (e.g. putting on hold geographical expansion into some areas, travelling etc) in response to the current uncertainties over covid19, without impacting immediate revenue growth.
• Strong balance sheet with sufficient capacity to further reduce operational spending if duration of pandemic becomes protracted
• Continuing to research new geographical opportunities, albeit constrained by travel restrictions
• Ongoing investment over the next few quarters, as per growth strategy

Sales and marketing

• Expects newly appointed GMs to leverage off their contacts and bring in some sales lead

• Newly staffed up uk team to follow up on leads generated by Malcolm recent visit to UK where he presented to several major NHS
• In active discussions with several new customers not only around their response to covid19 but also their broader needs
• Covid19 has the potential to fast track purchasing decisions over the longer term but also delays may be experienced in the procurement process in the near term as resources are redeployed to the front line

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

Q4 FY2020 Business Update Solid results during challenging times

Highlights:

* Healthy Q4 sales performance despite challenging market, with $3.7M contracted revenue added in the quarter, more than double the corresponding period last year

* Final FY2020 revenue anticipated to be in the range of $18.4M and $18.7M

* $12.8M in revenue has already been contracted to be recognised in FY21 with a further $17.0M sold out to FY2025

* Net operating cash flow surplus for the quarter of $0.25M, resulting in cash reserves of $15.9M at 30 June 2020

* Cash receipts for the quarter from operations of $7.6M, consistent with usual uplift at year-end

* Alcidion products have been enhanced for in-hospital and remote monitoring of COVID-19 patients and deployed live into hospitals

* Significant contracts signed and announced since 1 April 2020 include:

o NHS Fife – 5-year Patientrack extension across entire board

o NHS Lanarkshire – 5-year agreement to implement Patientrack across board

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

o Murrumbidgee LHD – 12-month contract for full Miya Precision platform including MEMRe

o ACT Health – 2-year extension to long term integration support contract

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.

Highlights:

• NHS Fife - a Health Board in Scotland extends use of Patientrack across the whole estate – including a minimum of 10 hospitals.
• Previous annual contract renewed for five years
• $1.47M total value to be recognised over five years to 2025
• NHS Fife is one of Alcidion’s longest-serving customers, first implementing Patientrack in 2011

Melbourne, Australia - Alcidion Group Limited (ASX: ALC) has signed an extension and renewal agreement with NHS Fife for an additional five-year term, extending the Board’s use of the electronic bedside monitoring system across the whole estate (minimum 10 hospitals).  The total value of the new contract is $1.47M over five years, to 2025. 

NHS Fife is a regional hub in Scotland, serving a population of 370,000 residents. Under the expanded renewal agreement, NHS Fife will now deploy Patientrack across the whole estate, a minimum of ten hospitals including two main acute hospitals and a network of community and day hospitals, amounting to approximately 1342 beds.

...

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)

Alcidion grows recurring revenue base, while investing to accelerate growth

Melbourne, Australia – Alcidion (ASX: ALC) has today released its audited full year results and Annual Report to Shareholders for the Financial Year ended 30 June 2020 (FY2020).

Highlights:

• $18.6M revenue reported for FY2020, 10% increase vs FY2019;
• Recurring revenue significantly increasing to $10.5M, 35% up on the prior year;
• Net loss of $3.1M, reflecting planned investments to accelerate growth;
• Cash reserves of $15.9M, well capitalised to support further growth in FY2021;
• Significant product contracts signed in the UK and Australia
• Entering FY2021 poised for further growth, with strong pipeline of potential business and $12.8M already contracted revenue to be recognised in FY21.

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

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

revenue for 6 months nearly equal to prior 12 months...