Ok, so there's some cause for optimism in these results.
You can read the ASX announcement here, but the key points are:
- ALC has $37.4 in contracted and scheduled renewal revenue for the first 9 months of the year -- up 2% on pcp. And there's almost $3m in additional revenue to be recognised this year from new sales made during the quarter. Ok, so the revenue growth will look tame compared to previous years, but it should be positive and it should also deliver improved margins now they've reduced expenses by about $6.4m annually (hopefully not at the expense of future growth).
- Q4 (historically the best quarter, which is a pattern ALC expects to continue) will enjoy the full benefits of cost cuts, and the business is expecting to be cf +'ve in the second half.
- They have $6.5m in cash and said they have "adequate funds"
- Cash receipts down a little on pcp, but up 17% on the preceding quarter and there's $12.9m due from debtors (last year it was $7.3m)
- Basically cash flow b/e on an underlying basis, when you remove redundancy costs.
- Continued to sign up new trusts, which as Kate says help build their "referencability"
Despite the drop in the pace of growth -- which seems more to do with the industry environment, rather than the business itself -- the company is still moving forward. Maybe they lose some marks for ramping costs up too fast (although that's always easier to know in hindsight), and maybe they'll handicap themselves with less resources going forward, but the bigger picture thesis doesn't seem broken to me. Although i'd rethink that if they couldn't get back to higher rates of growth, or they lag on a relative basis next to other players in the NHS.
Last year shares were on ~4x sales, now they're on 1.5x. So i'm happy to keep my holding for now (about a 1.7% weighting).
Alcidion reported its FY23 report
Revenue:
Receipt from Customers
Expense
Operating Cash
No. of Shares
My view:
In the absence of an NHS contract, Alcidion currently looks like a slow growth company. However, I get a sense that Alcidion has significantly hired in anticipation of NHS contracts and because of those contract delays, expense has grown fast compared to revenue.
In one of the calls, Kate mentioned that it would be very shortsighted of her if she started cutting costs and suddenly had NHS contracts and struggled to find the resources to fulfill them.
Although Alcidion hasn't performed that poorly in the absence of NHS contacts - However, I anticipate there will be significant pressure on Alcidion's share price for some time because one of the co-founders ( Ray Blight) seems to be selling his portion after his resignation. He resigned on 30 June 2021 and also Alcidion's previous CFO Collin MacKinnon who retired last year is selling down his portion. ( Highlighted yellow in the screenshot below).
So If Alcidion wins large NHS contact sometime in the next 6 months, that will provide significant liquidity for them to get out ( if they completely want to) and then there will be more buyers than sellers hopefully.
Alcidion announced today that it had signed two Silverlink PCS contract renewals.
Along with this signing, these two contracts also trigger the earnout payment of A$2.8m agreed upon during the acquisition.
An interesting new update is that their current cash on hand is $15.6m Which is $4.5m more than the last disclosed figure as of 31 March 2023 in their 3Q 4C.
So two months of 4th Q have passed and their general expense of Q is ~11.5m so I think it indicates to me that 4th Q receipt will be in the vicinity of ~$15m.
So if we exclude this $2.8m payout, their FY23 operating cash outflow will be roughly 2m or thereabout.
Essentially, if it manages to sign a few big NHS contracts by the end of FY24, the Probability of them being cash flow positive in FY24 is very high.
sentiment currently for this business is very low.
Seems like the perfect setup for better performance compared to the index in my opinion for the next 2 years.
Just me trying to provide a balanced view to facilitate a more robust discussion, not ramping nor down ramping Alcidion.
The Q2FY23 was a combination of hits and misses to me for the following reasons:
MISSES
1) I felt Alcidion was trying to divert attention from the disappointing numbers using using the $5.2M figure to explain the lower cash receipt. As the CFO has clarified in the webinar, only around $2.6M can be attributed to the delayed payments. The remaining $2.6M is correctly attributed to Q2FY23 and has no bearing on the lower than expected cash receipts in Q1FY23.
How it has been worded has had the unintended/intended consequence of making some shareholders think that Alcidion would have been cashflow positive in Q2FY23 if the whole $5.2M was entirely attributed to Q1FY23.
2) Rightly or wrongly, I was personally expecting a better 4C for Q2FY23 going by previous comments made by the CEO. Because we had a modest negative operating cashflow 4C in Q1FY23 and a positive operating cashflow of $1.5M in Q2FY22, I was therefore not expecting an underlying -$1.8M operating cashflow in Q2FY23 (after accounting for the $2.6M in delayed payments). To be fair, I might also have misinterpreted some of the context underpinning the comments.
3) Having watching the webinar a second time, I also picked up that Kate has added a disclaimer to her usual guidance that the company remains on track to achieve a positive underlying EBITDA and cashflow in FY23. It now assumes 'continued momentum in the UK', bearing in mind that the political uncertainty in Alcidion's biggest market has had an adverse impact in CY22.
4) Alcidion has also stop reporting the recurring and non-recurring split in its entirely, only disclosing this split for new sales. Looks the same to most people but mean differently in practice.
For example, this spilt was previously disclosed as
Now we only get this from Q1FY23:
5) The lumpiness in Alcidion's cash receipts profile is inherently lumpy, as evidenced from the chart below. Q1 and Q2 will continue to underperform relative to the second half of the financial year. Nevertheless, the overall trend is still positive.
HITS
1) New sales and recognisable revenue continue to track upwards
2) Cash expense has stabilised and maybe (just maybe) the benefits of operating leverage would soon start to kick in. Management has indicated that the cost base has achieve stabilisation and is unlikely to fluctuate substantially moving forward..
...the opening of the revenue-cost jaw.
@composerI don't see your straw as unduly negative or down-ramping at all.
I've been too busy this week (with commitments outside of investment management) to post my own straw, but I watched the recording of the results and presentation and came away with very mixed feelings. For me the biggest concern was that I sensed that Kate herself was ill at ease in discussing the results, which weren't great from a cashflow perspective. I attach my standard analysis below. The numbers support your general tone.
For now, I am going to continue to hold my small RL position in $ALC. But (just as with $3DP and $EVS discussed in other straws over the last week), $ALC is not making the progress necessary for me to increase my allocation, which clearly in the success case I am aiming to do.
Disc: Held in RL and SM
Just had a chat with Kate from Alcidion who is at the ASA conference in Melbourne.
A couple things of interest:
She reiterated that their customers are hyper defensive. In fact, any funding squeeze tends to be good as they force hospitals to increase efficiency.
Cash flow positive and very comfortable with the balance sheet.
She's quite excited about recent wins and how they should be able to increase penetration with these clients.
Good momentum with sales.
