M7T Q2 FY22

Highlights

• Sales orders rose $5.9m (TCV) or 37% to 22.1m in the quarter
• Record FYTD sales orders $22.1M (206% on year)
• Record FYTD Rev $14.3M (102% on year)
• Contracted ARR of $16.8M (24% annualised)
• $20.2M Cash on hand

I like to keep tabs on M7T due to it's similarities with PME but have always struggled with how lumpy some of the quarterlies are. Current ARR is forecast to come in at $13.5m for the FY and with a market cap of $163m it's not the most demanding given the high margin and growth nature of the business. Operationally the business is cash flow positive which in the current market is beneficial, think I'll do some more work on this.

Trinity Health Purchases License to Mach7's PACS Solution

M7T has received a PO of $3.6m for their software and services (to be recognised this FY)

A further $3.8m in support fees expected to be recognised over the next seven years.

M7T is one I've followed for a while as I searched for the next PME. They're currently trading on a12x Trailing Rev ($19m) multiple which isnt the most demanding in the current market but M7T is still a long way from being the next PME.

This is an important step in the right direction for M7T and deserves a closer look.

M7T is a company I've had on my watchlist for some time when I was looking around for MedTech companies (Maybe trying too hard to find another PME). My thoughts as to why there might be an opportunity here is Covid has interrupted their ability to sell & rollout their system.

Who are M7T

M7T is an imaging platform (eUnity) that allows doctors to access all medical images (vendor neutral) for the patient on a single platform. From here the doctor can diagnose, workflow, share & index the medical images through their eUnity viewer. The clients data can be stored on the cloud or locally & is available via an online browser (no installation).

M7T currently have over 150 customers across 15 countries (Including - Aus, Canada, China, France, HongKong, Singapore, US & UK). 

FY21 Achievements 

Acquisition of Client Outlook - This was the platform they used for distribution, the acquisition will bring down their COGs & improve Gross Margin.

Sales +95% to 25.6M (85% of this is yet to be recognised as revenue)

ARR + 80% to CARR $15.8M

30% CAGR since FY14

$40M in pipeline with 32% already won, 30% expected, 21% delayed due to covid & 17% lost

M7T are currently transitioning from a capital licence model to a subscription model (SAAS). In FY20 2% of sales were SAAS, this has now increased to 20%

Operates at a 97% gross margin

Revenue up 13% on a currency basis

Commentary

In the example given in the investor presentation they broke down the revenue streams for the subscription model vs the capital licence model. The capital licence model has a large upfront cost as well as annual support, where the subscription model has a subscription fee as well as a service fee. In this example the subscription model brought in 10.9% more revenue over the 5-year life.

Although M7T is operationally cash flow positive they returned back to an EBITDA loss of $1.8M this FY. This could be explained by the increased SAAS sales where revenue is realised later in the life of the customer. Revenue was also potentially deferred by “staffing issues” I suspect due to covid. Hospitals may also have delayed installation to conserve capital (hence the large order book).

M7T have stated that they will return to EBITDA positive in FY22 and may provide guidance later in the FY

Still have plenty of cash on hand with current assets 3x that of current liabilities

Valuation

Over the past 3 years M7T has historically traded at a valuation of 10x EV/Sales. Current market cap is $227M. The company has stated that the FY22 book stands at $23.1M to date with 11 months left to increase this revenue, I think the company could achieve significant growth this year.

I’d like to learn a more about this company before I put a dollar value to it but there’s enough here for me to learn more.

Red Flags

Small inside ownership (Approx 6%)

Large jump in operating expenses this FY (I suspect from the acquisition but I’m speculating)

Large jump in depreciation & amortization (I’d need to find out where this came from & how they depreciate their assets over time)