Ann: Q3 FY22 Quarterly Activities Report and Appendix 4C, page-28

Reflecting on Kate's commentary that the management still expects an underlying EBITDA for FY22.

Using EBITDA as a proxy for operating cashflow because it removes all the non-cash operating expenses, we can infer a positive 4C for Q4FY22 of at least $2.05M, which represents an approximate increase of 29% on the previous corresponding period.

This is because underlying operating cashflow of +$1.6M in Q3FY22 instead of -$0.45M suggests a one-off M&A cost of around $2M. Question is whether or not there are any further M&A costs to be incurred in Q4. In my view, this is unlikely.

Unless there are compelling reasons for doing so, I personally would like Alcidion to cease undertaking any further M&A activities for the time being. The spree of acquisitions while necessary just makes it too hard to understand the underlying business metrics such as organic growth, EBITDA, operating leverage etc. This is evidenced by the confusion on HotCopper in respect to underlying EBITDA vs EBITDA vs breakeven, the relevant period (quarter vs financial year), extent of contributions from the acquisitions etc. Just makes it too hard for even management to stay on message when the headline figures tell a different story at first glance.

I genuinely think this is a key reason why some institutional investors might have put Alcidion temporarily in the too hard to understand basket, in addition to the historical poor history that Australian companies have in pursuing a roll-up strategy.

To really understand Alcidion and assess its fundamentals, you really need a set of clean accounts that accurately reflect the underlying business - e.g. extent of organic growth, have we reached the tipping point where operating leverage kicks in?

To build further investor confidence, management should also refrain from creating unrealistic expectations. Avoid the use of words such as 'sizeable' etc which can be ambiguous - e.g. $5M or $20M. To her credit, I felt Kate has deliberately pulled back from using such ambiguous words in today's webinar to not create confusion among investors. The approach now is simply to be factual, stay on message and let the contracts speak for themselves.