Ann: Appendix 4C - quarterly, page-88

The two key takeaways for me from the ongoing discussion on Alcidion are:

Appropriateness ofthe key metrics used to monitor Alcidion’s progress

In short, I see the progression (theoretical) of SaaS through the following stages:

·Growth

·Profitability

·Sustainability

Given the different factors at play at each stage, it is reasonable to use different metrics.

In Alcidion’s current state as a growth company, the emphasis on gross profit margins, EBITDA and etc (whilst important) is less relevant that latter stages. We have seen other SaaS companies such as Nearmap and Xero not turning profits for years in their scale up.

All these key metrics are not mutually exclusive to each stage and arguments can be made that growth would not be possible if there is a negative working capital, with insolvency more likely than growth!

Stage	Drivers	Key Metrics
Growth	Customer	No of customers
	Revenue	Revenue growth (average contract value, recurring revenue, total revenue and etc) Average contract value per contract Number of products per customer/Add on sales/Sales peneration
Profitability	Cost	R&D/sales COGS/sales Marketing/sales Customer acquisition cost Timelag in revenue recognition
	Margin/Cashflow	Gross margins Recurring margins Operating cashflow margins Free cash flow Working capital
Sustainability	Sales and marketing	Average contract length Lead to conversion rate
	Customer experience	Customer retention rate Customer churn rate Customer satisfaction

Risk-rewardproposition of Alcidion

As I stated before, the investment risk-reward profile for every investor is different. This would obviously influence how each and every one of us assess Alcidion as an investment proposition.

For me personally, the best time to buy in was at sub 10 cents. That was when the potential rewards was the highest with the risk somewhat minimised by signals provided at the deemed price of the MKM Health acquisition and subsequent insiders purchase.

At its current price, I do feel a lot of positive expectations has been priced in. Accordingly, the recent share price decline was not a surprise to me as I was somewhat expecting it. In its current state, Alcidion is more of a management play for me. The structural tailwinds and massive opportunities are definitely there, it is more of a question of whether or not the management can successfully execute their strategy to capitalise on those tailwinds and opportunities.

My personal investment strategy with Alcidion has always been to set myself up to benefit (hopefully!) from the explosive upfront growth phase. Subsequent additional investment and/or sell-down would obviously depends on progress and etc. There is nothing wrong with averaging up the investment thesis remains intact – e.g. management continues to executive, improvements in financial and operational metrics and etc.

A big recent milestone for me in respect to Alcidion is the fact that won their first private sector contract with Healthscope. I recognise the contract value was small, but it was still significant to me. The next milestone for me is whether or not they can sign a “big contract” (contract value >$5 or $8 million). That will really put us in the spotlight and bring us to the attention of the big institutional investors.