Disappointing result on the face of it, although growth...

Disappointing result on the face of it, although growth potential, industry tailwinds and size of TAM’s attractive (although I’m not a fan the latter as a benchmark metric)…the issues I would like to see raised with management on the call this afternoon are as follows:

Revenues: Group revenue $7.1m, of which Potential(x) contributed $2.5m for the 100 days since acquisition – simplistically (simple average), this would imply a full HY run rate of $4.5m, thus, assuming no improvement in H2 (which there probably will be), a FY revenue runrate of $9.0m….vs F21 revenue of $11m and EBITDA of $2.6m (details given at time of acquisition). So, even assuming a stronger H2 …. still a stretch to even match last year’s revenue? I would be looking for them to replace contract revenue, particularly Saudi project (in H2 and beyond…whilst continuing to build on RR over time.

Costs: clearly headcount is the big one (c83% of revenues vs 58% in pcp – I have included share based payments which were lower, and professional fees in Employee operating expenses). The positive to glean from this is that this expenditure will hopefully drive direct sales revenues which would be better quality revenues (higher margin). You’d have to assume the % h/c opex increment won’t be as large in H2. As for acquisition related ‘one-offs’, I think we have to assume that this may be an ongoing feature, at least in the short-term, as they have very definitely flagged acquisitions to drive growth going forward.

Cashflow: Firstly, it is worth noting that there were some timing issues with receipt of cash from Saudi contract ($1.9m and HRT ($1.6m). That aside, it would be helpful to see management address cashburn (c-$7m incl acquisition related costs) in the context of cash balance (c$7m) and how that ties in with increased operating expenditure, (potential) reduction in contract revenue and (potential) acquisitions going forward. Increased headcount costs are here to stay, even if they remain reasonably static from here, given the bulk was related to Potential(x) and Ainsoff acqusitions…so this investment in h/c now needs to drive stronger revenue growth going forward.

Synergies: ‘nearly 60% of overall integration initiatives identified for execution’ (Potential(x))….so hopefully, this will actually be achieved/executed over the next couple of periods.

I think they are in a sweetspot in terms of where the h/c industry is headed and the imperative for hospitals to run more efficiently, with less HAC’s, and more efficient processes to reduce waste, length of stay, billing etc, so, if they can execute, I think this is still an excellent long term play….let’s see what they have to say on this afternoon’s call.

All the above IMHO/DYOR