Ann: FY20 Annual Report to shareholders, page-14

Alcidion's full year result pretty much came in as expected.

Ongoing investment in sales and marketing capabilities continue to delay cash flow break even. But this is a necessity to capitalise on the market opportunity. In fact, I think the structural shifts that were occurring prior to Covid19 and subsequently accelerated by the pandemic makes first mover advantage in the emerging land grab more the important.

Increased cost base is expected to stablise in FY21. Colin mentioned in the previous 4C webinar that he expects costs to stabilise around the $4.75M per quarter mark. Give or take, all else being equal, Alcidion really needs consistent cash receipts of approximately +$7.6M to achieve positive cashflow.

Going by the above rough numbers, Alcidion will probably hit profitability when revenue exceeds >$30M. This probably means profitability is still a few years away given the FY20 revenue figure of $18.6M. Like all SaaS companies, profitability will really accelerate when recurring revenues inched closer to the cost base.

Having said that, the timeline will be dramatically shorten IF Alcidion manages to secure a major contract. Kate mentioned that she envisaged a integrated product offering for a trust over 5-years would be around the $7M to $8M range. Obviously the actual number might differ depending on the number of individual hospitals and beds involved, but it still provides a useful reference on the size of contract that could potentially eventuate.

Kate also kinda hinted that she expects revenues to accelerate in the second half of FY21. All the necessary building blocks are slowly being placed in position to facilitate the emerging market opportunity. It all comes down to execution now.

The only bit of the webinar that I had me a little concerned is Colin's explanation for cost of sale of goods and services, in response to Alcidion's low gross profit.

In the FY19 Annual Report, Alcidion stated the following:

NOTE: The Cost of Sale of Goods and Services for 2019 and 2018 differs from that presented in the unaudited Preliminary Financial Statements which followed the presentation used in the 2018 Annual Report, which deducted only the cost of third party product and hardware (i.e. cost of sale of goods only) from revenue to determine Gross Profit. This was inconsistent with how Gross Profit was presented in the 2019 Half Year Review where the cost of direct labour used to deliver services and develop, maintain and support product was also included in the Cost of Sale of Goods and Services. Accordingly, the cost of direct labour has been reclassified from the total Directors and Employee Benefits Expense amounts shown above to Cost of Sale of Goods and Services and the calculation of Gross Profit reflects this

As some of you might recalled, I did queried Alcidion on this change and their response is pretty much that it was permitted by standards, auditor did not raise concerns and that it was more reflective of the nature of their business.

In yesterday's webinar, Colin acknowledged that their approach has made the result look much worse that it actually is, compared to if the direct cost of labour (which is quite significantly) was to be put below the top line. He further flagged the possibility of taking those costs out next year to boost the gross profit margin figure.

I am not implying something dodgy is going on and is convinced every adjustment will be done in accordance to accounting standards etc, BUT can anyone with an accounting background explain this discretion for companies to change their reporting methodology as they see fit?

@Alcidion - perhaps you can also provide some clarification on my above query?