The Alcidion (ASX: ALC) AGM was accompanied by a presentation. The new information provided essentially gave a more detailed breakdown of revenue by revenue type. Conveniently, this new segmentation of revenue enabled the company to focus on the modest growth in recurring revenue throughout FY 2024.
No guidance was given but the CEO did say that the company targeting EBITDA breakeven in FY 2025. When questioned about remuneration, the Chair of the Board defended the remuneration practices. The leadership seemed bereft of any sense they had executed poorly or risked replacement.
Alcidion would benefit from thorough renewal (and shrinkage), and two of the three directors standing for re-election faced significant protest votes. Overall, I feel a high level of animosity towards the board. Alcidion appears to be run badly and with reckless levels of spending on salaries. I was surprised at the high level of support for the remuneration report, but I was not surprised to see the stock trade flat-to-down after the meeting.
After the AGM, Alcidion released its Q1 FY 2025 results and reiterated their target of EBITDA breakeven in FY 2025. The quarter was quite disappointing from a cashflow perspective, as you can see below.
Notably, “At the end of Q1, Alcidion had $28.5M of contracted and scheduled renewal revenue to be recognised over the course of FY25.” This is almost 20% below the $35.3 million of contracted and scheduled renewal revenue for the year that it had locked in at the end of Q1 FY 2024. Based on this trajectory, Alcidion will struggle to reach its “EBITDA breakeven” target, and in any event it will likely suffer a loss.
The most frustrating aspect of the mismanagement of Alcidion and its failure to grow is that there is no sense that anything needs to change, and the CEO, who has overseen immense value destruction, remains firmly in place.
At the current share price of 5.3 cents per share Alcidion has a market capitalisation of $73 million. This compares to FY 2024 product revenue (which is supposedly recurring) of around $26 million. At a multiple of just 2.6 times product revenue, I cannot help but think that the company might receive a takeover offer.
At this point my thoughts are mostly around exiting the position. In hindsight, the brief share price rise after the FY results was probably a good opportunity to sell. Ultimately, if Alcidion is neither growing nor profitable then there is no real reason to own it. The company said, “Q2 operating cash flow is expected to materially improve in comparison to Q1 driven by an uplift in existing customer invoicing and the benefits of the re-aligned cost base.” After that, the expectation is that revenue from the contract they are currently negotiating with North Cumbria NHS Trust should help in the second half.
For now, I continue to Hold shares, but only because I think it will ultimately be possible to exit the stock at a better price.
Disclosure: The author of this article owns shares in ALC and will not trade ALC shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 276544).
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