Alcidion (ASX:ALC) Share Price Up Despite Murky Disclosure

Hospital workflow software provider Alcidion (ASX: ALC) today announced that it had won a $9.5m contract to provide software to South Tees Hospitals NHS Foundation Trust. As a result, the Alcidion share price is set to pop 16% this morning. In the highlights section of its announcement it says that “ALC has signed its largest ever Miya Precision contract representing $9.5M TCV over 5 years.”

On the face of it, this would be hugely good news, since Alcidion fully owns the Miya Precision software suite. However, the devil truly is in the detail here because the first paragraph reads “Alcidion Group Limited (ASX: ALC) is pleased to announce today that it has signed a major deal with South Tees Hospitals NHS Foundation Trust (South Tees) for Alcidion’s Miya Precision solution and the Better OPENeP electronic prescribing and medicines administration (ePMA) system.”

Now you wouldn’t realise it from this announcement, but Alcidion doesn’t own the Better OPENeP ePMA system. Rather, Alcidion is providing OPENeP under a May 2019 agreement to “resell Better By Marand’s OPENeP electronic prescribing and medicines administration system, alongside its next generation patient safety platform, to hospitals in the UK, Australia and New Zealand.”

Clearly, the naive response to today’s announcement would be to assume that the company had won a $9.5m contract to provide software at high margins. Indeed, the company explicitly calls out the recurring revenue part of the deal, boasting that “The total value of the contract is $9.47M (£5.15M) over five years, with approximately $0.96M to be recognised as Product implementation (one-off) revenue, with the remaining $8.51M representing recurring Product (licence + maintenance & support) revenue to be recognised over the 5-year term of the contract.”

However, it is not clear whether this “total value” includes the price of OPENeP, which will be largely passed on to Marand, at (presumably) low reselling margins. If the entire value is for Miya Precision, that is much, much, better than if some significant unknown, portion of the contract is merely reselling someone else’s system. Therefore, for investors that care about actual profitability, rather than just revenue, it is not possible to know how meaningful this contract really is. In order to be transparent with shareholders, Alcidion should highlight how much of the contract, if any, is for OPENeP, and how much is for Miya Precision.

I own some shares in Alcidion already. This is an investment diary, not any form of advice. It’s impossible to know how good today’s announcement is, because its not clear how much is for Miya Precision, and how much is for OPENeP. If the entire contract value is for Miya, then this is great news.

On the other hand, if half or more is for OPENeP, then this is far less significant than it may appear, and erodes my confidence in management credibility. For now, I plan to do nothing.

It is perhaps an academic point but I’d feel more comfortable with a company that clearly conveys the key characteristics of its biggest ever contract win. It certainly seems to be a sad state of affairs when the market no longer cares if a company is selling fully owned software or reselling someone else’s.

Update: Alcidion CEO Kate Quirke has gotten back to me and said: “The announced total contract value of $9.5M over 5 years includes all components of the total solution sold, including the resold OPENeP ePMA solution.  This solution however represents less than 20% of the total value of the 5 year contract.”

Overall, this is good news for shareholders as it suggests at least $6.5 million of recurring revenue from Miya, over 5 years. This in turn translates to about $1.3m per year in recurring revenue from Miya. That’s great news, and roughly in line with other contracts (albeit a bit bigger). I don’t think it deserves to add $50m to the market cap, but I do think it increases my valuation of Alcidion slightly. I’m not a buyer at 16.5c.

Disclosure:  I hold shares in Alcidion and will not sell for at least 2 days after the publication of this article.

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