An Introduction To Beamtree Holdings (ASX: BMT)

Beamtree Holdings Ltd (ASX:BMT) is a $64 million dollar health care technology business providing hospitals, clinics and pathology labs with smart tools to help professionals make better decisions and improve patient outcomes.

Society demanded heroic feats from Healthcare workers over the last few years dealing with a one in one hundred year pandemic, and scrutiny from every direction. With increasing volumes of data and pressure it highlighted the need for efficient clinical knowledge.. 

There are still many archaic processes in place within hospitals and health organisations from whiteboard rosters to paper charts. Beamtree tree hopes to participate in the continued transition to digital workflows. Emergen Research estimates that the global Clinical Decision Support System (CDSS) market size will be worth USD 10.74 billion by 2030. 

Beamtree started life on the ASX in an unconventional manner. Originally known as Qpro Holdings it raised cash via its IPO to acquire 100% of DPP Holdings Pty Ltd which was the holding company of Pacific Knowledge Systems Pty Ltd. From there it changed its name to PKS Holdings Limited post acquisition. PKS Holdings Limited arrived with its flagship product RippleDown, a CDSS that automates the human decision making process within healthcare organisations. 

Why Beamtree, according to the company itself in August 2021:

“The tree is a symbol of protection and growth and represents our future as a growing vital entity – other definitions explore technical phenomenon, and a model for data hierarchy. The new brand suits our future and supports cultural transition from two entities into one. It speaks to our values and mission – to support the constant evolution and improvement of health outcomes through best-in-class knowledge management with precision, authority and reliability. The brand change will future proof and reinvigorate the company’s persona as we implement our growth strategy to expand existing and new products and services. It emphasises our long term commitment to innovation with the customers and communities we serve both in Australia and around the world. ‘Beamtree’ is a global enterprise that supports the clinical, economic and human imperative of best value healthcare.“

So what services does Beamtree provide? The business can be broken down into four key areas:

Diagnostic technology

The increasing data and regulation complexity around the treatment of patients is growing beyond a clinician’s capacity. Beamtree’s RippleDown products include RippleDown Expert and RippleDown Auditor. RippleDown Expert is a Clinical Decision Support system allowing clinicians to scale the decision making process increasing the number of decisions made with greater accuracy while retaining a knowledge base within the system, protecting organisations against loss of key staff and experts. RippleDown Auditor is a knowledge based system that reviews real time data flagging suspected errors in areas including data entry and billing. This assists organisations to remove errors in patient diagnosis and treatment, incorrect tests being ordered and lost revenue. 

Clinical Decision Support

There are three components to Beamtree’s clinical decision support, the first being the Ainsof deterioration index. This solution is focused on the early detection of patient deterioration. Early Warning Score systems tend to identify when patients are already unwell, by utilising real-time trend analysis, Beamtree believes it alerts clinicians far enough in advance to enable teams to act earlier and prevent the worsening of a patient’s condition. The Aiscribe assisted documentation is an AI enabled tool that collates medical notes and results and creates a discharge plan for the patient. This provides accurate information between teams and improves overall quality of care. Finally, Alert Critical Results which is a tool that notifies on-call clinicians of a patient’s urgent pathology results, it then draws on AI algorithms to assist in clinical decision making.

Coding Assistance and Data Quality

The purpose of clinical coding is to provide a standardised way of recording patient care and outcomes. A clinical coder will interpret information about an aspect of patient care and assign standardised codes. The Products sold to Hospital customers include PICQ, RISQ, Activity BarCoding and CodeXpert. PICQ reviews the quality of the coding and identifies data problem areas in need of correction and reviews against compliance standards. This is further complemented by RISQ which measures hospital-acquired complications (HAC). A HAC refers to a complication that occurs during a hospital stay, RISQ automates benchmarking and care quality. Activity BarCoding and CodeXpert are programs that assist healthcare workers with information around recording and coding of activity. 

Analytics and Knowledge Networks

Beamtree is the outsource provider for Health Roundtable Limited, a not-for-profit that provides a global benchmarking and collaboration program allowing healthcare organisations to share data and enhance their systems while improving patient care. The platform provides data analytics for the benefit of Health Roundtable member hospitals and organisations.

How does Beamtree (ASX: BMT) make money?

Beamtree generates the majority of its revenue through licence, subscription and usage fees. 

It sources customers both directly and through channel partners. Direct customers are charged either through subscription and or an episode usage fee which is charged based on the number of cases sent to its software product. In 2019 almost a quarter of Beamtree’s revenue was sourced through channel partners which has now dropped to around 5% as of 30 June 2022. One of Beamtree’s channel partners is global healthcare provider Abbott. Abbott distributes Beamtree’s RippleDown product as its own product AlinIQ Clinical Decision Support. Abbott then pays an annual product fee for smaller lab clients and revenue share for larger customers. According to the 2019 annual report reseller revenue generates lower margins than when the company sources the customer directly. 

To the naked eye Beamtree has had astronomical growth in revenue since listing.

However, acquisitions have driven the bulk of the growth with the significant transactions including:

The all scrip, cash and debt free buy of Pavilion Health announced in April 2020 with the expectation it would double revenue. At the time the Beamtree share price was $0.13 valuing the consideration at $8.5 million. Pavilion Health brought with it the Coding Assistance and Data Quality segment of Beamtree’s business. 

The purchase of Ainsoff Pty Ltd, an AI acquisition in FY21 completed for $350k in cash plus 1,625,000 in ordinary shares, worked out to be a cost of around $1 million at the time and has expanded the CDSS area of Beamtree.

A 30 million shares + $4 million cash consideration for Potential (x) which was completed in September 2021, at the time valuing Potential (x) at $19.6 million on a 7.4 times EBITDA multiple. Not to mention Potential (x) holders became 9.6% owners in Beamtree.The acquisition broadened the product suite to include Analytics and knowledge Networks segment, in particular the Health Roundtable contract.

With the best part of $30 million spent on the above acquisitions it’s close to matching the amount of revenue Beamtree has generated as a listed company as of 30 June 2022! Organic Annual Recurring Revenue (ARR) grew by 29% in FY 2022, but in both 2021 and 2022 financial years revenue growth was almost entirely driven by acquisitions. 

While Beamtree has managed to avoid taking on excessive debt, expansion has come at a cost to shareholders, in the form of dilution. Share count has grown astronomically from 18 million diluted shares outstanding in 2019 to 244 million at 31 December 2022. 

The acquisitions also brought with them additional costs, particularly in staffing.

In the 2021 financial year employee numbers grew by 83% and a further 80% in the 2022 financial year on the back of the acquisitions. Obviously, staff costs grew but unfortunately for Beamtree holders the percentage growth in employee payments exceeded the percentage growth in revenue. 

he first half of the 2023 results showed a decline in staff costs as a percentage of revenue as shown below:

The increased staffing costs including reinvestment in products has also grown the depreciation and amortisation expense line. Marketing has also ramped up with the first half of 2023’s expenditure more than double the prior period. 

This lead to a continued decline in earnings per share:

Diluted earnings per share (Cents)0.26(0.19)(1.85)(1.69)

*1st Half of 2023

Perhaps after a flurry of acquisitions, Beamtree will begin to see things settle down and manage to reduce its cost base. However, for now losses are heading in the wrong direction

From a balance sheet perspective, the assets of the business are heavily weighted towards the Goodwill of its acquisitions and capitalised software development. Beamtree has no debt but recently raised $5 million in capital at 25 cents per share (more dilution) to ‘accelerate organic revenue growth’ which sounds a lot better than ‘we’re running out of cash’. 

To be fair, Beamtree had $5 million of cash on hand as of 31 December and generated positive operating cashflow for the half. However its free cash burn (once you include investing cashflow and rent) was still over $900,000.

So who is running Beamtree?

CEO Timothy Kelsey has been at the helm since October 2020 after taking over from Ronald Van der Pluijm who had led the listing of the business and been a part of various deals including the Pavillion Health acquisition. 

Kelsey has a long history in the healthcare industry and in particular the digital transformation of patient care. Prior to joining Beamtree he was Senior Vice President at HIMSS Analytics International a global not for profit organisation committed to reforming the global health ecosystem through the power of information and technology. Kelsey also spent over three years as CEO of the Australian Digital Health Agency, digitising health records, he also spent time implementing digital health strategies as national director for patients information with the NHS. 

Interestingly Kelsey currently holds no shares in the business although was granted 5,000,000 in performance rights upon being appointed. These rights have yet to vest and in order for the rights to do so, the company must achieve:

a. budgeted revenue target, subject to a minimum 20% growth year on year; 

b. budgeted EBITDA target; and 

c. strategic and performance initiatives within the annual budget.

Given the company share price performance in the last 18 months, it would have instilled confidence in shareholders that the leader of the business could see value at such prices. This compares to the Chairman Michael Hill himself who has been actively purchasing shares on the market. 

Per 30 June 2022 Financial Report

Who does Beamtree compete with?

Beamtree operates in an incredibly competitive market against some enormous global businesses.

Some of the industry heavyweights providing CDSS as a small component in a larger enterprise-wide information system include McKesson Corporation, Siemens Healthineers, IBM Watson Health, Hearst, Cerner Corporation and Wolters Kluwer Health. 

A little closer to home Alcidion Group Ltd (ASX:ALC) provides similar services to those of Beamtree. Alcidion’s Miya Precision and Patienttrack are both CDSS with the latter focused on early warning scores and patient deterioration. Silverlink is Alcidion’s patient data software while Extramed focuses on a patient’s journey from start to finish. A comparison of the two businesses key data points per their full year 2022 reports are below:

Market Cap – Millions$64$123
Revenue $’000$16,547$34,355
Key Management Salary$1,287,996$1,654,024
Net Profit/(Loss) $’000($4,449)($3,537)
Diluted Earnings Per Share (Cents)(1.85)(0.38)
Operating Cash Flow $’000($2,318)$996

So where does Beamtree get its competitive edge?

Per its prospectus Beamtree claims an edge over its competition through the speed and ease of rule creation through its RippleDown software. Rules can be built in under five minutes with no programming skills whereas competitor products typically require a healthcare organisation’s IT development team to establish rules.

Once the software is in place it remains quite sticky with renewal rates for RippleDown at almost 100% and PICQ at 95% per the 2022 full year financial report.

Beamtree Has A Volatile Share Price

Beamtree was incredibly popular during the free money frenzy of 2020/2021 and at one stage it had run up + 500% from the March 2022 lows of $0.10 to the peak in September 2021 of $0.65. Since then like most in the category the price has pulled right back and is moving closer to its 52 week low. At its peak you would have been paying over 12 x sales! At the time of publication the Beamtree share price is $0.255

However, if we compare Beamtree’s enterprise value to its trailing twelve month revenue, we can see that the high future growth expectations (as implied by a high multiple of revenue) have moderated significantly.

In their recent Q3 update Beamtree reiterated their organic recurring revenue growth target of 20% as well as their long term goal of growing this to $60 million by 2026. There was mention of cost control with their estimation of less than 10% cost growth and an improvement on the bottom line. At this rate, it will take some time before Beamtree is profitable.

If the company can nail down the synergies between the multiple acquisitions and show significant organic growth, then shareholders could be in for a great ride. But so far they have suffered significant dilution and a deprivation of free cash flow. Ultimately, Beamtree’s lack of profitability does not inspire confidence, and any faltering in organic revenue growth could be painful.

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Disclosure: neither the author of this article Nick Maxwell, not the editor Claude Walker own shares in BMT. They will not trade them 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. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).

The information contained in this report is not intended as and shall not be understood or construed as personal financial product advice. Nothing in this report should be understood as a solicitation or recommendation to buy or sell any financial products. Equity Story Pty Ltd and BlueTree Equity Pty Ltd t/a A Rich Life do not warrant or represent that the information, opinions or conclusions contained in this report are accurate, reliable, complete or current. Future results may materially vary from such opinions, forecasts, projections or forward looking statements. You should be aware that any references to past performance does not indicate or guarantee future performance.