Breast density assessment and radiology workflow software company Volpara (ASX: VHT) recently reported its quarterly appendix 4C. Quarterly free cash burn was around $725,000 much improved on the prior corresponding period, but below the immediately preceding two quarters. Because Volpara uses the March end financial year, this report was for Q FY 2024 (ending in June).
Notably, the company changed its cashflow metric, which is an automatic amber flag in my book Previously, Volpara reported the sum of investing cash flow (mostly software development) and operating cash flow (operating deficit or surplus). This is a good proxy for free cashflow, though it does exclude repayment of rental leases.
However, in this quarterly, Volpara removed its graph of “net operating and investing cash outflow” and replaced it with a graph of just “net operating cash outflow” (which just scraped above breakeven, at $9,000).
If the company had remained consistent with its cashflow metric, it would have instead reported a graph more like the one below:
At the cash burn rate of $725k per quarter, Volpara (ASX: VHT) would burn through about $2.9 million per year. At the end of the quarter, Volpara had about $12 million in cash, so at the current cash burn rate it would last more than three years. This supports Volpara’s decision to reduce its lending facility, thus saving certain financing costs.
Based purely on the numbers, and ignoring the disadvantageous decision to change reporting metrics, the quarter was decent but not great. You can see below that ARR continued to grow, albeit at only a modest 11.6% p.a. annualising the Q1 FY 2024 growth of 2.8% from US$20.9m to US$21.5m.
At the current share price of $0.89, Volpara is trading on just over 7x annualised recurring revenue. Given the relatively modest top line growth, there is room for debate about whether future profits will be sufficient to make the current share price attractive.
If Volpara develops into a high profit margin business, over time, then the current prices could turn out to be cheap. However, it’s worth noting the risk that increasing profit margins may come at the expense of revenue growth.
Finally, one qualitative positive from the quarterly report was the announcement of diverse contract wins ranging from Benson Radiology, a large private radiology practice in South Australia, to Breast Screen Victoria, which is jointly funded by State and Federal Governments. This shows Volpara can win contracts in both the public and private sectors in Australia.
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