Volpara Health Technologies

About the author:

Scott Power
Author name:
By Scott Power
Job title:
Senior Analyst
Date posted:
30 May 2017, 11:22 AM
Sectors Covered:
Healthcare, Life Science and Technology

Key points

  • Volpara Health Technologies (VHT) has successfully transformed itself from a breast density capital sales company to a cloud based Enterprise Quality Assurance company operating with a SaaS model.
  • VHT has captured 1% of breast screening in the US annually and this is expected to grow to 3% in the next 12 months.
  • Key catalysts include sales updates and major UK project decision.

Adoption of conservative accounting standard sees lower revenue

VHT posted a net loss of NZ$9.6m (compared with our forecast of a net loss of NZ$9.0m) for FY17. Revenue recorded was NZ$2.0m (comprised of NZ$1.1m of annual recurring revenue (ARR), capital sales of NZ$0.7m and government grants of NZ$0.5m) which was below our forecast of NZ$2.6m. The main difference relates to NZ$0.5m higher share based expenses (non-cash), foreign exchange loss of NZ$0.3m and lower recognised revenue as the company adopts the IFRS15 accounting standard for software-as-a-service (SaaS) revenue. The standard sees revenue lag contracted sales with a number of contracts being paid upfront resulting in a healthy cash position of NZ$12.9m.

Key highlights – SaaS contracts and recurring revenue

As as 31 March 2017 the company had 14 signed  VolparaEnterprise™ SaaS contracts. The total contract value (TCV) signed in FY17 was NZ$4.1m compared to NZ$2.5m in FY16. The annual recurring revenue (ARR) now stands at NZ$1.1m, with management calling out ARR growth of over 200% in FY18. Approximately 1% of women screened in the US go through Volpara's technology. Typical contracts range from US$30k to US100k (average US$50k) and contract periods average three years.

Catalysts and forecast changes

VHT recently announced the commercial launch of VolparaEnterprise™ 2.0 software which is an enhanced version of its cloud based imaging analytics platform and, in our view, will encourage greater customer adoption. The software launch is timely as the FDA has stepped up its compliance standards. Further catalysts (including a major UK project on breast density implementation) are expected to be announced over the coming quarters together with quarterly sales updates. In line with guidance we have moderated our revenue recognition assumptions and lowered growth in the cost base, resulting in changes in Operating Cash Flow (OCF) of +17% for FY18, -109% in FY19 and -7% in FY20.

Investment view

We have adjusted our forecasts to better reflect the IFRS15 recognition of SaaS revenue, resulting in a modest downgrade to our valuation and share price target. The key risk is a slower-than-expected take-up of VolparaEnterprise

We maintain our Add recommendation.

More information

Morgans clients can login to view our detailed report and share price target for Volpara Health Technologies (VHT). Alternatively, please contact your nearest Morgans office for access.

Disclaimer(s): Morgans Corporate Limited was Lead Manager and Underwriter to the placement and rights issue for Volpara Health Technologies and received fees in this regard.

Analyst owns shares.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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