Volpara: Building the technology stack

About the author:

Scott Power
Author name:
By Scott Power
Job title:
Senior Analyst
Date posted:
18 March 2021, 11:15 AM
Sectors Covered:
Healthcare, Life Sciences

  • Volpara (ASX:VHT) has announced its largest contract to date worth over US$400,000. This contract has come through the recent CRA Health acquisition.
  • The next key catalyst will be an increasing ARPU to be reported in 4QFY21 cashflow report in late April.
  • We have reshaped our forecasts separating the SaaS ARPU which is a key driver of our valuation, where a US$0.10 change in ARPU increases our valuation by A$0.43. Although near term forecasts are adjusted lower, the medium term growth has seen our DCF based valuation move from A$1.92 to a higher price (login to view). Add.

Significant contract win drives ARPU higher

VHT has announced a contract worth over US$400,000 pa of annual recurring revenue (ARR), its largest contract to date.

The Indiana-based organisation has sites across more than 20 states and runs a major electronic health record system which will make the deployment very cost effective.

The contract comes through the recent CRA Health acquisition (breast cancer risk assessment company, acquired for US$22m on a multiple of 5.5x ARR). The acquisition lifted the average revenue per unit (APRU) to US$1.40 (from US$1.22).

Catalysts to come

There are a number of catalysts to focus on including:

  1. 4QFY21 cashflow report expected late April (usually a stronger quarter, watch for increasing ARPU);
  2. FDA publication mandating breast density information to patients; and
  3. updates on further state based screening contracts.

Reshaping our model

We have taken the opportunity to re-shape our model assumptions to better reflect the importance of the growing ARPU as the technology stack builds.

We have sought to estimate the percentage of business under SaaS and under capital (including service and maintenance agreements). We believe this approach better represents the growth of ARPU which is one of the key value drivers.

In short we estimate on average in FY21 (ex CRA acquisition) the 27% market share in US generates an ARPU of US$1.26 and is represented by 12% under SaaS contracts with an ARPU of US$1.94 and 15% under the capital model.

In FY22 assuming a full year contribution from CRA Health, market share increases to 33%, with SaaS contracts representing 19% and generating ARPU of US$2.17 and capital sales representing 14%.

In FY23 market share increases to 35%, which sees SaaS contract share grow to 22%, and ARPU jump to US$2.97. We show in detail overleaf the increase in ARPU as the technology stack builds.

Change in ARPU is the key driver of our valuation with a US$0.10 change increasing our valuation by A$0.43.

Investment view – positive stance maintained

Given the changes to forecasts and the remodeling of the ARPU split, our DCF valuation has increased. We have set our target price at the same level (login to view).

The main downside risk is delays in executing new contracts as a result of the current health crisis. We maintain our Add recommendation.

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