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Why the Volpara Health Technologies Ltd (ASX:VHT) share price is printing record highs

The market has reacted positively to Tuesday’s release of the full year results for the financial year ended 31 March 2018 for Volpara Health Technologies Ltd (ASX: VHT).

The company’s share price has subsequently risen 5.7% to 83.5 cents at the close of Wednesday’s trading session after hitting a new 52-week high of 88 cents.

Key highlights from the release include:

  • Total revenue from contracts with customers rose 53% to NZ$2.8 million.
  • Cash receipts from customers were over NZ$3.0 million for the first time.
  • Gross margin increased from 63% to 70%.
  • The company’s net loss after tax improved from NZ$9.6 million to NZ$8.8 million.

SaaS model

Volpara is a medical technology company whose artificial intelligence imaging algorithms assist clinicians in the early detection of breast cancer. The company has changed its business model from a predominantly capital sales model to a Software as a Service (SaaS) model. The transition is evident in the company’s revenue breakdown for FY18 with SaaS revenue climbing 1,945% to NZ$1.9 million and capital sales revenue declining 62% to NZ$575,000.

Volpara saw Annual Recurring Revenue (ARR) rise 223% to NZ$3.6 million, comfortably exceeding its 200% growth target for FY18. Management has also guided for FY19 recurring revenue of NZ$9.0 million.

Capital raising

The company has successfully completed a capital raising of A$20 million over the last month from institutional investors and existing shareholders. The share purchase plan that raised A$5.0 million at 60 cents per share was oversubscribed with A$12.5 million in applications received. These new shares will commence trade on the ASX on Monday, June 4.

Volpara also announced that it is about to begin phase 2 of its PROCAS 2 (Predicting Risk of Cancer at Screening)  research project with the National Health Service in the United Kingdom. Furthermore, the company revealed that Q1 for FY19 has started off strongly. The first quarter has traditionally been one of the company’s weaker quarters and this might explain the market’s bullishness over the last couple of days.

Foolish takeaway

Volpara remains one of the more interesting small cap healthcare stocks on the market alongside other companies such as Paragon Care Ltd (ASX: PGC) and Zenitas Healthcare Ltd (ASX: ZNT). We are still in the infant stage of artificial intelligence and Volpara is one of the few listed businesses operating in that space on the Australian market. As we’ve seen in companies such as Xero Limited (ASX: XRO) and WiseTech Global Ltd (ASX: WTC), the SaaS business model can be highly beneficial for shareholders if the company can execute its growth strategy.

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Motley Fool contributor Tim Katavic has no financial interest in any company mentioned. The Motley Fool Australia owns shares of and has recommended VOLPARA FPO NZ. The Motley Fool Australia owns shares of WiseTech Global and Xero. The Motley Fool Australia has recommended Paragon Care Limited and Zenitas Healthcare Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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