The Volpara Health Technologies Ltd (ASX: VHT) share price could be a really good one to think about in my opinion. It just released a great presentation.
What was in Volpara’s presentation?
If you haven’t heard of Volpara before, it’s a health software company that provides an integrated breast care platform.
Volpara has been shifting to a subscription based business model where the customer pays Volpara for a service provided by the software, rather than buying a perpetual license with a once-off, up-front model – this is a capital sales model. Recurring revenue is attractive as it can lead to consistent growth for the business and higher profit margins.
One of the key financial measures for Volpara is average revenue per user (ARPU), which is the expected revenue each year from each woman screened using Volpara software.
ARPU comments
Volpara’s pricing is based on the product used and number of women screened at each site. Most contracts signed are 5-year annual rolling contracts with fixed amounts paid annually upfront.
ARPU across the entire base is currently US$1.16. It’s this level because most users only have the Aspen product currently which was sold as a capital sale with a small service and maintenance contract – not software as a service (SaaS).
Since 1 November 2019, all new quotes and proposals are SaaS contracts and most new deals are significantly have ARPU above US$1.16, with this new ARPU comprising multiple products. In the second quarter of FY21, ARPU on new deals were between US$1.75 to US$4.30.
CRA acquisition
The recent CRA Health acquisition has a number of pleasing attributes. It has annual recurring revenue (ARR) of over US$4 million from over 90 customers, with a 6% market share and ARPU of around US$1.70.
It managed to generate strong growth in the 2020 calendar year and its been profitable and operating cashflow positive for the last three years. Volpara said that CRA Health has a strong pipeline of deals.
There is an increasing push at the biggest US sites to use a single electronic health record system, which CRA Health is integrated with.
Volpara said that there are major US tailwinds for personalised breast care, including the CDC pushing for genetics testing, The ASX healthcare share has seen that identifying those women who should get genetics testing can significantly increase ARPU.
International growth potential
Volpara’s current business is focused on US women and clients, but there are major trials underway in other countries in public sector run programs. There are now 39 countries using Volpara software.
Key luminaries have been signed up across Asia and Europe.
Summary thoughts
Volpara seems like a great business, with strong gross profit margins (above 86%) and a high chance of rising ARPU. It also has a potential growth bonus of Volpara Lung. With lung cancer killing 144,000 a year in the US there could be a growing demand for lung healthcare services.
I think that the Volpara share price is definitely one to watch for the long term at the current level of $1.27.
