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Model Portfolio | Mach7 Technologies (M7T) - Share Price Decline at Odds with Improving Outlook

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Gareth Abernethy, Clime Asset Management's picture
Analyst: Gareth Abernethy, Analyst, Clime Asset Management

  • Underlying demand for healthcare imaging software remains robust
  • Mach7 is well placed with integrated viewing and archiving solutions
  • Inflection point into sustained positive cashflow growth expected in FY22

In almost every industry there has been unprecedented impacts to underlying demand, supply chains, cost inputs and moving human capital over the last two years. Whilst a lot of the immediate impacts have been discussed ad nauseam, there remain countless second order effects that industries and companies are facing that may not be as apparent. Some of these have been discussed in previous notes such as rising second-hand car prices and the insatiable demand for logistics sites for online shopping. One of these effects that has been as a result of the overwhelming demand being placed on hospitals and the healthcare systems. This has led administrators, whilst being committed record funding from governments, to push back previously earmarked critical systems upgrades. Unlike the disruptions to other industries, the underlying demand drivers have not evaporated but instead have been delayed.

When one considers the vast range of departments, specializations and niche practices that exist within a single hospital, combined with the varying healthcare devices made by multiple manufacturers – the complexity surrounding the storage, archiving and retrieval of data becomes apparent. This has been a long-known issue in the healthcare sector, with the US government mandating the use of electronic records in 2009. Despite good intentions, less than a quarter of eligible data is currently sitting in electronic medical records.

Looking at the bigger picture, research from healthcare IT consultants KLAS suggests that under half of the hospitals in the US are using any form of enterprise imaging software. Given the regulatory requirements and added stress on the healthcare system, we believe it is only a matter of time before there is a rapid shift of these hospitals to upgrade their IT infrastructure. It is imperative for healthcare professionals that the silos of data in hospital systems are able to be unified for productivity and patient care outcomes. Pleasingly, KLAS ranks Mach7’s solutions higher than many of its competitors.

Mach7 Technologies is a US-based healthcare software company which specialises in vendor neutral archive systems and enterprise viewers. M7T is coming up on its two-year anniversary in our model portfolio, with the company having signed multiple hospital and group deals in the interim – significantly de-risking itself as an investment. To date, the company has signed hospitals in 15 countries, notably:

  • Hospital Authority of Hong Kong
  • Advocate Aurora Healthcare
  • Trinity Health
  • PennState Health
  • Singapore General Hospital
  • UCSF Medical

It is important to point out Mach7’s acquisition of Client Outlook in mid-2020 in the context of its existing contracts. Whilst M7T’s offering initially was focused around the archiving of data, the Client Outlook acquisition allowed the company to offer a full solution of both archiving and viewing of medical data. We believe this has created a significant opportunity for Mach7 to cross sell the integrated solution to its existing clients. For example, M7T’s contract in November last year with Trinity for the enterprise viewer was followed up this year with a contract with diagnostic viewing.

Whilst M7Ts share price has been under pressure as of late, we believe this is not reflecting the significant contract wins and improving fundamentals from the company. Whilst some of the sell off can be put down to the broader risk-off on high growth names across the market, we see the current sell off as overdone and not representative of what we believe to be a healthy contract pipeline. We expect Mach7’s financials to inflect into growing positive cashflows in FY22. We estimate that the current operating costs for M7T of $22m can support substantially higher revenues in coming years. We are restoring M7T to its target model weight to take advantage of the current share price.

History of Mach7’s Sales Wins – Company Presentation 2021

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