In morning trade the Volpara Health Technologies Ltd (ASX: VHT) share price has tumbled lower following the release of its quarterly update.
At the time of writing the medical technology company's shares are down 15% to $1.05.
What happened in the third quarter?
This morning Volpara released its third quarter update which revealed cash receipts growth of 192% on the prior corresponding period to NZ$1.9 million. This was also a 13% increase on its second quarter cash receipts.
As a result of this strong cash receipts growth, Volpara's year to date cash receipts have increased 103% on the prior corresponding period to NZ$4.6 million.
In addition to this, Total Contract Value (TCV) year to date now stands at NZ$10.8 million, up 53% on previous corresponding period, and Annual Recurring Revenue (ARR) has now reached NZ$5.6 million, up 56% from the end of FY 2018. The latter is slightly lower than expected.
Why have its shares tumbled lower?
For those that are unfamiliar with Volpara, it is a medical technology company whose AI imaging algorithms assist the early detection of breast cancer.
The company has been growing its share of the U.S. market at an impressive rate over the last 18 months, but during the third quarter the growth in its market share gains slowed notably. This appears to have spooked investors.
According to the update, its software now covers 5.9% of women being screen in the United States. While this significantly higher than the end of FY 2018 when its market share stood at 3.2%, it is only marginally higher than the 5.6% share it commanded at the end of the last quarter.
In addition to this, the average price per woman screened in the U.S. for its base Volpara Enterprise products appears to have softened. In the second quarter the average year to date remained above US$2.50, whereas now it "remains approx. US$2.50."
What happened?
Volpara CEO Dr Ralph Highnam admitted that the company is "behind where we wanted to be at this point in the year for ARR."
He explained that the shortfall is the result of a combination of the effects of the confusion caused by the introduction of GDPR in Europe in mid-2018, its US sales team taking time to get fully productive, and the longer than expected time it's taking to close deals with some very big US screening organisations.
Despite this, Dr Highnam expects a strong fourth quarter result and FY 2019 ARR growth of at least 85%.
Should you buy the dip?
Whilst today's update was a touch disappointing, I continue to believe that Volpara is one of the best small cap healthcare shares on the local market and a great option for buy and hold investors.
I see this pullback as a buying opportunity and think it is worth considering along with Cochlear Limited (ASX: COH) and ResMed Inc. (ASX: RMD).
