Total Brain Limited - Best-Ever Half-Year Revenues
Total Brain Limited
Best-ever half-year revenues
Total Brain (ASX:TTB) is the developer of a neuroscience-based mental health monitoring and support platform powered by the largest standardised neuroscientific database in the world formed over almost two decades and with >$50m of R&D funding. The company has reported H1 FY22 revenues of $5.41m, its best-ever half-year result and an increase of 171% on the previous corresponding period (pcp). TTB reported an underlying EBITDA loss of $1.35m, a significant improvement on the $3.78m loss reported in H1 FY21 and better than our forecast for a $3.9m EBITDA loss. Underlying NPAT was a loss of $2.23m, compared with a $3.91m net loss in the pcp. The jump in revenues was driven by recent licensing deals for its iSPOT-D (International Study to Predict Optimised Treatment for Depression) in the precision medicine segment, which yielded $3m in revenues, as well as a 14.6% increase in revenues from its population health segment. Costs for the half were 9.3% ahead of pcp and 5.3% ahead of our forecasts, chiefly driven by increased investment in human capital. We have upgraded our FY22 revenue forecasts to reflect the H1 result and maintained our cost expectations, mindful of the company’s target to reduce 25% of its cost base on an annualised basis in this half. Our base-case DCF valuation has increased to $0.86/share (previously $0.77/share). In our view, continued evidence that TTB is gaining traction and generating revenue from its target segments should underpin the share price..
Business model
Total Brain operates a Subscription-as-a-Service (SaaS) model for its mental health monitoring and support platform. The science behind the platform has been developed over two decades with input from the leading academic institutions in the field. This has generated a proprietary neuroscientific database of scale which underpins the scientific validation that differentiates Total Brain from other mental health applications. The app, promoted by channel partners, assesses the four core brain functions (emotion, feeling, cognition, self-control), pre-screens seven common mental health conditions, measures stress via heart rate variability (HRV), and delivers personalised self-care exercises.
H1 FY22 result discussion and outlook
Total Brain reported H1 FY22 revenue of $5.4m, a 171% increase on the pcp and ahead of our forecast for $2.3m for the half. The jump in revenue reflects the traction Total Brain is gaining with its go-to-market strategy with key licensing deals secured in the half with Johnson & Johnson’s Janssen Research and Alto Neuroscience as well as the long-awaited rollout of Total Brain’s platform as part of the IBM GRIT programme being delivered to US veterans. The result included $3.0m in one-time payments but even excluding these, this was TTB’s best-ever revenue result. While these sorts of payments are lumpy, they validate the value of TTB’s database which underpins its technology. Earlier this year, we discussed the company’s strategy in a 2022 Outlook Interview with Interim CEO Matthew Mund and this can be accessed here Total Brain RaaS 2022 Outlook Interview 27 January 2022. We have adjusted our FY22 forecasts to incorporate the better-than-forecast H1 revenues, in particular from the precision medicine support segment and have included an additional $0.68m from the Alto Neuroscience deal in H2.
Base-case valuation is $0.86/share (previously $0.77/share)
Our base-case DCF valuation is $0.86/share (previously $0.77/share) based on a WACC of 14.7% (beta 2.0, terminal growth rate of 2.2%). Near-term share price catalysts include additional contracts in the population health, precision medicine and provider support segments as well as an expansion of the IBM Health & Wellness 360 platform to other population health opportunities.
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