Total Brain Limited: Profitable Quarter Driven by Licence Sales

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1.3k Views31 Jan 2022 08:00

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SUMMARY

Total Brain Limited

Profitable quarter driven by licence sales

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 Q2 FY22 cash receipts of $3.96m, representing a four-fold increase year-on-year and a six-fold increase quarter-on-quarter. Total Brain reported its best-ever operating cash profit of $0.92m. The jump in receipts was driven by recent licensing deals for its iSPOT-D (International Study to Predict Optimised Treatment for Depression) in the pharma support segment, its first invoice of $150k to population health segment partner, IBM, and growing revenues from the provider support segment (which includes clinical support providers). Q2 FY22 cash outflows declined 25% or $0.97m quarter-on-quarter to $2.91m, following the company’s decision in Q1 to reduce costs across the board by 25%. The company noted it expected business expenses to remain at this level in the current quarter. The result puts TTB well on track to beat our FY22 cashflow forecasts. We will address our forecasts when the company reports its interim result at the end of next month. Our base-case DCF valuation is $0.77/share, and derived from a WACC of 14.7% (Beta 2.0, terminal growth rate 2.2%). In our view, continued evidence that Total Brain is gaining traction and generating revenue from its target segments should underpin the share price in the near term.

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.

Q2 FY22 result discussion and outlook
Total Brain reported Q2 FY22 cash receipts of $3.96m, a 615% increase quarter-on-quarter and a 405% increase on Q2 FY21. The jump in cash receipts reflects the traction Total Brain is gaining with its go-to-market strategy with key licensing deals secured during the quarter from Johnson & Johnson’s Janssen Research and Alto Neuroscience as well as long-awaited rollout of Total Brain’s platform as part of the IBM GRIT programme being delivered to US veterans. We recently discussed this 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. The company reported its best-ever cash profit of $0.92m after also adhering to its strict cost management regimen imposed in Q1, where it committed to reduce costs by 25% or $4.2m on an annualised basis. Operating costs reduced by 25% QoQ to $2.91m with the company noting it expected operating costs to be maintained at a similar level in Q3. While the result was better than expected, we await the H1 FY22 results in late February to adjust our full-year forecasts.

Base-case valuation is $0.77/share
Our base-case DCF valuation is $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, pharma support 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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