Total Brain Limited - Strong Growth in Cash Receipts on the Pcp
Total Brain Limited
Strong growth in cash receipts on the pcp
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 Q3 FY22 cash receipts of $1.64m, representing a 143% increase on that reported in the previous corresponding period (pcp), although down 58.5% on Q2 FY22 due to a large one-off payment in that quarter. Cash burn in Q3 was $2.2m, down 8.2% on the pcp. The company ended the quarter with net debt of $1.0m including $1.76m in cash. TTB has subsequently negotiated to issue $1.28m in convertible notes to shareholder Varga Capital to repay debt. Total Brain noted in its release that it anticipates several material cash receipts in Q4 FY22, including an R&D rebate and payments for data licensing. The company also noted it expected business expenses to remain at a similar level in the current quarter. We have not altered our full-year forecasts as the result sits comfortably within our expectations. Our base-case DCF valuation remains at $0.86/share, and is 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 revenues 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.
Q3 FY22 result discussion and outlook
Total Brain reported Q3 FY22 cash receipts of $1.64m, up 143% on Q3 FY21, although down on the record $3.96m reported in Q2 FY22. The continued growth in cash receipts reflects the traction Total Brain is gaining with its go-to-market strategy. During the quarter, TTB renewed two marquee population health clients, with multi-year extensions, delivering annual recurring revenues (ARR) of $0.2m. In Q3, the company also began integration of its platform capabilities with Kerna Health’s Behavioural Health Technologies in preparation for launch of the first customers under the TB Inside deal. TTB highlighted that Kerna has already pre-sold the Behavioural Health platform to several of its customers who are how waiting on the completion of the integration which is planned for release in the current quarter. These customers represent hundreds of thousands of covered lives for which Total Brain is paid on a per user basis. The company noted that with the Biden administration prioritising mental health and substance abuse treatment in primary care settings, its platform is well-positioned to benefit from the demand for integrated behavioural health solutions. During the quarter, cash costs including investment in the platform were $3.8m, declining 9% on the same period in FY21 but flat on Q2 FY22.
Base-case valuation is $0.86/share
Our base-case DCF valuation is $0.86/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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