Desjardins stays bullish on Think Research

Desjardins analyst David Newman continues to think highly of Think Research (Think Research Stock Quote, Chart, News TSXV:THNK), reiterating his previous “Buy” rating and target price of $5.00/share for a potential return of 122.2 per cent in an update to clients on August 27.

Founded in 2006 and headquartered in Toronto, Think Research is an integrated healthcare technology provider offering evidence-based, data-driven services and solutions to enterprise clients, hospitals, health regions, healthcare professionals and governments.

Newman’s latest update comes after Think announced its second quarter financial results, which Newman noted to be in line with expectations.

Think reported revenue of $10.2 million for the quarter, slightly outpacing Newman’s $10.1 million projection and driven by an increase in uptake of Think solutions, US and international growth and contributions from MDBriefCase, though the company said that was also partially offset by Clinic 360’s closure for the majority of May on account of COVID-19 lockdowns.The $10.2 million represented a 21.4 per cent quarter-to-quarter growth, as well as a 167 per cent year-over-year increase in revenue for the company. On gross margin, the quarter was at 56 per cent compared to the Desjardins estimate of 53 per cent and the consensus projection of 52 per cent.

Think also reported a negative adjusted EBITDA of $1.3 million, again coming in slightly ahead of Newman’s projection of a $1.6 million loss, though slightly behind the consensus estimate of a $1.1 million loss.

Newman said Think should be in line for a further boost once it finalizes the acquisition of BioPharma, a CRO serving pharmaceutical, biotechnology and medical device companies, which the analyst noted should be completed by September 15. The $44.6 million acquisition should raise the company’s revenue run rate above $80 million from the $23 million reported in 2020, according to Newman, with a gross margin above 40 per cent and more than $3 million in adjusted EBITDA.

Since announcing the quarterly results, Think has also formalized its partnership with the IMAGINE Clinic, a student-run healthcare centre affiliated with the University of Toronto which cares for underserved communities, including those without OHIP, people experiencing homelessness and refugees.

“We are pleased with our second quarter results, including our strong revenue performance. This was accomplished through our continued strong SaaS partnerships with health systems both in Canada and in international markets, coupled with continued expansion of our telemedicine and digital referrals software partnerships, and successful integration of our clinics business,” said Sachin Aggarwal, CEO of Think in the company’s August 23 press release.

“Our recently closed strategic acquisitions have been accretive to our growth strategy and with the announced BioPharma transaction, we will add significant scale to our existing operations and expand our reach into the complementary contract pharmaceutical research space. This will further strengthen THINK’s position as a leader in the delivery of knowledge-based health technology and aligns with our mission to ensure everyone gets the best possible care,” Aggarwal said.

Think’s updated results have prompted Newman to shift some of his financial estimates moving forward, as he now projects $50.9 million in revenue for 2021 compared to his initial $48 million estimate, marking a potential 162.4 per cent year-over-year increase. He also has revenue projected at $94.8 million (previously $91 million) for 2022 for a potential 86.2 per cent year-over-year increase, then projecting nine figures for 2023 at $110 million (previously $106 million) for a potential 16 per cent year-over-year increase.

Newman’s adjusted EBITDA projections have also been modified, projecting a $3.4 million loss (previously $4.1 million) for 2021 before breaking into positive estimations for 2022 ($7.1 million and 7.5 per cent margin, previously $6.1 million and 6.7 per cent margin) and 2023 ($12.1 million and 11 per cent margin, previously $11.7 million and 11 per cent margin).

Newman has THNK’s EV/Revenue multiple forecasted to drop from 5.5x in 2020 to 2.1x in 2021, then to a projected 1.1x in 2022 before a slight dip to 1x in 2023. Meanwhile, Newman’s EV/adjusted EBITDA multiple comes into focus in 2022 with EBITDA projected to become positive, registering at 14.9x for 2022 before dropping to a projected 8.8x in 2023.

With strong organic growth opportunities and a solid M&A pipeline, Newman believes Think is on the right trajectory.

“We reiterate our positive view on THNK given its cloud-based platform, which supports evidence-based, data-driven solutions, clinical standardization and the dissemination of medical knowledge across the continuum of care; a predictable model with more than 85 per cent SaaS-based recurring revenue (vs about 70 per cent prior to BioPharma) and a focus on B2B/B2G; and significant global organic growth and M&A opportunities,” he said.

Think Research’s share price is down 49.7 per cent ($2.17/share) for the year to date, reaching a high point of $4.51/share on March 30.