Look for medical device company Profound Medical (Profound Medical Stock Quote, Chart, News NASDAQ:PROF) to hit a revenue inflection point later this year, says Raymond James analyst Rahul Sarugaser. In a Monday report, Sarugaser retained an “Outperform 2” rating on PRN with a target price of $22/share for an implied return at the time of publication of 209 per cent.
Mississauga-based Profound Medical develops magnetic resonance guided ablation procedures for treatment of prostate disease, uterine fibroids, and palliative pain treatment in Canada, Germany, the United States and Finland.
Sarugaser’s latest analysis arrives after the company released its first quarter financial results for the 2022 fiscal year.
“With COVID-19-related hospital capacity constraints finally in its rearview mirror, we see PROF building slowly but surely: increasing its installed base, increasing pricing and increasing utilization, all portending a Revenue inflection toward the end of 2022 and certainly into 2023,” Sarugaser said.
Profound’s financial quarter was headlined by revenue of $1.4 million, which was in line with the Raymond James estimate of $1.5 million, but short of the consensus estimate of $2.1 million. The figure represented a 40 per cent sequential increase, with $1 million in recurring revenue and the remainder coming from the sale of capital equipment. (All figures in US dollars.)
“PROF is currently signing contracts faster than it has capacity to install, with only MRI supply challenges (not TULSA or PROF’s deployment team) gating install rates,” Sarugaser said. “Just as importantly, as newly-installed sites gain experience, expand their application set (e.g. whole gland, focal, salvage, BPH), and ramp utilization, average utilization should increase materially, in turn driving a Rev. inflection toward the end of 2022, and certainly into 2023.”
Profound also produced a slight beat in its EBITDA loss projection, with its $7.3 million loss coming in ahead of the Raymond James projection of a $7.7 million loss and the consensus estimate of a $9.9 million loss, but incurring a slightly bigger loss than the $6.8 million reported in the previous quarter.
The company produced a net income loss of $8.2 million to beat the Raymond James forecast of a $10.4 million loss and the consensus forecast of a $11.1 million loss, while also improving upon the $10.1 million loss reported in the previous quarter.
All told, the company ended the quarter with $60.1 million in cash available compared to $67.2 million in the previous quarter, though Profound is not carrying any debt.
Profound’s fortunes were boosted by an increase in its average price per procedure to approximately $8,400, supplemented by capital sales returning earlier than expected.
Sarugaser surmises three new TULSA devices were installed in the quarter to give a fleet of 24 in the United States and 30 worldwide, with an achievable rate of four to five installs per quarter for the rest of the year.
“We believe that the steady increase in utilization we have seen over the past few quarters, even in the face of COVID headwinds, is a testament to the high quality of our installed base of TULSA-PRO® systems, and the unrivaled flexibility of our technology enabling treatment of a variety of prostate disease patients,” said Arun Menawat, CEO and Chairman of Profound Medical in the company’s May 9 press release. “Moving forward, we expect patient treatment volumes to continue to grow, albeit at a faster pace, and also to see more activity in the international market as a few one-time capital sale projects are revived. Both suggest higher recurring and total revenue growth in 2022.”
Looking ahead, Sarugaser points to a number of possible catalysts for the company, including a read-out on its ongoing FARP trial (Oslo study comparing TULSA to robotic surgery) expected sometime this summer, which could provide insight into how the company’s CAPTAIN trial is proceeding ahead of full enrolment in 2023 and a read-out in the final quarter of 2020, with seven out of 10 participant sites now actively recruiting for the randomized 2:1 level-1 trial.
Sarugaser forecasts continued improvement from a financial perspective for Profound, as he projects $11 million in revenue for 2022 for a potential year-over-year increase of 57.1 per cent. Looking ahead to 2023, Sarugaser forecasts a significant jump to $25 million, suggesting a year-over-year increase of 127.3 per cent.
From a valuation perspective, Sarugaser projects the company’s EV/Revenue multiple to drop from the reported 18.3x in 2021 to a forecasted 11.8x in 2022, then falling to a projected 5.1x in 2023.
Meanwhile, Sarugaser continues to forecast EBITDA losses, with loss projections of $29 million and $22 million in place for 2022 and 2023, respectively.
Profound Medical’s share price has plummeted to a 33.7 per cent loss since the start of 2022, having had an early peak of $11.33/share on January 5, only to close Monday at a 2022 low of $6.57/share.