Beacon Securities analyst Gabriel Leung lowered his expectations on CloudMD Software & Services (CloudMD Software & Services Stock Quote, Charts, News, Analysts, Financials TSXV:DOC) after the arrival of third quarter results. In an update to clients on Tuesday, Leung reiterated a “Buy” rating on the stock while trimming his target from $1.00 to $0.85 per share, still reflecting at press time a projected one-year return of 254 per cent.
Vancouver-based CloudMD, which has among its digital assets telemedicine, healthcare navigation and educational resources, has been busy of late with its restructuring efforts, selling off its BC-based primary care clinics and pharmacies in an effort to focus on higher profitability businesses. The result is a more streamlined outfit, said CEO Karen Adams in the company’s third quarter press release on Monday.
Adams said CloudMD’s Q3 performance was impacted by the end of one-time mandates and COVID-related government contracts.
“We are restructuring our business resulting in the ability to deliver prudent expense and cash management,” Adams said. “We are pleased with our increasing customer base, specifically in Mental Health Support Solutions. Our business model across [Enterprise Health Solutions (EHS)] and [Digital Health Solutions (DHS)] is focused on our ability to support individuals where they are on their health journey. Our continued organic growth in our mental and physical health services reinforces this model and the need for managing health through navigation and coaching.”
By the numbers, CloudMD’s quarter featured revenue from continuing operations of $27.5 million compared to $28.9 million a year earlier and an adjusted EBITDA loss of $3.0 million compared to a gain of $902,000 a year earlier.
Digging into the Q3 results, Leung noted the topline featured $5.7 million from DHS versus $21.8 million from EHS, with DHS showing a modest improvement in its VisionPros volumes following the resolution of supplier issues in the US in late Q2.
Leung said EHS revenues will likely be hit with a further $1.5 million reduction from its Ontario COVID program before stabilizing.
“Aside from the expected reduction in the Ontario Health COVID-19 iCBT program in Q4, we expect revenues to show gradual organic improvements thanks to recently signed contracts ($8.8 million YTD) and other deals (both mid-and-large sized) that are in the ($50+ ARR) pipeline,” Leung wrote.
Leung said his target is based on a lowered 2x 2023 EV/Sales versus 2.5x previously.
“Overall, we believe DOC is doing a good job in right-sizing its business tor the realities of the current business environment (which we believe should help to drive cash / EBITDA breakeven around H1 CY23). We believe the next catalyst will be an acceleration in new bookings, which should help to drive a further multiple expansion,” Leung wrote.
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