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iA Capital stays bullish on Dialogue Health Technologies

iA Capital Markets analyst Chelsea Stellick keeps talking up Dialogue Health Technologies (Dialogue Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:CARE) in a Wednesday report to clients where she maintained a “Buy” rating on the stock.

Canadian health and wellness platform Dialogue Health provided on Wednesday a business update and fourth quarter preview, projecting revenue of $24.9 million and an adjusted EBITDA loss of $2.4 million for the Q4. The company said it crossed the $100 million mark in annual recurring revenue (ARR) through signing more than 200 new agreements, adding $11 million in ARR.

“We had an exceptionally strong performance to close out the year. We surpassed $100 million in annual recurring and re-occurring revenue (“ARR”), even after factoring the sale of our operations in Germany, and I couldn’t be more proud of our team’s hard work and commitment,” said CEO Cherif Habib in a press release. 

“We continued to generate meaningful interest in the large enterprise customer segment – our top five direct wins represented nearly 100,000 members in total – and saw more than 70 per cent of our new customers sign-on for multiple services,” Habib said.

Dialogue’s share price has been trading in around the $3.00 mark for the past half-year or more, well off its $18 highs of early 2021, although the stock has risen lately and currently boasts a year-to-date return of 53 per cent.

Stellick sees more room to grow for CARE and reiterated a 12-month target of $6.00, which represented at the time of publication a projected return of 89.9 per cent.

On the Q4 preview, she said the $24.9 million in revenue would be slightly ahead of her forecast (as well as that of the consensus) at $24.7 million, while a stronger than expected 56 per cent gross margin brought in adjusted EBITDA at negative $2.4 million, “clearly surpassing” her forecast at negative $2.8 million as well as the Street at negative $2.9 million.

“We believe the improvements in gross margins are due to a combination of pricing increases to eligible customers and scalability of CARE’s offerings. Gross margins have improved consecutively each quarter in 2022 setting up the stage for a strong 2023 and for the Company to reach breakeven Adj. EBITDA by the end of 2023. We see gross margins being resilient and stabilizing in the low-to-mid 50’s as CARE intends to conduct additional price increases to offset potential cost increases,” Stellick wrote.

The analyst said CARE looks to be ending 2022 on a strong note and is setting up well for 2023.

“Dialogue maintains the highest quality B2B pure play telehealth business in Canada, with integration, continuity of care, and short turnaround times benefiting employers through reduced employee leaves of absence,” she wrote.

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