CloudMD gets rating drop from Beacon

Beacon Securities analyst Gabriel Leung is lowering the temperature on CloudMD Software & Services (CloudMD Software & Services Stock Quote, Charts, News, Analysts, Financials TSXV:DOC). Leung delivered an update to clients on Tuesday where he moved his rating from “Buy” to “Speculative Buy” on a lack of visibility into the company’s path to profitability.

Vancouver-based CloudMD, a tech-driven healthcare business with digital platforms for physicians and patients, released its fourth quarter 2022 financials on Tuesday. The Q4 featured revenue down eight per cent year-over-year to $25.9 million and an adjusted EBITDA loss of $2.6 million compared to a breakeven quarter a year earlier. For the 2022 year, revenue was $114.5 million compared to $70.1 million in 2021, while adjusted EBITDA was a loss of $10.7 million compared to a loss of $1.6 million.

In the company commentary, CEO Karen Adams said the 2022 was overall strong on sales activity but also featured the end of one-time COVID-related contracts and lower revenues from the divestment of non-core assets.

“The actions taken by the team in 2022 will accelerate organic revenue growth both in new customer acquisition and in growing wallet share with long term clients. By operating as one integrated company we have a structure that we expect will enable us to generate positive adjusted EBITDA and cash flow in the near future,” Adams said in a statement.

Leung said the $25.9 million topline compared to his forecast at $26.7 million, while the $2.6 million EBITDA loss compared to his estimate at negative $2.3 million. 

Looking ahead, Leung noted that the company expects multi-year contracts signed in 2022 are expected to contribute about $12.2 million in annual recurring revenue this year, while overall guidance for revenue growth is pinned at the low double-digits.

“We believe DOC is doing a good job in right-sizing its business, which could help to drive EBITDA positive results in Q4 of this year (and cash flow positive in CY24). Additionally, the company’s ability to close on its pipeline of opportunities, which it values at ~$55 million in annual recurring revenue (not including large deals), represents another key catalyst, which could help to drive a multiple expansion,” Leung wrote.

With the lowered rating, Leung also took down his target price from $0.85 to $0.50 per share, which at press time represented a projected one-year return of 156 per cent.

“[G]iven the current environment, which we view as punitive for companies in cash flow negative territory, we are lowering our target price to $0.50 (was $0.85), which is based on 1.2x CY24e EV/Sales (was 2x CY23e EV/Sales). We are also adjusting our rating to Speculative Buy (was Buy) pending better visibility into EBITDA/cash flow breakeven results, along with the results of the Gravitas litigation (expected end-Q2),” he said.