Desjardins Capital Markets analyst Jerome Dubreuil is striking a more cautious tone on digital health solutions company LifeSpeak (LifeSpeak Stock Quote, Charts, News, Analysts, Financials TSX:LSPK), but an improved capital structure has helped him stay positive on the stock. Dubreuil reviewed the latest quarterly results from LifeSpeak in a Tuesday update where he reiterated a “Buy” rating while lowering his target price from $1.25 to $0.80 per share.
Toronto-headquartered LifeSpeak has a suite of wellbeing products for mid-size and enterprise level organizations. The company reported its first quarter 2023 results on Monday, featuring revenue up 54 per cent year-over-year to $13.4 million and with total client number rising 13 per cent to 990. Adjusted EBITDA was $3.7 million compared to $0.4 million a year earlier.
“The LifeSpeak team continued to gain new customers, diversify its revenue base and further our goal of becoming the world’s leading digital wellbeing solution in the first quarter,” said founder and CEO Michael Held in a press release.
On March 31, LifeSpeak entered into a credit agreement with Beedie Investments for a non-revolving term convertible loan for $15.0 million.
“We made important progress in the first quarter to ensure the financial strength of LifeSpeak going forward by raising additional capital and renegotiating the terms of our existing debt to provide us with ample runway to continue to grow our business,” Held said.
By the numbers, Dubreuil said the Q1 topline of $13.4 million was slightly below the consensus at $13.8 million and his estimate at $13.7 million, while adjusted EBITDA at $3.7 million was in-line with the consensus at $3.8 million. Adjusted EPS at negative $0.03 per share compared with the Street at negative $0.05.
“LSPK reported results which were generally in line with expectations. The stock still reacted well as we believe the market has assessed that the company’s balance sheet/liquidity has improved vs a few months ago,” Dubreuil wrote.
“The stock currently trades at 5.7x 2024 EBITDA, which is low for the mid-teens EBITDA growth we forecast with limited capex. That said, we acknowledge that the high leverage, limited visibility and recent deterioration in churn metrics are valid reasons for caution,” he said.
The analyst noted a decline in the number of enterprise and embedded solutions clients over the quarter, which he said was disappointing, although the company had shifted its focus to cross-selling opportunities, which Dubreuil said was an efficient use of sales resources.
With the $15 million term loan, Dubreuil said it alleviates immediate concerns but that it might take several more quarters before the leverage situation is comfortable again for LSPK. At press time, Dubreuil’s new $0.80 target represented a projected one-year return of 78 per cent.