Telemedicine is one of the hottest growth sectors right now. It’s estimated the use of healthcare over the internet has been pulled forward by about five years as a result of the pandemic.
MindBeacon Holdings (TSX:MBCN) is a newly-public company that specializes in internet-based mental health therapy. We’ll be interviewing the Chairman & CEO next week.
The firm has an impressive executive group, solid backers including Manulife and Telus, and large customers such as RBC, Sun Life and the Ontario Government.
What’s potentially exciting for investors is that MindBeacon’s growth is expected to remain robust for the next several years.
Here are hi-lights of a report on the company from TD Securities.
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MindBeacon provides asynchronous internet-based cognitive behavioural therapy (iCBT; digitally delivered, therapist assisted) and synchronous therapy (real-time face-to-face).
The iCBT offering is seeing strong demand, given that its value proposition appears to be resonating.
Based on our research, we find that it is less expensive (~25% of the cost of traditional therapy), more accessible (digitally delivered) and, in many cases, just as effective as traditional synchronous therapy.
MindBeacon completed a $65 million IPO in December 2020.
Our Take on the Positives
■ Growth momentum supports a constructive near-term outlook.
We are estimating 113% revenue growth in 2020. We believe that doubling revenue again in 2021 is highly doable, with the potential for multiple years of high growth rates.
Over the near term, we expect growth to be driven by the asynchronous iCBT offering.
Over the medium-to-long term, continued market-share gains, entry into the U.S. market, and the launch of its SaaS product, Beacon-in-a-BOX (BOX), are expected to contribute to strong double-digit revenue growth.
■ The market opportunity appears large. Mental health therapy is ~$5.2 billion annually in Canada, with MindBeacon’s addressable market at ~$3.4 billion.
We estimate that mental-health spending domestically was ~$19 billion in 2019. Our 2021-2023 revenue estimates imply an ~0.1-0.3% market share. See Exhibit 4.
■ Well-positioned to compete.
MindBeacon’s proprietary iCBT offering is the product of 20 years of clinical experience, it has received third-party validation, and the firm has established partnerships with recognized mental-health institutions.
- We expect overall gross margins to continue to build as the revenue mix increasingly shifts towards higher-margin asynchronous revenue.
- Executing on the deployment of AI/machine learning (ML), adoption of the firm’snew ‘value-based’ pricing model, and an increasing mix of full-time therapists (vs. third-party) should add to margin expansion.
- MindBeacon should fit with many environmental, social, governance (ESG) mandates. Specifically, its mental-health focus appears to be a good fit with the ‘social’ component of ESG.
Cautionary Considerations
- Driving and managing high growth rates. We believe that MindBeacon’s valuation and share-price performance will be heavily dependent on the company delivering on revenue growth expectations.
- It will also need to continue to attract and retain enough therapist resources and operational talent.
- We forecast operating losses until 2023.
- We believe that investors will be willing to look past operating losses over the medium term if the company can demonstrate strong revenue growth and gross-margin improvement.
- 30% of revenue year-to-date (Q3/20) is attributable to the Ontario government contract. We would like to see some further government mandates secured in 2021, to reduce this concentration risk.
- Ensuring that the technology platform is functioning and data is secure.
- Execution and discipline on capital deployment. The IPO was a successful initiative, with $65 million raised, up from an initial target of $50 million.
Company and Market Overview
MindBeacon’s primary clients are corporations and government organizations (Exhibit 3).
MindBeacon has three revenue models: subscription-based (monthly fees per employee), fee-for-service, and the newly launched ‘value-based’ pricing model (a hybrid of lower subscription fees and additional fees tied to patient outcomes.
Outlook
- Relative to 173% year-over-year growth as of Q3/20, we are modelling organic revenue growth rates of 113%, 98%, 80%, and 60% for 2020E‒2023E, respectively.
- Over the medium-to-long term, a combination of continued market-share gains, entry into the U.S. market, and the launch of BOX are expected to contribute to strong double-digit revenue growth.
- The asynchronous product (iCBT) is expected to drive gross-margin expansion. We are modelling gross margins overall to lift from 46% in 2020 to 62% by 2023.
- We do not expect MindBeacon to generate positive EBITDA until 2023.
- We are modelling an estimate of cumulative negative $24.6 million of free cash flow for 2021‒2023.
- We estimate $65.7mm in cash as of Q4/20 (following the IPO raise), trending to $43.9 million in Q4/23.
TD Investment Conclusion
We believe that the market opportunity for MindBeacon is large (both domestically and internationally), its competitive positioning is defendable, and we see potential for high growth rates to be sustained over the medium term.
- The management team appears capable of delivering. The share price has responded positively following the recent IPO (December 18) and we see further upside potential.
- We are initiating coverage with a BUY rating and $14.00 target price.
Disclosure:
1. TD Securities Inc., TD Securities (USA) LLC or an affiliated company has managed or co-managed a public offering of securities within the last 12 months with respect to the subject company.
2. TD Securities Inc., TD Securities (USA) LLC or an affiliated company has received compensation for investment banking services within the last 12 months with respect to the subject company.
4. TD Securities Inc. or TD Securities (USA) LLC has provided investment banking services within the last 12 months with respect to the subject company.