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Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

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<h3>KEY POINTS</h3>
<ul>
<li>4QFY22 results highlight Novamind’s impact.&nbsp;For the fiscal fourth quarter ended August 31, 2022, Numinus delivered a 464% Y/Y increase in revenue to C$4.2 million and gross profit of C$1.3 million, up from a year-ago loss of C$89.7K and a 628% increase from the preceding fiscal quarter’s C$181K. 4QFY22 gross margin expanded to 31.5% versus 24.4% in the preceding quarter and a 12.7% average over the preceding three fiscal quarters. Run-rate revenues are C$16.7 million with gross profit at ~C$5.2 million.</li>
<li>US clinics bolster margins.&nbsp;Numinus’ wellness clinics on both sides of the border contributed ~88% of the company’s total revenues or ~C$3.7 million at an average gross margin of 27%. The US clinics generated 82.5% of these revenues. Revenues from the Canadian clinics grew by 61% Y/Y, driven by network expansion and increased patient traffic.</li>
<li>Clinic network revenues up 404% sequentially.&nbsp;More than 17K appointments were completed during 4QFY22 versus 5,600 in 3QFY22, mostly due to the Novamind acquisition at the beginning of the quarter. About 13.5% of the appointments were ketamine-related and another 9% were for TMS therapy, both value-added series that helped drive up margin. About 12.5% of the total completed appointments reflected new clients.</li>
<li>High-margin CRO business has room to expand.&nbsp;Numinus generated revenues of ~C$0.5 million from management of third-party clinical trials that are conducted in the two clinical research sites that came with the US acquisition. These generated a gross margin of ~65%. While this margin might fluctuate depending on the number of trials conducted per quarter, the company identifies this business as a significant growth opportunity.</li>
<li>Normalized net losses within expectations.&nbsp;Excluding non-recurring items comprising impairment/asset write-offs and transaction costs, Numinus generated a net loss of C$9.3 million for the quarter. A C$13.3 million non-cash impairment charge was made against the Novamind acquisition to reflect Canadian standards with respect to certain future revenues from yet-to-be-announced changes and government regulations.</li>
<li>Solid balance sheet and liquidity.&nbsp;Numinus ended the quarter with C$33 million in cash on the balance sheet. On an operating basis, Numinus used C$6.7 million in cash. However, given the company’s growing revenue streams and margins, we believe Numinus remains on track to achieve operating profitability by FY25.</li>
<li>We will be hosting Numinus for a fireside chat on December 8, 2022, at 11:00 am ET. Click&nbsp;here&nbsp;to register.</li>
</ul>
<h2>COMPANY OVERVIEW</h2>
<p>Established in 2019, Canada-based Numinus Wellness (TSX:NUMI/OTCQX:NUMIF) is an integrated mental health company offering a wide range of mental health treatment. Its operations also embrace the entire psychedelic ecosystem from psychedelic production, the discovery and development of proprietary psychedelic-based therapeutic products utilizing its own research capabilities, partnerships, and capacity as a contract research organization (CRO) service provider, and a network of 12 client-facing wellness clinics in North America that offer a wide range of psychiatric services and treatment modalities, including psychedelic-assisted therapies for patients with a variety of mental disorders.</p>
<p>Stewarded by an accomplished leadership team comprising highly experienced medical and business professionals led by Payton Nyquvest, the company has expanded rapidly over the past three years largely through acquisition, with the recently completed acquisition of Novamind being transformative for Numinus both strategically and financially. Numinus offers a unique and relatively low-risk way to gain exposure to the emergent psychedelic space.</p>
<h2>OUR INSIGHTS</h2>
<h2>The Opportunities</h2>
<p>Numinus is positioning itself as a leading provider of much-needed infrastructure to enable the industry to develop by providing accessibility to and support for ongoing research in psychedelics as well as accessibility to patient-facing sites into which resultant psychedelic-assisted psychotherapies can be funneled to treat patients. Numinus is effectively tapping into a multibillion-dollar opportunity (please refer to our industry report, “The Psychedelics Renaissance”). Among the ~50 publicly traded psychedelic companies, most are focused on drug discovery and development. Numinus’ end-to-end service capabilities with current and growing revenue streams offer a more unique and relatively low-risk way to gain exposure to the emergent psychedelic space.</p>
<h2>The Obstacles</h2>
<p>As with any nascent industry and early-stage company, there are significant uncertainties and development risks. Outside of ketamine, psychedelics for therapeutic use are highly restricted. While we are confident about the direction in which psychedelics are going with respect to gaining wider acceptance, more uncertain is the time it will take to complete that journey.</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Robert Sassoon, who is the writer of this report, covers the Emerging Growth &amp; Special Situations and Healthcare sectors for WTR. Mr. Sassoon and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

4QFY22 results highlight Novamind’s impact.&nbsp;For the fiscal fourth quarter ended August 31, 2022, Numinus delivered a 464% Y/Y increase in revenue to C$4.2 million and gross profit of C$1.3 million, up from a year-ago loss of C$89.7K and a 628% increase from the preceding fiscal quarter’s C$181K. 4QFY22 gross margin expanded to 31.5% versus 24.4% in the preceding quarter and a 12.7% average over the preceding three fiscal quarters. Run-rate revenues are C$16.7 million with gross profit at ~C$5.2 million.
US clinics bolster margins.&nbsp;Numinus’ wellness clinics on both sides of the border contributed ~88% of the company’s total revenues or ~C$3.7 million at an average gross margin of 27%. The US clinics generated 82.5% of these revenues. Revenues from the Canadian clinics grew by 61% Y/Y, driven by network expansion and increased patient traffic.
Clinic network revenues up 404% sequentially.&nbsp;More than 17K appointments were completed during 4QFY22 versus 5,600 in 3QFY22, mostly due to the Novamind acquisition at the beginning of the quarter. About 13.5% of the appointments were ketamine-related and another 9% were for TMS therapy, both value-added series that helped drive up margin. About 12.5% of the total completed appointments reflected new clients.
High-margin CRO business has room to expand.&nbsp;Numinus generated revenues of ~C$0.5 million from management of third-party clinical trials that are conducted in the two clinical research sites that came with the US acquisition. These generated a gross margin of ~65%. While this margin might fluctuate depending on the number of trials conducted per quarter, the company identifies this business as a significant growth opportunity.
Normalized net losses within expectations.&nbsp;Excluding non-recurring items comprising impairment/asset write-offs and transaction costs, Numinus generated a net loss of C$9.3 million for the quarter. A C$13.3 million non-cash impairment charge was made against the Novamind acquisition to reflect Canadian standards with respect to certain future revenues from yet-to-be-announced changes and government regulations.
Solid balance sheet and liquidity.&nbsp;Numinus ended the quarter with C$33 million in cash on the balance sheet. On an operating basis, Numinus used C$6.7 million in cash. However, given the company’s growing revenue streams and margins, we believe Numinus remains on track to achieve operating profitability by FY25.
We will be hosting Numinus for a fireside chat on December 8, 2022, at 11:00 am ET. Click&nbsp;here&nbsp;to register.

COMPANY OVERVIEW
Established in 2019, Canada-based Numinus Wellness (TSX:NUMI/OTCQX:NUMIF) is an integrated mental health company offering a wide range of mental health treatment. Its operations also embrace the entire psychedelic ecosystem from psychedelic production, the discovery and development of proprietary psychedelic-based therapeutic products utilizing its own research capabilities, partnerships, and capacity as a contract research organization (CRO) service provider, and a network of 12 client-facing wellness clinics in North America that offer a wide range of psychiatric services and treatment modalities, including psychedelic-assisted therapies for patients with a variety of mental disorders.
Stewarded by an accomplished leadership team comprising highly experienced medical and business professionals led by Payton Nyquvest, the company has expanded rapidly over the past three years largely through acquisition, with the recently completed acquisition of Novamind being transformative for Numinus both strategically and financially. Numinus offers a unique and relatively low-risk way to gain exposure to the emergent psychedelic space.
OUR INSIGHTS
The Opportunities
Numinus is positioning itself as a leading provider of much-needed infrastructure to enable the industry to develop by providing accessibility to and support for ongoing research in psychedelics as well as accessibility to patient-facing sites into which resultant psychedelic-assisted psychotherapies can be funneled to treat patients. Numinus is effectively tapping into a multibillion-dollar opportunity (please refer to our industry report, “The Psychedelics Renaissance”). Among the ~50 publicly traded psychedelic companies, most are focused on drug discovery and development. Numinus’ end-to-end service capabilities with current and growing revenue streams offer a more unique and relatively low-risk way to gain exposure to the emergent psychedelic space.
The Obstacles
As with any nascent industry and early-stage company, there are significant uncertainties and development risks. Outside of ketamine, psychedelics for therapeutic use are highly restricted. While we are confident about the direction in which psychedelics are going with respect to gaining wider acceptance, more uncertain is the time it will take to complete that journey.
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Robert Sassoon, who is the writer of this report, covers the Emerging Growth &amp; Special Situations and Healthcare sectors for WTR. Mr. Sassoon and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Highly Impactful First Contribution from Acquired US Assets Drives 4QFY22 Results