𝛼SK or SearchTotal Brain Limited: Costs Reduced by 25% to Conserve Cash
Total Brain Limited
Costs reduced by 25% to conserve cash
Total Brain (ASX:TTB) is the developer of a neuroscience-based mental health and fitness platform powered by the largest standardised neuroscientific database in the world formed over almost two decades and with >$50m of R&D funding. The company has reported Q1FY22 cash receipts of $0.55m and cash outflows, including investment in IP, of $4.27m. This compares with cash receipts of $0.80m and cash outflows of $3.82m in the same period one year ago. The company announced that in October 2021 it undertook a significant right-sizing exercise, eliminating 25% or $4.2m of its annual cost base across all main expense lines including people, marketing, corporate, administration and directors’ fees. As part of this activity, 15 full-time positions were eliminated and another five open positions being recruited for, were halted. Total Brain noted that GRIT, the first deployment of the IBM Health & Wellness 360 platform, of which Total Brain is an integral part, is scheduled for launch in November with revenue recognition and cash receipts expected to commence subsequent to the launch this quarter. The company also expects to conclude contract negotiations on the Hamptons Life direct-to-consumer (D2C) version of Total Brain’s platform in the near term. We have pushed the timing of these projects into the second half of FY22 and taken into account the cost reductions undertaken. Our base case DCF valuation is now $0.80/share (previously $0.88/share).
Business model
Total Brain operates a subscription-as-a-service (SaaS) model for its mental health and fitness platform. The science behind the platform has been developed over almost two decades with input from the leading academic institutions in the field. This has generated a proprietary neuroscientific database of scale which underpins the scientific validation that differentiates Total Brain from other brain training and wellness applications. The app, promoted by affinity partners, assesses the four core brain capacities (emotion, feeling, cognition, self-control), pre-screens seven common mental health conditions, and delivers personalised brain and mind/body training.
Q1FY22 result discussion and outlook
Total Brain reported Q1FY22 cash receipts of $0.55m, a 65% decline quarter-on-quarter, due to a large ($1.1m) one-off payment in Q4FY21. Excluding this payment, cash receipts were up 8% q-o-q. Operating costs increased 25% q-o-q to $3.42m, driven in large part by a 15% increase in staff costs to $2.4m as the company ramped up its head count across sales and business development and software development. With the ongoing delay to the start of the first government client to use the IBM Health & Wellness 360 Platform, Total Brain has moved to reduce its cost base to conserve cash. In October, the company eliminated $4.2m of its annual cost base by reducing staff numbers (15 in total), marketing costs, corporate, administrative, directors’ fees and other expenses. We have factored this into our forecasts and, to be conservative, have pushed out our revenue expectations for both the initial IBM GRIT programme and future opportunities. This has seen $2m shaved off our revenue forecasts for FY22 and $3.9m in FY23 but the cost savings should more than offset this in both years.
Base case valuation is $0.80/share (previously $0.88/share)
Our base case DCF valuation is $0.80/share after our earnings adjustments for timing of project starts. We see commencement of the US Veterans contract with IBM Health & Wellness 360 and the finalisation of the Hamptons Life direct to consumer transaction as key near-term catalysts for Total Brain’s share price.
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- Total Brain Limited: Costs Reduced by 25% to Conserve Cash03 Nov 2021