Total Brain Limited: Incremental Annual Recurring Revenue in Sight

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 assesses the 4 core brain capacities (emotion, feeling, cognition, self-control), pre-screens 7 common mental health conditions & delivers personalised brain & mind/body training.

Progress being made despite COVID-19
Total Brain noted that the COVID had caused significant process setbacks, delaying sales conversions of opportunities in the pipeline by 9-months including the first IBM transaction. The initial rollout of the IBM Mental Fitness 360 platform and GRIT application is in the final stages of the contracting process with conclusion expected in the very short term, albeit previously expected to be completed in December. First revenues are still on track to be received in the first quarter of CY2021, although we now expect revenues to flow from March. This opening phase of 25,000 users represents $0.57m in ARR and is expected to lead to an expanded rollout to US Veterans’ eligible population as well as accelerate other opportunities in the joint Total Brain/IBM pipeline. Total Brain estimates that the gradual deployment to up to 200,000 individuals a year transitioning will add potential incremental ARR of $3.5m while further subsequent rollout to the entire benefit- eligible population of 18m individuals together with upsell features such as clinical care support and stress management will lead to incremental ARR, in addition to the above- mentioned $4.1m.

Base case valuation is $1.28/share
We use the discounted cashflow methodology to value Total Brain. Our base case DCF is $1.28/share using a discount rate of 15.0% and terminal growth rate of 2.2%. In our view, continued momentum with new contracts, in particular with the IBM Mental Fitness 360 platform, which accounts for $0.41/share of our valuation, and development of the clinical market, should underpin Total Brain’s share price performance over the next 12 months.