𝛼SK or SearchTotal Brain Limited: Sales Momentum Evident in Q4 Cash Receipts
Total Brain Limited
Sales momentum evident in Q4 cash receipts
Total Brain (ASX:TTB) is the developer of a neuroscience-based mental health & fitness platform powered by the largest standardized neuroscientific database in the world formed over almost two decades and with $50m of R&D funding. Total Brain reported a 187.4% increase in Q4 FY20 cash receipts to $1.713m over the previous corresponding quarter in FY19 and an 81.7% increase in FY20 cash receipts ahead of our forecasts. Monthly cash burn for Q4FY20 was $0.32m, a decline of 45% on the previous corresponding quarter in FY19 and a 56% decline on the cash burn recorded in Q3 FY20. The company noted that cash receipts in the quarter were driven by an upfront payment of $1m for a large contract closed in the previous quarter and a further $0.48m in annual recurring revenues (ARR) signed in the March quarter. Our base case valuation remains at $137m or $1.27/share. In our view, continued momentum with cash generation driven by new contracts should underpin Total Brain’s share price performance.
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.
Q4 cash receipts up 187%, result ahead of our forecasts
Total Brain reported a 187% increase in Q4 cash receipts, or an 11% increase if excluding the $1m lump sum payment it received for the first year of a three-year contract signed in the March quarter. Cash receipts for FY20 increased 81.5% to $4.997m, which was more than $1m ahead of our forecast for full year cash receipts of $3.86m. Cash burn for Q4 FY20 declined 44.9% to $0.947m on the previous corresponding period and 56% on the March quarter. This helped contain the average monthly cash burn for FY20 to $0.585m, just 5.6% on the average in the previous corresponding year. Costs growth for the quarter related mostly to increased staff costs driven by new hires across product and technology. The company also reported it had received an additional Government R&D grant of $1.25m in the fourth quarter.
Base case valuation is $137m or $1.27/share
We use the discounted cashflow methodology to value Total Brain, arriving at a base case valuation of $137m or $1.27/share. Our valuation reflects a 39% CAGR in free cashflows from 2023-2029. Using the same WACC, the intraday share price of $0.32 reflects an estimated 10% CAGR in free cashflows from 2023-2029
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- Total Brain Limited: Sales Momentum Evident in Q4 Cash Receipts30 Jul 2020