CloudMD Software & Services Inc (TSXV: DOC) is digitizing the delivery of healthcare by providing patients access to all points of their care from their phone, tablet or desktop computer. The company offers SAAS based health technology solutions to medical clinics across Canada and has developed proprietary technology that delivers quality healthcare through the combination of connected primary care clinics, telemedicine, and artificial intelligence (AI).

Key Highlights

• CloudMD Qualifies to Trade on the OTCQX® Best Market: The company has begun trading on OTCQX under the symbol “DOCRF”. Hence, the U.S. investors can find current financial disclosure and Real-Time Level 2 quotes for the company on otcmarkets.com.  The company’s step towards upgrading to the OTCQX Market is an important step as it seeks to provide transparent trading for their U.S. investors.
  

• Improvement in Q3FY21 Performance: The company clocked record revenue of CAD 39.1 million, an increase of 1066% compared to CAD 3.3 million in Q3 2020. The increase is primarily attributable to acquisition growth with 4 acquisitions completed in the quarter, and 14 acquisitions completed in the last twelve months. Gross profit was also elevated to CAD 13.2 million against CAD 1.2 million, which is a significant plus.

Source: Company Reports, Analysis by Kalkine

• Improved Client Outcome: The period witnessed positive client outcomes with Net Promoter Score of 80, 98% satisfaction rate and 164 new clients added in the quarter. Moreover, program with Sun Life, which delivered data for individual health outcomes has been positive and it entails 89% of individual experiencing depression and 91% of those experiencing anxiety noticed a major improvement.

• Partnership with Sun Life to Expand Mental Health Coach: On November 29, 2021, it was announced that Sun Life is expanding its partnership with CloudMD, the creators of Mental Health Coach. Following a successful seven-month pilot program, Sun Life will begin rolling out Mental Health Coach as part of its Group Benefits offering.
  

Risks associated with investment 

The operations depend upon the product acceptability across the targeted audience, while a change in consumer preferences might dampen the overall demand dynamics. Moreover, the arrival of a new player might lead to price competition.

Financial Overview of Q3FY21

Source: Company Filing 

• In Q3FY21, the group posted its revenue at CAD39.16 million, stood higher from CAD3.36 million in the previous corresponding period (pcp). The increase is primarily attributable to acquisition growth with 4 acquisitions completed in the preceding quarter, and 14 acquisitions completed in the last 12 months.
• Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization for the third quarter stood at CAD0.8 million, compared to a loss of CAD0.7 million in the previous quarter and a loss of CAD1.3 million in the pcp.
• Net comprehensive loss in Q3FY21 stood at CAD4.2 million or CAD0.02 per share, compared to the loss of CAD2.7 million or CAD0.02 per share in the pcp.
• Cash and cash equivalents at the end of the period stood at CAD53.7 million, compared to CAD60.9 million as on June 30, 2021, and CAD59.7 million as on December 31, 2020. The decrease for the period was primarily attributable to payments related to the acquisitions completed near the end of June 2021, which will not reoccur in the future.
  

Valuation Methodology (Illustrative): EV to Sales Based 

Stock recommendation

The company is creating innovation in the delivery of healthcare services, by leveraging technology to improve access to care leading to better health outcomes. Its long term growth will be largely driven by continuing to integrate all its proprietary health technology solutions into its ecosystem, including the recently announced proposed acquisition of MindBeacon; realizing cost savings and cross-selling opportunities to new and existing customers across CloudMD; winning new customers with its unique healthcare offering and providing meaningful data driven outcomes; and continuing to execute on its defined expansion strategy across North America and globally.

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 1.13 as on December 29, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Technical Summary Analysis

One-Year Technical Price Chart (as on December 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV

Disclaimer

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