SomnoMed Q4 and FY results were released this week.
Looking back to see what was guided at AGM for FY23
Som AGM-Investor-Presentation.PDF
FY23 guidance • Revenue growth of at least 20% • EBITDA1 of at least $2m • CAPEX investment c.$7m
Actual FY 23 Results
- GrowthRev growth 15% .
- EBITDA 2mil plus .
- Capex 6.4m
SOM Q4 Appendix-4C.PDF
Two out of three areas achieved with positive display of cost control.
Revenue miss for the year was driven predominantly by Q4 where growth reduced 10% (constant currency 3% ).
Why ?
Change in Nth America of the reimbursement rules (ie, non refundable) and coding structures for oral appliances.
Management have submitted new application for the FULL reimbursement coding for the Somnomed Avanti as action point to address this slowdown.
Will look to the FY results for a update for Q1 2024.
In Europe growth was reduced due to two specific markets which management explain has been addressed and expected to be improved. The markets themselves weren't mentioned and the issue itself wasn't outlined ?
In assessing if the cause of the revenue miss impacts the underlying thesis , i would say no but we we will need to closely monitor the coming quarters to see if this low growth rate is not a new trend indicating slowing growth rates to persist.
Management have historically been reliable and delivered on commitments reflective of 810,000 people using a Somnomed product.
Q4 outside this was solid with receipts $21,884,000 taking FY 23 receipts to $82,497,000.
Costs
Product Manufacturing costs were lower by 9.2% comparative to the FY 23 costs which i assume reflects good inventory position. Similarly administration and corporate costs were also well down for the quarter.
Advertising costs in Q4 were up over 20% comparative to FY 23 run rate which plays into the slowing uptake and need to gorw the pipeline of sales. Staff costs were steady fort he quarter.
Interest costs have been rising and in Q4 were $505,000 up over 10% for the quarter comparative to FY 23 .
Q4 saw Somnomed post cash flow positive result of 2.5m.
Opportunity
Rest Assume looms and is within reach for a roll out by years end with the submission to FDA occurring in the coming weeks and an answer expected to be provided in 120 days.
FY 26 Aspiration
Over 1.5 million patients treated • >20% CAGR revenue growth to c.$150m • Stable product gross margin • Target EBITDA1 margin >10% of total revenue to c.$15m Invest EBITDA1 into future horizons to accelerate growth Advance the acceptance and adoption of technology enabled oral appliance treatment solution for OSA patients Actual
Providing management a pass to address the revenue issues and recommence the journey of 20% revenue growth.
Additionally when factoring in the Rest Assure approval in North America which may come through in due in Q2 FY24 may prove to be the catalyst to propel growth to the 2026 targets.
If 20% revenue is achieved over next three years to FY2026 the aspiration $150m revenue will be within reach.
Similarly if EBITDA of 10% is achieved by 2026 this would equate to 15mill.
From a valuation stand point at 89c (28th July 2023) and MC 73m Somnomed is trading at
5x 2026 EBITDA and less 0.5 x sales.
Valuation $2.02
Revenue 2026 circa $150m
EBITDA $15mill
Multiple to EBITDA 15x
Discounted back 10% p.a
SOI increase 1% pa to 80.97
Disc: Held IRL 4% and SM 8%