Doctor Care Anywhere Group — Growth achieved, now looking to profitability

Doctor Care Anywhere Group (ASX: DOC)

Currency in AUD

Last close As at 30/01/2023

AUD0.06

−0.01 (−14.29%)

Market capitalisation

AUD22m

Research: TMT

Doctor Care Anywhere Group — Growth achieved, now looking to profitability

Doctor Care Anywhere Group (DOC) reported 116% revenue growth in its FY21 trading update, significantly ahead of its 100% growth target for the year. Growth was driven by a 94% y-o-y increase in the number of consultations delivered on DOC’s platform, which accelerated towards the end of the year as supply constraints on GPs eased. Looking ahead, management’s newly announced operating model should support more profitable scalability by diversifying its blend of services.

Max Hayes

Written by

Max Hayes

Associate Analyst

TMT

Doctor Care Anywhere Group

Growth achieved, now looking to profitability

Q421 trading update

Software & comp services

7 February 2022

Price

A$0.46

Market cap

A$152m

A$1.89/£

Net cash (£m) at 31 December 2021

17.1

Shares in issue

329.6m

Free float

53.3%

Code

DOC

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(24.0)

(28.1)

(61.7)

Rel (local)

(18.8)

(25.0)

(63.6)

52-week high/low

A$1.35

A$0.42

Business description

Doctor Care Anywhere is a fast-growing telehealth company focused on delivering high-quality care to its patients, while reducing the cost of providing healthcare for health insurers and healthcare providers.

Next events

FY21 results

February 2022

Analysts

Max Hayes

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

Dr Jonas Peciulis

+44 (0)20 3077 5728

Dr Sean Conroy

+44 (0)20 3077 5700

Doctor Care Anywhere Group is a research client of Edison Investment Research Limited

Doctor Care Anywhere Group (DOC) reported 116% revenue growth in its FY21 trading update, significantly ahead of its 100% growth target for the year. Growth was driven by a 94% y-o-y increase in the number of consultations delivered on DOC’s platform, which accelerated towards the end of the year as supply constraints on GPs eased. Looking ahead, management’s newly announced operating model should support more profitable scalability by diversifying its blend of services.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/Sales
(x)

P/E
(x)

12/19

5.7

(4.4)

(3.7)

0.0

16.8

N/A

12/20

11.6

(13.5)

(7.8)

0.0

8.3

N/A

12/21e

25.0

(19.6)

(6.0)

0.0

3.9

N/A

12/22e

35.5

(10.4)

(3.2)

0.0

2.7

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY21 financial highlights

DOC reported FY21 revenue of £25m, up 115.7% y-o-y and 114.6% on an organic basis, ahead of its 100% growth target and our forecast of £23.6m. This target, expansion into new geographies and offering mental health services were all IPO commitments that the company has delivered this year. Consultations, the main revenue driver, grew 94.3% y-o-y to 440k, despite continuing constraints on the UK’s clinical workforce. A consistently high number of return patients and the onboarding of a record 50,500 new patients in Q421 highlight the quality of DOC’s platform and the continuing demand for telehealth services. However, investments to maximise GP supply affected FY21 profitability. That said, DOC was able to improve its gross margins by 5.4pp q-o-q to 35.7% in Q421, supported by an increase in average revenue per consultation. Management expects margins to build rapidly in FY22 as it implements its new operating model.

FY22 outlook and new operating model

In Q421, management transformed its operating model to match healthcare resources to a patient’s clinical requirements more efficiently. As well as the existing GP service, patients could also be directed to advanced nurse practitioners or a ‘QuickConsult’ questionnaire. These two new options have a lower cost of delivery, resulting in an underlying 620bp y-o-y increase in forecast gross margin to 42.8% in FY22. On a blended basis, this will lead to lower average revenue per consultation, and we forecast that FY22 revenue growth will be lower than FY21 at c 42%. FY22 revenue should benefit from updated service agreements with AXA and Nuffield Health. Higher margins should help reduce operating cash burn, and management does not have any active plans to raise funds.

Valuation: Discount closing further still

Across our FY21 and FY22e forecasts, DOC trades on 2.5x and 1.7x EV/Sales, at an average discount of 59% relative to peers, 1pp lower than our Q3 update. We believe this discount could close further as DOC rolls out its new operating model.

Target achieved in FY21, profitability is now the aim

Financial goals exceeded in FY21

Group revenue increased by 115.7% to £25m in FY21, driven by a record number of consultations delivered in H221. Q421 was DOC’s strongest quarter to date, with the group reporting revenue of £7.9m, up 35.9% q-o-q and 107.7% y-o-y, benefiting from higher average revenue per consultation across its core business, as well as a c £100k contribution from its newly acquired GP2U Telehealth. However, both factors contributed only marginally to the group’s FY21 performance due to the late timing in the year and we expect them to have a greater material impact in FY22.

Gross profit rose by 82.6% y-o-y in the year to £10.4m and by 61.1% q-o-q to £2.8m. However, DOC has faced significant margin pressure in FY21, primarily due to the higher-than-normal rates and additional incentives required to secure GPs, where competition has been high due to the pressures faced by the UK’s clinical workforce relating to COVID-19 and the vaccine roll-out. On an underlying basis, its FY21 gross margin fell by 12.7pp y-o-y to 36.5%, with the greatest impact seen in Q321 where margins were 30.3%. There was a recovery in Q421 as a result of the updated agreement with AXA Health, and we expect margins to keep building in FY22 as the impact on the UK’s clinical workforce eases and DOC rolls-out its new operating model.

Exhibit 1: DOC Q421 and FY21 summary

£m

Q421

Q321

q-o-q change

Q420

y-o-y change

FY21

FY20

y-o-y change

Revenue

7.9

5.8

35.9%

3.8

107.7%

25

11.6

115.7%

Gross profit

2.8

1.8

61.1%

1.8

58.5%

10.4

5.7

82.6%

Gross margin

35.7%

30.3%

5.4ppt

46.8%

(11.1 ppt)

41.6%

49.2%

(7.6 ppt)

Contribution

1.4

0.2

726.5%

0.9

59.7%

5.0

2.6

90.8%

Contribution margin

17.4%

3.1%

14.6ppt

12.2%

5.2 ppt

20.0%

22.6%

(2.6 ppt)

Underlying basis*

Revenue

7.9

5.8

35.9%

3.8

107.7%

23

11.6

98.4%

Gross profit

2.8

1.8

61.1%

1.8

58.5%

10.4

7.1

47.5%

Gross margin

35.7%

30.3%

5.4ppt

46.8%

(11.1 ppt)

36.5%

49.2%

(12.7 ppt)

Contribution

1.4

0.2

726.5%

0.9

59.7%

3.0

2.6

14.3%

Contribution margin

17.4%

3.0%

14.4ppt

22.6%

(5.2 ppt)

13.0%

22.6%

(9.6 ppt)

Source: Doctor Care Anywhere Group. Note: *Excludes one-off revenue such as underwritten volume top-up payments, tech platform licensing fees and digital design service fees.

Despite its relatively high cash burn in FY21, DOC’s balance sheet remains robust with net cash of £17.1m. Management always expected a high level of expenditure in FY21 to drive rapid growth, and this was its primary reason for listing at the end of FY20. In addition to the cost of onboarding GPs, the group invested heavily in its platform, particularly its automation technologies, resulting in significant improvements to operating leverage. This should support its ambitions to scale more profitably, and management does not foresee the need for any fund-raisings in FY22 unless it wishes to enter new growth areas or make acquisitions.

Strong momentum in core KPIs

Eligible lives, the number of people that can use DOC’s platform across all its channel partners at the end of a given period, rose by 2% q-o-q to 2.4 million following a flat Q321. More importantly, activated lives, the number of eligible lives that are signed up to DOC’s platform, grew 12% q-o-q to 675k and as a percentage of eligible lives was up 3% to 28%.

Consultations refers to the number of virtual GP (VGP) appointments that are delivered over DOC’s platform and is the group’s primary revenue driver. Consultations in Q421 grew by 23% quarter-on-quarter to 143.3k, representing a second consecutive quarter of record figures. Notably, the percentage of returning patients remained flat q-o-q at 65% and the remaining 35% equated to a record 50,500 first-time patients. Improved uptake in DOC’s unique Internet Hospital offering (see our Q321 update for more detail) also supported growth in consultation volumes, with 6,500 patients completing the pathway in Q421, up 27.5% q-o-q.

Exhibit 2: Consultation q-o-q growth, split between repeat and new customers

Source: Doctor Care Anywhere Group

Agreements with major insurers to boost performance

On 15 December 2021, management announced its Variation of Agreement with AXA Health, and we expect this updated agreement to be a significant contributor to the group’s goal of growing margins rapidly in FY22 and beyond.

Additionally, DOC has updated its partnership with Nuffield Health with a five-year contract to deliver the UK’s first virtual and in-person primary care service. It is due to launch in mid-2022 (delayed from Q421, as previously indicated) and is expected to generate minimum revenue of £1.9m across two years post service launch. That said, there is growth potential above this, where DOC has scope to increase its volume of primary care consultations and offer a broader scope of service.

New operating model to enhance margins

In the same announcement as its updated agreement with AXA Health, DOC announced its new operating model, which is expected to lead to significant improvements to both margins and profitability as it is rolled out in FY22. Patients will be directed to the most appropriate service through the platform’s ‘health navigator’, an automated triage system which should allow consultation volumes to grow while minimising the impacts on DOC’s cost base. The platform will now provide multiple options based on the patient’s clinical requirement, including:

a 15- or 20-minute virtual GP consultation;

a 20-minute virtual consultation with an advanced nurse practitioner; and

QuickConsult, a questionnaire to be reviewed by a prescribing clinician, resulting in written advice or a prescription without the need for a real-time video or phone consultation.

By expanding its range of services, DOC should be able to continue to scale in line with the demand for consultations on its platform where, according to management, there are twice as many advanced nurse practitioners in the UK as GPs. The 15-minute option will also enable GPs to deliver more consultations per hour, compared to the past fixed 20-minute sessions. The diversification of the offering and its subsequent lower average cost of delivery per consultation should also improve margins, although it will have a corresponding impact on top-line growth.

Changes to estimates

We have updated our revenue, profit and cash forecasts to reflect DOC’s new operating model and updated partnerships with AXA and Nuffield Health. We believe the addition of advanced nurse practitioners and the QuickConsult questionnaire will result in lower average revenue per consultation, which is the primary reason for the 8% reduction from our previous FY22 forecasts. However, the greater number of options available on the platform should help DOC continue to scale consultations in FY22, helping offset any further decline. Additionally, DOC believes its new agreement with AXA should have an immediate positive impact on revenue and that its updated partnership with Nuffield Health should contribute to its top line.

Exhibit 3: Changes to estimates

£’000s

Current estimates

Prior estimates

Change

2021e

2022e

2021e

2022e

2021

2022

Revenues

24,963

35,468

23,609

38,407

6%

(8%)

Gross profit

10,373

15,168

9,279

16,321

12%

(7%)

Gross margin

41.6%

42.8%

39.3%

42.5%

225bp

30bp

Reported EBITDA

(19,173)

(13,764)

(17,967)

(11,521)

7%

19%

Operating loss (EBIT)

(20,477)

(14,973)

(19,071)

(12,718)

7%

18%

Share of JV gain/(loss)

(76)

3,555

221

3,573

N/A

0%

Adjusted net profit

(19,430)

(10,394)

(18,382)

(9,127)

6%

14%

Adjusted basic EPS (pence)

(6.04)

(3.15)

(5.72)

(2.77)

6%

14%

Net cash

17,060

398

18,430

2,630

(7%)

(85%)

Source: Edison Investment Research

In FY22, management is changing its focus to improving margins and reducing cash burn, which is reflected in its new operating model. Despite an expected decline in average revenue per consultation, management believes that the new model will deliver a significant improvement in gross margin due to the lower cost of delivery. Our FY22 gross margin has risen 30bp from our previous estimate, reflecting the time it will take for DOC to roll out the plan through the year, where we expect margin improvements will accelerate in H222 once the model is fully implemented. Our forecast gross margin is still 620bp higher than the underlying gross margin achieved in FY21.

Additionally, we believe operating costs will no longer need to scale at the same rate as in FY21, due to a strengthening in operational leverage from the investments made in technology and automation. By improving margins, management should be able to reduce cash burn significantly and this is reflected in our forecasts, where we believe DOC will finish FY22 with net cash despite lower top-line growth.

Exhibit 4: Financial summary

£m

2018

2019

2020

2021e

2022e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Total Revenue

2.0

5.7

11.6

25.0

35.5

Underlying Revenue

2.0

5.7

11.6

23.0

35.5

Cost of Sales

(0.8)

(1.4)

(5.9)

(14.6)

(20.3)

Gross Profit

1.2

4.4

5.7

10.4

15.2

Normalised EBITDA

(4.2)

(3.7)

(11.6)

(18.2)

(12.8)

Normalised operating profit

(5.1)

(4.4)

(12.6)

(19.5)

(14.0)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

6.0

0.5

0.5

Share-based payments

0.0

(0.1)

(2.2)

(1.0)

(1.0)

Reported EBITDA

(4.1)

(3.8)

(13.8)

(19.2)

(13.8)

Reported operating profit

(5.1)

(4.5)

(14.7)

(20.5)

(15.0)

Net Interest

(0.0)

(0.0)

(0.1)

0.0

0.0

Joint ventures & associates (post tax)

0.0

0.0

(0.8)

(0.1)

3.6

Exceptionals

0.0

(1.3)

(21.7)

0.0

0.0

Profit Before Tax (norm)

(5.2)

(4.4)

(13.5)

(19.6)

(10.4)

Profit Before Tax (reported)

(5.1)

(5.8)

(31.4)

(20.6)

(11.4)

Reported tax

0.1

0.1

0.0

0.1

0.0

Profit After Tax (norm)

(5.0)

(4.3)

(13.3)

(19.4)

(10.4)

Profit After Tax (reported)

(5.0)

(5.7)

(31.3)

(20.4)

(11.4)

Basic average number of shares outstanding (m)

116.0

117.0

171.9

321.5

329.6

EPS - basic normalised (p)

(4.31)

(3.69)

(7.76)

(6.04)

(3.15)

EPS - diluted normalised (p)

(4.31)

(3.69)

(7.76)

(6.04)

(3.15)

EPS - basic reported (p)

(4.30)

(4.85)

(18.23)

(6.36)

(3.46)

Revenue growth (%)

0.0

184.2

102.1

115.7

42.1

Gross Margin (%)

58.0

76.1

49.2

41.6

42.8

EBITDA Margin (%)

(205.8)

(66.0)

(119.5)

(76.8)

(38.8)

Normalised Operating Margin

(255.3)

(76.9)

(108.5)

(78.0)

(39.4)

BALANCE SHEET

Fixed Assets

3.0

3.8

7.5

14.5

19.1

Intangible Assets

2.8

3.6

3.6

4.6

5.7

Tangible Assets

0.1

0.3

1.7

1.8

1.8

Investments & other

0.0

0.0

2.2

8.1

11.7

Current Assets

2.3

0.4

42.0

25.1

11.7

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

0.6

0.6

3.6

7.5

10.8

Cash & cash equivalents

1.7

(0.1)

38.4

17.1

0.4

Other

0.0

0.0

0.0

0.5

0.5

Current Liabilities

(2.0)

(2.1)

(3.8)

(9.0)

(10.6)

Creditors

(2.0)

(2.1)

(3.8)

(9.0)

(10.6)

Tax and social security

0.0

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

(2.9)

(8.2)

(1.2)

(1.0)

(1.0)

Long term borrowings

0.0

0.0

0.0

0.0

0.0

Other long-term liabilities

(2.9)

(8.2)

(1.2)

(1.0)

(1.0)

Net Assets

0.4

(6.1)

44.5

29.6

19.3

Minority interests

14.6

14.7

45.9

50.1

50.1

Shareholders' equity

14.9

8.6

90.4

79.7

69.4

CASH FLOW

EBITDA

(4.1)

(3.8)

(7.8)

(19.2)

(13.8)

Working capital

1.0

0.3

(1.2)

1.4

(1.7)

Exceptional & other

0.1

0.3

(1.6)

1.5

1.0

Tax

0.1

(0.1)

(0.0)

0.1

0.0

Net operating cash flow

(2.8)

(3.3)

(10.7)

(16.2)

(14.4)

Capex

(0.0)

(0.1)

(0.4)

(0.6)

(0.3)

Acquisitions/disposals

0.0

0.0

3.0

(1.8)

0.0

Net interest

0.0

(0.3)

(0.3)

0.0

0.0

Equity financing

0.0

0.2

31.2

(0.1)

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

1.8

2.3

14.9

(2.5)

(1.9)

Net Cash Flow

(1.1)

(1.1)

37.8

(21.1)

(16.7)

Opening net debt/(cash)

0.0

(1.7)

(0.6)

(38.4)

(17.1)

FX

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

(1.7)

(0.6)

(38.4)

(17.1)

(0.4)

Source: Company data, Edison Investment Research

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This report has been commissioned by Doctor Care Anywhere Group and prepared and issued by Edison, in consideration of a fee payable by Doctor Care Anywhere Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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In its FY21 trading update, WANdisco (WAND) reported strong momentum in both its bookings and remaining performance obligations (RPO), up 17% and 92% y-o-y in FY21, respectively. Moreover, it saw strong trading in Q421 as it continues its transition to a consumption-based model, with the recent sales reorganisation appearing to bear fruit. Management expects FY21 revenues to be in line with current market estimates and cash to increase 32% y-o-y to $27.8m. With confidence in its growing pipeline, the momentum from recent partnerships and deals, and a shift to quarterly updates and more frequent communications to better inform investors, Q421 could mark an inflection point for WAND, and we will be watching this space closely.

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