Analysts Raising Target PricesAnalysts have increased their THNK target prices this morning on the back of yesterdays news with Echelon now at a $1.10 target and Cannaccord at $0.80 (lowest on the street now). While that's nice to see the important piece was that they both used VERY conservative estimates and valuations to arrive at those target prices (as in well below peers / comprables especially given THNKs growth). They also each acknowledged that much more upside exists "We see further upside potential as the company executes against this contract and other pipeline opportunities"
A correction to my analysis yesterday, it appears that the $2M initial engagement amount was rolled into the contract, so the $8.5M in year one includes that $2M. I also suspect that the $2M was intended to cover direct costs so that means the net value of yesterdays news is + $6.5M this year plus an additional $1.3M at least in following years (again likely with an escalator added). Also the $5.2M for 2023 I assumed from the other contract ($2M increase announced in September + $3.5M increase announced this year with $300K being recognized in Q4) might add $4M for 2023 instead over Q4 run-rate (I thought the increase in Sep wasn't going to be largely realized last quarter but it sounds like it was partially). So all in it's $6.5M + $4M between the two contracts on a net basis for 2023 (again assuming $2M in direct costs associated with the larger contract). That's still +$10.5M in 2023 revenue and at least an additional $1.3M for 2024.
So if Q4 run-rate came in at the low end of guidance ($85M) then that is at least $95.5M in net revenue for 2024 ($97.5M gross before direct costs), and if Q4 comes in at the high end of guidance ($90M) then its $100.5M for 2023 on a net basis ($102.5M gross).
Last point important to remember: It's only March and already the company has landed a significant increase in high margin SaaS deals. Adj. EBITDA is now expected to be $7M to $10M which is huge and the operating leverage in the business could explode over the next few years if these types of wins keep happening. What I really like about the business is that despite incuring some direct costs it sets the foundation for THNK to win comprabable business with very little additional costs needed. Furthermore, the fact that THNK keeps converting initial small deals into much larger (and longer) contracts is a significant validation of its business value add to clients. That in itself might be the most important news we've seen that THNK can upsell tremendously well and can do so in a very short amount of time even with new client wins.
While i have been rather negative on the company's poor balance sheet management which has created a lot of uneccessary dilution (the "tremendously accretive" biopharma deal bit the balance sheet in the butt given the subsequent share price they've had to raise capital at!), you have to give credit where credit is due and these wins should be celebrated. WIth the type of cash flow expected from these contracts the days of significant dilution should be over and the stock should turn around materially going forward. I'm still at $2.00 plus target in roughly 10-12 months from now but if we continue to see business wins such as the recent announcements my target price could rise significantly higher. All this while the market is in sell-off mode, so imagine what the upside could be if general market sentiment improves.