Q4/22 Results - Revenue light while adj. EBITDA and cash royalties were ahead of estimates
TSX: DHT-U | CAD 7.67 | Outperform | Price Target CAD 14.00
Sentiment: Neutral
Our view: Overall, we view DRI's Q4/22 results as neutral for the shares. While Q4/22 revenue was below estimates, cash royalties and adj. EBITDA were ahead of estimates. Total revenue of $22.6MM was below RBCe ($24.1MM) and consensus estimates ($25.1MM). Cash royalty receipts (ex-interest receipts) of $29.6MM were 5% ahead of our estimate ($28.1MM). Adj. EBITDA of $27.4MM was 9% ahead of RBCe ($25.2MM) and 12% ahead of consensus ($24.4MM). DRI declared a cash dividend of $0.0750/ unit for Q1/23 to be paid on 20-Apr. On the earnings call, we would look for updates on the existing portfolio of royalties, the company's deal pipeline and management's return expectations for future royalty acquisitions. We also expect an update on DRI's option to increase the revenue cap for Empaveli royalties from $500MM to $1.1B of revenues for an additional payment of $21MM following FDA approval for the GA indication.
Royalty revenues below RBC and consensus estimates; Cash royalties ahead of RBCe. DRI reported total revenue of $22.6MM ($26.5MM in Q3/22) below RBCe ($24.1MM) and consensus ($25.1MM). DRI reported cash royalty receipts of $29.6MM, +5% ahead of RBCe ($28.1MM). Total cash receipts including interest receipts were $31.2MM. DRI noted that a royalty-bearing patent covering Rydapt was selected for a supplementary protection certificate (“SPC”) in Germany, Great Britain, Spain and France. The SPC added five years to the royalty term in these countries. The new expected royalty expiry for Rydapt royalty is Q1/2028. Additionally, in Q1/23, DRI made a milestone payment of $6.5MM related to Vonjo sales exceeding a defined threshold.
Q4/22 adj. EBITDA of $27.4MM was ahead of RBCe ($25.2MM) and above consensus ($24.4MM). The adj. EBITDA margin of 88% was up q/q (84% in Q3/22).
Balance sheet, dividend and NCIB update. DRI ended Q4/22 with cash on hand of $36.7MM and has drawn $246.9MM under its credit facility. After quarter-end, the company paid its previously declared dividend of $0.075/unit on 20-Jan. Today, it declared a cash dividend of $0.075/unit for Q1/23 payable on 20-Apr. During Q4/22, DRI acquired a total of 910,460 units for an aggregate purchase price of $4.8MM under its NCIB. For the full year 2022, DRI acquired 1,388,440 of its units under its NCIB for an aggregate amount of $7.3MM at a weighted average price of C$6.87 per unit ($5.23). On 08-Feb-2023, DRI completed a private placement for gross proceeds of $95MM to DRI through the sale of preferred securities (~$115MM face value) and announced an increase in target deployment from $650-750MM over a five-year period (at the time of the IPO in 2021) to $850-900MM (here).
Tomorrow's conference call. We would look for updates on the existing portfolio of royalties. Additionally, we expect the focus to be on the company's deal pipeline and management's return expectations for future royalty acquisitions, especially after the company's recent capital raise. Given that the IRR for the investors involved in the private placement is ~12% (between interest paid/amortization of the discount and excluding the value of the warrant), we believe it underscores the need for DRI to generate IRRs on royalty acquisitions at or above its stated 12% target. We also expect an update on DRI's option to increase the revenue cap for Empaveli royalties from $500MM to $1.1B of revenues for an additional payment of $21MM following the FDA approval for the GA indication.
Call details: Tomorrow (02-Mar) at 8:00AM ET. Dial-in: 1-888-664-6392 or 416-764-8659. Webcast link here.