Dialogue Health Technologies Inc.
A tech-enabled leader in Canadian virtual care:
Initiating at Sector Perform with an $18 PT
Our view: We are initiating coverage of Dialogue Health Technologies with a Sector Perform rating and $18 price target. We believe Dialogue’s Integrated B2B Health Platform with three live programs, strategic partnerships with large insurers, and solid balance sheet position the company to capitalize on demand growth for virtual healthcare in Canada and select other countries. While we see significant fundamental upside potential for the business, we believe this is reflected in Dialogue's current premium EV/sales valuation vs. most NA peers, which keeps us on the sidelines at this time.
Key points:
One-stop platform and breadth of service differentiate Dialogue vs. Canadian virtual care peers. Dialogue is currently Canada’s only integrated B2B virtual health platform with three live programs (primary care, mental health, and an Employee Assistance Program – EAP, through recently acquired Optima). Dialogue's platform provides its paying customers (organizations), end users (employees/dependents), and service providers an integrated platform with AI-enabled intake, efficient matching of users with providers, and simplified billing & administrative functions. In our view, Dialogue is well positioned to capitalize on growth in demand for virtual care. We highlight RBC Capital Markets, LLC US virtual healthcare analyst Sean Dodge's report "RBC Imagine: Virtual Health is the Future" (April 16, 2021), which includes an in-depth industry outlook.
In addition to direct sales to larger organizations, Dialogue has partnerships with 4 of Canada's top-5 insurance carriers, showcasing its competitive strengths and positioning the company to more efficiently scale its business. Through its B2B model, over 1MM members (~2.5MM Canadians including dependents) had access to Dialogue’s virtual platform as of Jan. 2021, which we expect to grow to over 2MM members by YE2022. Strong near-term revenue growth outlook with good visibility. We expect revenue to be primarily sourced from per-member-per-month subscriptions under 1-3 year contracts. Dialogue had a revenue run rate of over $60MM as of Jan. 2021. As the company increases its membership and attach rate, we forecast annual revenue of ~$71MM in 2021, ~$100MM in 2022, and $131MM in 2023, with breakeven/positive quarterly EBITDA potential in H2/22.
Solid balance sheet to fund potential M&A and organic growth. Post IPO, Dialogue has pro forma YE2020 cash of ~$133MM and ~$3MM of debt, in our view providing ample financial flexibility to support organic growth initiatives and fund acquisitions.
We believe our strong fundamental growth outlook for Dialogue is fairly reflected in the shares at these levels, noting the company is trading at an EV/sales premium to most peers. Dialogue is currently trading at ~13x 2021E-22E average EV/sales, at a 44% premium to the peer group average of ~9x (~4-14x range) and representing a 42% increase from its IPO pricing of $12. Our $18 price target is based on 13x NTM EV/sales.