Q3/22 Results - Revenue ahead while adj. EBITDA missed consensus estimates (in line with RBCe)
TSX: DHT-U | CAD 6.80 | Outperform | Price Target CAD 14.00
Sentiment: Neutral
Our view: Overall, we view DRI's Q3/22 results as neutral for the shares. While Q3/22 revenue was ahead of consensus (+26%), adj. EBITDA for Q3 was below consensus (-5%). Total revenue of $26.5MM was ahead of RBCe ($22.7MM) and consensus estimates ($21.0MM). Cash royalty receipts (ex-interest receipts) of $17.5MM were marginally below our estimate ($18.0MM) but this variation, both positive and negative from quarter to quarter, is normal. Adj. EBITDA of $15.8MM was below consensus ($16.7MM) and broadly in line with RBCe ($15.9MM). DRI declared a cash dividend of $0.0750/unit for Q4/22 to be paid on 20-Jan.
Royalty revenues above RBC and consensus estimates; Cash royalties marginally below RBCe. DRI reported royalty income of $25.0MM in Q3/22, above our forecast of $21.5MM and the $20.0MM reported in Q2/22. The strength in revenues vs. RBCe was largely led by Zytiga revenues ($4.8MM vs. RBCe $2.0MM), FluMist ($2.5MM vs. RBCe $0.8MM) and Vonjo ($2.4MM vs. RBCe $1.7MM) partially offset by Oracea ($2.1MM vs. RBCe $2.7MM), Spinraza ($3.7MM vs. RBCe $4.2MM) and Eylea ($2.7MM vs. RBCe $3.3MM). Total revenue including interest income was $26.5MM ($21.3MM in Q2/22) above RBCe ($22.7MM) and consensus ($21.0MM). DRI reported cash royalty receipts of $17.5MM slightly below RBCe ($18.0MM). The miss in cash royalty receipts vs. RBCe was led by lower than expected royalties for Spinraza ($3.7MM vs. RBCe $4.1MM), Oracea ($2.1MM vs. RBCe $2.5MM), Eylea ($2.8MM vs. RBCe $3.1MM) and Xolair ($2.5MM vs. RBCe $2.8MM) partially offset by higher receipts for Vonjo ($1.2MM vs. RBCe $0.7MM) and Rydapt ($2.6MM vs. RBCe $2.4MM). Total cash receipts including interest receipts were $18.8MM.
Q3/22 adj. EBITDA of $15.8MM was broadly in-line with RBCe ($15.9MM) but below consensus ($16.7MM). The adj. EBITDA margin of 84% was down q/q (85% in Q2/22).
Balance sheet, dividend and NCIB update. DRI ended Q3/22 with cash on hand of $20.5MM and has drawn $216.9MM under its credit facility ($350MM). After quarter-end, the company paid its previously declared dividend of $0.075/unit on 20-Oct. Today, it declared a cash dividend of $0.075/unit for Q4/22 payable on 20-Jan. DRI announced the renewal of its NCIB of 10% of outstanding units (~2.49MM units) beginning 14-Nov-2022 and ending 13-Nov-2023. Under the prior NCIB that ended on 04-Oct-22, the Trust obtained approval from the TSX to purchase 2.50MM units of which it purchased ~1.52MM units at a weighted average price of C$6.60 per unit (US$5.25).
Tomorrow's conference call. We would look for updates on the existing portfolio of royalties, updates on the deal pipeline, company's target leverage ratio and funding of future acquisitions. We also expect an update on management's expectations around GA indication approval for Empaveli where the PDUFA date was extended to Feb-2023 (previously: 26-Nov-2022) and its implications for DRI's optionality to increase the revenue cap for royalties from $500MM to $1.1B of revenues for an additional payment of $21MM (option expires on 01-Jun-23).
Call details: Tomorrow (08-Nov) at 8:00AM ET. Dial-in: 1-888-664-6392 or 416-764-8659. Webcast link here.