DRI Healthcare Trust T.DHT.UN

CIBC

[retiredcf]

Have a $19.50 target. GLTA

EQUITY RESEARCH
November 6, 2024 Flash Research
DRI HEALTHCARE TRUST

Q3/24 First Look
Our Conclusion
DHT reported a solid Q3, with total income 4% above consensus. Adjusted
EBITDA margin of 80.4% was below our expectation of 85.6%, impacted by
higher operating costs inclusive of ~$4MM in professional fees that were not
added back to adjusted EBITDA. We expect these incremental professional
fees relate to accounting and consulting fees for the irregular expense
investigation earlier this year. Positive royalty income variances to our
estimates include Orserdu I & II, Xolair, and Xenpozyme as outperformers,
while Omidria and VONJO I were notably below our expectations. Cash
receipts were slightly above expectations, with positive variances mainly from
Orserdu I & II. We expect the call at 8:00 a.m. ET tomorrow to be focused on
the royalty acquisition environment and the potential for more near-term
opportunities, as well as further details on recent transactions that represent
a slight change in strategy from the company’s historical acquisition
approach.

Key Highlights
Royalty Income: Total income in the quarter was $41.6MM, up 22% Y/Y and
4% above consensus of $39.9MM (5% of CIBCe of $39.6MM). Strength in
the quarter compared to our estimates was driven primarily by Orserdu I &II,
Xolair, and Xenpozyme. With Orserdu marketed privately, we lack consensus
sales estimates for the drug, making quarterly results more challenging to
predict. VONJO continues to underperform our expectations, declining Y/Y,
and Q/Q.

Cash Receipts Overview: DHT reported total cash receipts of $38.9MM, 4%
above our estimate of $37.4MM, and up 54% Y/Y. The Y/Y increase was
driven primarily by new royalties Orserdu (I & II) and Vonjo II, which DRI
acquired during Q2/23 and Q3/23. The positive cash receipts variance to our
estimate was spread across multiple assets, but strong performance from
Orserdu I & II was the primary driver.

Profitability: Adjusted EBITDA was $31.3MM, 6% below consensus of
$33.2MM and 2% below CIBCe of $32.2MM. Adjusted EBITDA was 80.4% of
total cash receipts, 20 bps ahead of the prior-year margin of 80.2% but 520
bps below our estimate of 85.6% and below the company’s historical average
of ~85%. The delta appears to be higher operating expenses, inclusive of
$4MM in professional fees, which we expect is related to the irregular
expense investigation that was not added back to adjusted EBITDA.
Adjusting for the professional fees, adj. EBITDA margin would have been
93.3% in the quarter. Cash flow from operations was $32.8MM, slightly
above our estimate of $28.6MM and up significantly from the $4MM in Q3/23, driven by working capital changes.

Conference Call: Management is hosting a conference call at 8:00 a.m. ET
on November 7. Dial in: 1-888 699 1199.

[HermannHaller]

They confirmed on the conference call that one-time admin expenses resulted in EBITDA margin below historical.

[raybay_98]

Market behavior appears to be saying something different. JMHO

[HermannHaller]

I noticed that.