Description

        I.            Executive Summary

Reliq Health Technologies (Reliq; ticker: RHT CN) is a SaaS digital health company in its early stages of development.  Reliq has built a product, signed up healthcare providers who cumulatively have more than 450K eligible patients, and is now ready to be onboarding those patients.  With attractive margin profile at scale (per management guidance, gross profit margin of 75% and EBITDA margin of 45%) and a chance of achieving C$100M revenue in 2024, Reliq can be a multi-bagger given its current market cap of ~C$135M and the enterprise value of ~C$132M.  It boils down to the execution, and 2021 will likely a critical year for Reliq. 

     II.            Why Does This Opportunity Exist?

There are several reasons why this opportunity exists:

(1)   Small-cap (~C$135M)

(2)   No sellside coverage

(3)   Very under the radar among buysiders

(4)   Management just started its IR efforts in late 2020 after two years of silence

(5)   Primary listing in Canada despite the US-centric business.

  III.            Capital Structure

On a fully diluted basis and using the T-method to account for stock options and warrants, Reliq has ~C$135M market cap.  Below I provide a detailed breakdown of the capital structure:

Source:  Company’s presentation.

  IV.            Valuation at a Glance and Upside Potential

Reliq will not screen well.  9M 2020 revenue is de minimis and in early January 2021 management guided to ~C$1.5M of revenue in 2020. 

However, guidance for the next several years implies a rapid revenue ramp up that I have rarely seen:

2021 – C$11M

2022 – C$32M

2023 – C$65M

2024 – C$100M+. 

Management has also guided that Reliq should get to profitability in CQ 2Q 2021 (June 30).  Per management, gross profit margins should reach 75% and EBITDA margins should reach 45%. 

Even at C$50M of revenue, this implies EBITDA of C$22.5M+.  At $100M, this implies EBITDA of C$50M.  If the management executes and Reliq achieves its targets, the market would likely assign a very healthy multiple.  Anything between 10x – 20x revenue and 20x – 30x EBITDA does not seem unlikely.  That will imply ~10x or even higher return from the current price level.  

    V.            What Does Reliq Do?

Reliq is digital health SaaS company that focuses on patients with chronic diseases (typically, more than one chronic disease).  Reliq does that by providing healthcare providers with a platform that allows them to monitor patients and by providing patients with devices that will enable such monitoring.  In particular, the product includes the following modules:

(1)   Remote patient monitoring (RPM)

(2)   Chronic care management (CCM)

(3)   Telemedicine

(4)   Transitional care management. 

This is an example that management provides to explain how the platform / product works.  Imagine an elderly patient with a high risk of heart failure.  A doctor can monitor remotely many vital signs that such patient takes as well as patient’s weight.  If a patient suddenly gains weight within a 24-hour period, the platform will alert a healthcare provider.  Such sudden gain weight may be indicative of a patient going into a heart failure.  If a doctor intervenes rapidly and change a medication, a doctor would probably be able to keep a patient healthy at home.  If such intervention does not happen (i.e., it would not probably happen without Reliq or a similar product), a patient would be left to himself / herself.  If a heart failure happens 7-10 days later, a patient would need to be hospitalized and permanent health damage would likely be incurred.  That’s a horrible outcome.  Reliq can help prevent that from happening.

  VI.            Reliq Benefits Everybody in the Ecosystem

It is critical that Reliq benefits everybody in the healthcare ecosystem. 

1.            Health Care System as a Whole Saves Money

Reliq helps reduce costs for the entire healthcare system.  Reliq focuses on patients with chronic conditions who generally cost the healthcare system the most.  People talk a lot about how 20% of the patient population are responsible for 80% of the cost.  The Pareto principle would similarly suggest that it is likely to be the case.  By keeping patients out of hospital, Reliq reduces overall healthcare costs.

2.            Patients Are Healthier and Have Higher Quality of Life

By enabling preventative care through RPM and CCM, Reliq helps patients deal with health issuers earlier, keep them of hospital, and overall be healthier and have higher quality of life. 

3.            Doctors Make Money

Reliq helps healthcare providers make more money.  Healthcare providers include home health agencies, adult medical day cares, physician practices, skilled nursing facilities. 

A physician practice can not only take better care of patients but also make more money by utilizing Reliq platform.  $500K to $1M of additional revenue per year seems to be a reasonable range. 

Medicare and Medicaid reimburse healthcare providers for such things as RPM and CCM.  ~$300 per patient per month of revenue equates to $3.5K per year.  At a few hundred patients, a doctor can get to $500K to $1M in revenue.  

While doctors get paid by Medicare and Medicaid approximately at the rate above, doctors pay Reliq ~$40.  In some cases, healthcare providers can be paying Reliq up to $100, but in that case doctors are likely to be getting even more money from Medicare and Medicaid. 

VII.            Revenue Model

Reliq charges subscription revenue on the per patient per month basis.  The current ARPU is ~$40.  I would not be surprised if the ARPU increases over time. 

VIII.            Patient Pipeline Is Robust

“It is difficult to make predictions, especially about the future” (attributed to Yogi Berra).

However, in the case of Reliq, one can work with client wins that have been announced during 2020 and 2021.  This is how it works.  Reliq signs up a healthcare provider with a certain number of eligible patients (let’s say 10K for the sake of the argument).  Reliq onboards a healthcare provider first.  Then a healthcare provider starts enrolling / onboarding individual patients.  Reliq can help if / when necessary. 

Below I provide a summary of announced client wins and their eligible patient populations.

Source:  Company press releases.

Together it comes to ~450K eligible patients. 

  IX.            TAM and Growth Runway

It is difficult to evaluate TAM with precision.  Reliq talks about $100B TAM. 

What is important, however, is that only ~5% of patients use some form of digital health (RPM, CCM, etc.).  That’s a very low penetration and it implies a long growth runway ahead. 

    X.            Key Operating and Financial Metrics

Key metrics are:

(1)   ARPU

(2)   Number of patients on the platform.

As I wrote, management guides to $40 ARPU per month.  It is likely to increase as healthcare providers utilize more modules of the platform. 

The company does not disclose the number of patients on the platform and does not plan to do so.  So an investor can only track revenue as a way to monitor Reliq’s progress. 

  XI.            Management and Key Actors

CEO Lisa Crossley is at the helm.  Reliq is the fourth company where she is CEO.  Lisa Crossley holds PhD in Chemical Engineering.  All her prior companies were private.  Before becoming the CEO, she held an executive position that was subsequently acquired by Shire. 

XIII.            Risks

1. Execution

This is the biggest risk.  I think Reliq is well-positioned to capture the opportunity, but it is really upon Reliq to prove it. 

2.  Competition

The digital health is a “hot” area and many companies are pursuing opportunities there.  Reliq’s success (if achieved) would unlikely go unnoticed and may attract other players.  Other players will need to prove by showing data that their solutions work.  It would require accumulating clinical data which means time.  This serves as a mitigating factor.  Plus, the RPM / CCM market is unlikely to become a winner-take-all market. 

3.   Reimbursement Policies

Current CMS policies favor digital health, RPM, CCM, etc.  It manifests itself in attractive rates that Medicare and Medicaid pay healthcare providers.  However, it could change.  Reliq captures a relatively small portion of revenue that a healthcare provider receives (estimated 15% to 20%) which provides a certain buffer. 

Disclaimer

The presented analysis is an opinion of the author.  The author and / or affiliated entities are long Reliq Health Technologies shares.  Various factors may influence or factor into the analysis or the opinion.  The author does not assume any obligation to update the analysis or recommendation.

Catalyst

XII.            Catalysts

Catalysts include:

(1)   More client wins

(2)   Revenue growth

(3)   Uplisting in the US.