Sales increased by c30% in Q1’23 compared to the previous quarter. The report reiterates the financial goals, which call for SEK250m in sales, positive EBIT, and a gross margin of more than 80% by 2024. The average revenue per patient in RPM was cUSD105 at the end of Q1’23, up c24% q/q. We expect this value to have increased further by next quarter, given that all connected patients are now under the new agreement for the extended service.

The general outlook is positive, with forecasted revenue for 2023 of cUSD7-10m and over 10,000 active patients in RPM by the end of 2023.

Net sales for the quarter came in at SEK11.6m, an improvement from last quarter by c30% (9.0). The reported gross margin of 79% is in line with Coala’s financial goals (80%).

Coala started to report KPIs on a monthly basis in September 2022, with a 10% m/m growth target in active patients in RPM. So far, Coala has delivered on its targets. The patient stock has grown from 2,600 to 3,700 (reported KPI for Mars 2023). We are encouraged by this solid performance, although we acknowledge it is from low numbers.

Coala reported 3,700 patients for Mars 2023, the same as in February. Throughout March, Coala has focused on transferring customers to its more profitable model, impacting sales efforts.

The average invoice value at the end of Q1 was USD110 per patient in RMP. In Q4’22, the average invoice value per patient was USD100. We expect the value from Q1’23 to have increased further by next quarter, given that all connected patients are now under the new agreement for the extended service. The number of clinics increased by five during Q1’23 and now stands at 33. With the increase in clinics during the quarter, we expect the patient base to ramp up fast during 2023, with a base of c5,500-6,500 patients by the end of Q2’23.

OPEX of SEK41.3m decreased by c18% from the previous quarter (cSEK50m). The decrease derives from substantial one-time expenditures, primarily related to regulatory concerns, that impacted OPEX in Q4’22. Cash flow from operating activities was -SEK31.3m. By the end of Q1’23, Coala Life held a SEK34.2m cash position.

Coala is currently investigating factoring solutions to finance account receivables. We have already considered this in our Q4’22 update and have accounted for a financing cost of c15% in our estimates and valuation. Coala currently has cSEK24m in account receivables on its balance sheets. If Coala were to utilise a factoring solution, the cash position from Q1’23 would significantly improve from cSEK34m to cSEK56m, which would be reassuring. We believe essential KPIs for investors to monitor are cash conversion, patient stock growth and ARR development. 

In total, 124,983,953 units, corresponding to approximately SEK63.7m or c64% of the issue, were subscribed for with and without preferential rights. 39,996,014 units, corresponding to cSEK20m or c20% of the issue, were subscribed for through the fulfilment of guarantee commitments. Coala will receive cSEK84m (before deduction of transaction-related costs), of which cSEK27m will be received through the set-off of debts and thus not be provided to the company in cash. In addition, Coala may receive an additional maximum cSEK14m–39m (before deduction of transaction-related costs) if all warrants issued in the rights issue are exercised for the subscription of new shares during the subscription period in September 2023.

We estimate Coala will increase its cash position by cSEK50m following the rights issue (after deduction for transaction costs and set-off of debts). In the “estimate” section of this report, we account for our estimates for the upcoming subscription of the warrants of series TO1.

On 24 March, Coala Life announced it had renegotiated agreements that included an additional c20% or 700 patients for its extended service for managed RPM in the US. It stated: “The company has now connected approximately 90% of the patients to the extended service, and this is in line with the plan to have all patients connected to the extended service during Q1. The extended service includes more extensive analysis and reporting. Even including a certain strengthening of the company's qualified workforce, the increase in revenue is expected to lead to increased net margins. The extended service is basically based on the same agreement as before but with a revised and extended price list.”

The Remote Patient Monitoring (RPM) market is rapidly expanding, and we believe that Coala holds the necessary platform to capitalise on this opportunity. Our optimism is expected to be reinforced each month as Coala discloses its monthly KPIs. The favourable outlook is underpinned by the swift expansion of clinics during Q1'23 and the positive trajectory in monthly earnings per patient, which rose from around USD85 to USD105 in the same quarter.

The cash position and lagging cash recognition are, however, concerning. If Coala fails to arrange a short-term financing solution for its working capital needs, another equity issue is likely unavoidable. We look forward to hear more from the company regarding the potential factoring solution and the terms connect to it. We have factored in a financing cost of c15% per year in our estimates and valuation for 23’e-24’e.

We have made e few minor adjustments to our near-term estimates, mainly affecting Q2’23, where we lowered our sales estimates by c5-8%. The tables below sums up our forecast changes and forecasts:

We value Coala Life using a DCF valuation based on different long-term sales growth and margin assumptions. In addition to this, we apply a relative peer valuation. We use a 13.5% WACC derived from the Redeye Rating model. Our fair value range is SEK0.3–SEK4.4, with a Base case of SEK1.3 per share.

Our Bull case aligns with Coala’s revenue projections for 2023-2024 and its financial targets for positive operating profits in 2024 (SEK250m in sales for 2024). Our Bear case also factors in another equity issue of SEK75m–100m. Suppose Coala fails to arrange a short-term financing solution for its working capital needs or fails to grow the stock of patients according to our estimates. In that case, another equity issue is likely unavoidable. The previous section outlines our detailed assumptions for near-term growth and profitability in our Base case. Assumptions for long-term growth and profitability in our Base case are summarised in the table below:

The market valuation of Coala Life is significantly lower than that of its peers; we use both SaaS and MedTech peers for our alternative valuation. We use FactSet consensus estimates for the peers and our estimates for Coala Life specifically. 2024 EV/Sales for Coala Life stands at 0.8x compared to the Saas peer group’s median at 2.6x. In relation to the Medtech peer group, the discrepancy is even larger, with the median EV/Sales multiple for 2024 at 7.7x.

We believe Coala Life should trade at a large discount because of its market cap, the lack of history for its new business model, and an improved track record on the equity market . However, we argue the discount currently assigned to Coala Life is too excessive. We expect this to contract as the company continues to deliver on its targets and the market begins to understand the case and the RPM market better. Further, we expect the discount to contract when Colas moves closer to break-even and can prove higher persistent revenue levels.