Zacks Small Cap Research – MGRM: Monogram’s Potential for Profitable Long-Term Growth Supports Price Target of $6.00. – Technologist

By Thomas Kerr, CFA

NASDAQ:MGRM

READ THE FULL MGRM RESEARCH REPORT

Monogram (NASDAQ:MGRM) reported 3rd quarter 2024 financial results on November 14th which were largely in line with expectations. Research and development expenses for the quarter ending September 30, 2024 were $2.2 million compared to $2.7 million in the prior year period. The R&D decrease was primarily due to the company moving into the verification and validation phase of its robot prototype. The move into the validation phase, which consisted largely of testing and documenting the system components and protocols led to decreases in prototype material and contractor services which are largely associated with the verification phase.

General & administrative expenses for the 3rd quarter were $1.1 million, which is comparable to the prior year period. Marketing and advertising expenses increased substantially to $1.8 million in the quarter compared to $32,330 in the prior year period. The increase was primarily due to the marketing campaign to support the Series D preferred Stock Offering. This capital raise process started in July 2024 and closed on October 2, 2024.

The company continues to operate a highly variable cost structure with 27 full-time employees working mostly in R&D and engineering. Other engineers are outsourced and can be used as needed on an adjustable basis.

Net loss for the quarter was ($5.0) million compared to a net loss of ($1.0) million in the prior year quarter. EPS was a loss of ($0.16) per share compared to a loss of ($0.03) per share in the 3^rd quarter of 2023. For the first nine months of 2024, operating cash flow was a use of cash of ($10.0) million. We expect the monthly burn rate to be approximately $1.1-$1.2 million for the remainder of 2024 and into 2025.

Cash and cash equivalents totaled $16.5 million as of September 30, 2024, compared to $13.6 million as of the end of 2023. During the first nine months of 2024, the company raised a total of $14.0 million in net proceeds from equity and preferred stock offerings. Working capital was approximately $16.0 million and total stockholders’ equity was $17.4 million.

Milestones

• Issue-specific meeting with the FDA by December 2024.
• Obtain regulatory clearance to conduct clinical trials in India with strategic partner Shalby Hospitals.
• Conduct OUS live-patient surgery trials and submit clinical trial data to FDA, with clinical trials expected to include 92 total knee replacement procedures with a 3-month clinical follow-up.
• Seek to obtain clearance for the mBôs™ TKA System.
• Continue exploring domestic relationships.

Valuation and Estimates

Monogram has the potential to deliver strong revenue growth and positive earnings over the next 10 years after commercialization of its robotic system and customized press-fit implants. We believe the company can generate average annual revenue growth in the range of 25%-40% over the next 10 years and improve margins to industry averages over time.

Our primary valuation tool utilizes a Discounted Cash Flow process. Under the scenario described above, our DCF based valuation target is approximately $6.00 per share. Our target price may be conservative as it utilizes a high discount rate of 15.0% due to the unpredictability of earnings, higher prevailing interest rates, and the timeline of commercialization of the company’s products in the U.S.

Our 2024 full year EPS estimate is a loss of ($0.45) and for 2025, the EPS estimate is ($0.43). We are conservative in our approach to revenue projections and expect no revenues in 2024 and $5.7 million for 2025.

A peer group of companies (NYSE:SYK, NYSE:ZBH, NYSE:SNN) are currently trading at approximately 4.25x sales on average, with the closest robotic competitor being SYK at 6.15x. This would create a relative value in the range of $4.75-$5.00 using Monogram’s estimated 2027 revenues and discounted back. Using Monogram’s closest competitor’s price/sales ratio, a long-term relative target value would be closer to $8.00.

Summary

We believe Monogram’s transformative product solution architecture that enables patient-optimized orthopedic implants at scale by linking 3D printing and robotics with advanced pre-operative imaging will provide a long-term platform for profitable growth.

The joint replacement addressable market size was approximately $22.3 billion in 2022 and is expected to grow to $38 billion by 2030 due to an aging population. Just achieving minimal levels of market share would produce significant revenues for the company.

Monogram has the potential to grow both revenues and earnings at very robust double-digit growth rates starting in 2025 if it is able to execute its commercialization plans. The company’s current stock price does not likely reflect that potential level of profitable growth going forward when commercialization becomes widespread, and we believe the stock to be significantly undervalued at this time. It’s also possible that Monogram would make an important acquisition candidate for medical device companies that do not have an advanced robotic offering.

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