CADE

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

CADE provides software solutions primarily to the healthcare industry with a focus on medical device manufacturers, and life science research companies.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

CADE, formerly known as BioSig Technologies, operates in the healthcare software sector, offering solutions focused primarily on medical device manufacturers and life science research companies. Its offerings include data acquisition, analysis, and visualization software tools designed to enhance efficiency and workflow in R&D, clinical trials, and medical device commercialization. The company aims to facilitate a more streamlined and cost-effective process for its clients, ultimately helping them bring new innovations to market more quickly.

  • Revenues Distribution: CADE’s revenue model primarily revolves around software licensing and recurring revenue from maintenance and subscription services. The medical device industry represents the core of its customer base, but it also serves life science research entities.

  • In their most recent Q1 2024 earnings call, CADE reported 85% of revenue came from software licenses, with the remainder coming from maintenance and other services. They have stated their revenue generation is seasonal and are expecting the second half of the year to be much higher than first half.

  • Industry Trends: The healthcare and life science industries are undergoing massive transformation driven by technological advancement, big data analytics, and increased focus on regulatory compliance. There is also an increasing demand for real-world evidence data from both the companies and regulatory bodies. CADE is positioned in the space where the need for specialized, regulated data gathering and analysis software is increasing, with a transition towards digitalized data collection and analysis in those regulated industries. The market is extremely competitive, however, with many different point solutions available, and the company has to show high reliability, ease of implementation, flexibility, and data integrity to make their customers chose them over their competition.
  • Margins: In Q1 2024, CADE’s gross margin was reported at 65%, a decent figure that highlights a good margin but also reveals room for improvement, and that shows that the costs for selling the licenses is high. In recent years, margins have been stable but the company has made efforts to streamline its operations and make more profit through its existing infrastructure. The company is yet not profitable but it’s in growth phase. Operating expenses are elevated as of right now because they are in high growth phase.

  • Competitive Landscape: The competitive landscape in this market is complex and varied. It includes both large multinational software companies with a strong position in the healthcare IT sector and small and nimble technology startups which specialize in niche applications. To be successful, the company needs to show high levels of data quality, easy to use solutions, a compelling value proposition and excellent customer support.

  • CADE’s management has stated that their market is very specific because of the requirements and regulatory scrutiny in the pharmaceutical and medical device industry, so they are competing with “specialized vendors” not big companies, although they have mentioned competition from a company that offers similar products in Europe, but their moat for US customers is that their clients do not want to undergo a revalidation of the software platform when it is installed. Their technology is also highly complex.

  • What Makes CADE Different: The company is heavily emphasizing their use of their specialized software to assist pharmaceutical companies, contract research organizations and medical device manufactures in obtaining real-world-evidence (RWE) data and using this data to bring products to market quicker and with better regulatory outcomes.

  • Recent Concerns/Controversies: CADE has had a history of being unprofitable. It has stated that its growth phase has kept its profitability low, and that they are continuing to invest in growing the business. Most recently, a class-action lawsuit has been filed against the company for allegedly issuing false statements and misleading investors about the technology and potential profitability of the company’s product offerings. The company is currently contesting this case.

  • During the Q1 2024 earnings call management was asked if the company was looking into potential revenue dilution. They stated, that based on current projections, they are not anticipating needing any further equity financing, as they have sufficient funds for at least the next 12 months.

Financials

  • Revenues: CADE generated $2.6 million of revenue in Q1 of 2024, and they stated that their revenue is highly seasonal with the second half of the year usually outperforming the first half.
  • Profitability: The company has been losing money in the last couple of years, but has decreased losses substantially in the most recent quarter (Q1 2024) as they reach scale.
  • In their most recent quarterly report, operating expenses were around $6.8 million versus revenue of $2.6 million. But these figures represent a substantial decrease in net losses when compared to prior quarters, where operating expenses were above $10-$11 million with very similar revenue. The reduction in net losses have been driven primarily by cost cutting and better financial controls.

  • Cash: CADE’s total cash as of March 31, 2024 was $17.6 million, as stated in the Q1 earnings call. The company’s cash runway is still above 12 months based on their current burn rate.

  • The company also had an additional capital infusion of $5 million from a private sale of common shares after March 31, 2024. This sale happened a few days before the recent earnings call, so it may be included in next quarter’s earnings.
  • Balance Sheet: CADE’s balance sheet reveals a decent amount of liquidity with $17.6 million in cash, and relatively low total liabilities. Total assets stand at $33 million vs $12 million in liabilities. However, the company relies heavily on share issuance to maintain its business and has had significant operating losses over the last few years, which may impact its ability to be viable for the long term if it doesn’t reach profitability soon.

Moat Rating: 2 / 5

CADE’s moat rating is a 2 out of 5, due to the following reasons:

  • Proprietary Software: CADE has developed specialized software that serves specific use cases in a highly regulated market, which, according to management, makes it harder to compete with for the clients. Having a “first mover” advantage can create a moat if it can’t be replicated.
  • Switching Costs: Switching costs are high in this industry, because changing the software they use in their workflow can cause long delays in getting approvals by regulators, as well as the time spent to train their personal on a new platform. This also gives pricing power to the company.
  • Lack of Scalability: CADE’s processes are not easily replicable and are dependent on high investment, which makes it harder for new competitors to join the game.

However, some important points weigh on the company’s overall moat rating:

  • Technological Disruption: Though CADE is focused on creating specialized software, there still are possibilities for new technologies or methods of operation to disrupt its offering.
  • Limited Brand Recognition: CADE has yet to establish a strong brand reputation outside of its core client base, where the brand has little value. The lack of a wide brand awareness puts the company in a more fragile state.
  • Competition: The company is competing in a highly competitive industry with well-established companies and many upstart companies, which make it hard to gain and maintain a large market share.

Risks to the Moat and Business Resilience

Several risks could erode CADE’s moat and negatively impact its business, including:

  • Technological Change: The rapid pace of technological change in software can swiftly render existing solutions obsolete. If a competitor develops a superior platform or a new process that makes the company’s current software irrelevant, then CADE could lose its competitive advantage and market share.
  • Competition: As the market for data analytics becomes more crowded and more companies launch similar solutions, CADE may face intense price pressure, making it harder to grow and potentially decrease revenues as margins drop.
  • Regulatory Changes: Changes to the regulatory framework within the healthcare and research industry, could make the company’s current software offering not relevant or useful for its customers, and might reduce adoption of its services. Also, more regulations could ease requirements and bring in new competitors in the niche market, thus decreasing the company’s moat.
  • Financial Health: If CADE fails to achieve profitability or runs low on cash, they might face issues with funding and might need to be acquired at an unattractive valuation or they might face the risk of failing to operate as a going concern.
  • Lawsuits: The pending class action lawsuit may become a substantial liability for the company, which can affect the market’s perception on the company and impact the intrinsic value of its stock.

Understandability Rating: 3 / 5

CADE’s business model is relatively straightforward to understand:

  • Software as a Service (SaaS): The business model of selling licenses and software services is not difficult to understand, even for those who do not have a deep background in software development or the healthcare industries.
  • Specific Market: The industry they are operating in - medical device industry, and life sciences- is specific, and some may be hard to understand without a strong background in said markets.
  • Valuation Metrics: Understanding all the financial aspects of the company is a bit complex, as it involves various elements including the company’s balance sheet, debt, and the various forms of revenue.
  • Most importantly, it relies on understanding what generates free cash flow in the business to determine future profitability, and if that is sustainable. This also includes understanding the underlying dynamics of the industry and how competitive advantages can be leveraged.

Balance Sheet Health: 4 / 5

CADE’s balance sheet currently appears to be moderately healthy:

  • Strong Cash Position: The current cash balance provides a nice runway to continue operations and invest in further growth. The recent stock sale has bolstered their cash position.
  • Low debt levels: It currently has very little debt, as it’s mostly financed through equity.
  • Historical Losses: The company has been reporting losses for the past few years, which puts pressure on management to turn around the business or seek further capital.

Overall, although it’s balance sheet is not currently under stress, the company must strive for profitability, or further issuance of shares may dilute current shareholders’ equity significantly.