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OUR TAKE: Positive. WELL delivered another strong quarter of record results and increased revenue guidance for 2024, helped by stronger organic growth trends within its Canadian Clinics business. We continue to see WELL as a good defensive name (~97% of revenue is recurring or highly re-occurring) alongside its strong growth (organic +15% in 2023). We’ve increased our revenue estimates to the midpoint of guidance ($959M vs. $909M previously), with our Adj. EBITDA forecast relatively unchanged and pointing to an acceleration in growth at +12% y/y in 2024E vs. ~8.5% y/y in 2023. Our target moves to $6.00 (was $6.50) on a slightly lower EBITDA estimate and is still based on ~14.5x CY25E shareholder EBITDA.
KEY POINTS
Q4 benefits from CRH seasonality and one-time items alongside organic strength. Revenue of $231.2M was ahead of our $214.8M and the Street’s $219.3M. WELL’s Canadian Clinics business was up 31% y/y, helped by organic growth in Primary Care and in-quarter acquisition contributions from MCI OneHealth and the firm’s first Manitoba clinic, with MyHealth down 2.6% y/y facing a tough comparable (was also down q/q on seasonality). Relative to our estimates, Primary Care outperformance was a key source of the Q4 beat, helped by strong organic growth trends. For the year, Canadian Clinics EBITDA was $33M for a margin of 14.3%, which would have been higher excluding the impact of the MCI Ontario and Manitoba clinics, which are currently running at negative EBITDA margins. We estimate MyHealth margins in the ~20% range with Primary Care clinics at scale when optimized for lower opex/wages into the double digits (average 10% to 15%, best performers +20%). U.S. Patient Services benefited from seasonality at CRH (Q4 is the strongest quarter, unit beat our expectations), record results at Circle Medical (one-time billing true-up on services provided in prior quarters, which we were not modeling, leading to a beat), strength at WISP (record revenue, in line with our estimates), and contributions from Radar (provider staffing). Rounding out the quarter, SaaS and Technology Services revenues beat our estimate by ~30% (ahead of Street by ~16%) due to a rebound in its Cybersecurity/Data Protection business. Adj. EBITDA of $30.8M was in line versus consensus at $30.2M (we were at $31.9M) for a margin of 13.3%.
Revenue growth forecast increased in F24. Management increased revenue guidance for 2024 from “above $900M” to between $950M and $970M, reflecting the addition of the Manitoba Clinic, the divestiture of Intrahealth, and expectations of stronger organic growth (Canadian Clinics doing better and benefiting from WELL’s clinic absorption model). WELL anticipates Canadian Clinics accelerating from ~$230M in 2023 to +$300M in 2024, not including any M&A (management indicated a robust pipeline of ~50 clinics, one-third actionable under its absorption model). Within the U.S., CRH will benefit from the full-year inclusion of CarePlus, with Circle Medical poised to deliver growth of +30%. SaaS and Technology should see upside as the year progresses as WELL’s OceanMD contract with B.C. goes live (expected in 1H). We’ve updated our 2024 revenue forecast to $958.9M (prior $909M). We expect WELL to deliver increasing profitability in 2024, with our Adj. EBITDA estimate for the year at $126.7M for a margin of 13.2%. Although Q1 Adj. EBITDA is expected to be lower than Q4’s result, this is owing to seasonality in CRH (Q1 weak) and the impact of lower-margin clinics not yet optimized. WELL has identified a number of cost optimizations that will look to be realized starting in Q2 “in the millions”.
Historical price multiple calculations use FYE prices. All values in C$ unless otherwise indicated. Source: FactSet; company reports; Scotiabank GBM estimates.
Our updated forecast reflects higher revenue of $958.9M for F24E (prior $909M) ahead of higher F25E revenue of $1.0B (prior $0.98B). Our F2024E/25E adj. EBITDA estimates move lower reflecting higher opex assumptions.
Analyst | 437-991-3697
Scotia Capital Inc. - Canada
Associate Analyst | 416-863-2899
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