WELL Health Technologies Corp T.WELL

Dilution

[TheWolfOfWLU]

Throughout the past few months I have read many reports concerned about short term dilution affecting long term growth. Expectations seemed to be that more shares would need to be issued, while in oversold territory, in order to keep creditors satisfied as interest rates rise.

My expectation now is that Well's strong cash inflows and the return of share buybacks will prove to the market that short term dilution is simply not a concern; the market has this company pegged as much higher risk than it actually is. Well is far less leveraged than the majority of it's competitors, but still manages to outpace the industry's average growth by a wide margin. 

Thoughts?

[monty613]

this company is well capitalized - they won't need to issue shares to satisfy their debt payments at all. both CRH and MyHealth were financed by cheap senior secured bank debt. the banks lent them only a fraction of the purchase price, with the rest funded with equity and options/time based earnouts. WELL just did a debenture raise which would probably cover all the time based earnouts and

[bandit69]

I wasn't indicating they would default but rising debt servicing costs eat in to earnings for any entity.  LIBOR and CDOr are not less than the FED rate so if the FED raises the expected 4 times or more this year then all debt (cost of money) around the world is affected.  Typically LIBOR is FED rate plus a small risk premium.  The only way anyone is protected from CB overnight

[monty613]

agreed they are not immune to interest rate increases and too much debt / too much expensive debt is not a good thing. I'm with you. I just don't think they are over-leveraged and any incremental interest rate expenses can be offset by growth, coupled with the fact that some of the debt is also on reducing repayment on a very short amortization (4-5 years). they are paying down the

[hrgoyal]

My 2 cents on interest rate: there was 3.1M interest paid in Q3. The existing prime rate is 2.45%. If fed increase 0.25% from March to 1.0% by Dec, average increase for 2022 will b 0.5%. So prime rate will go up 2.95% . This is 20% more interest, so 0.6M per Q IF all interest payment is on floating rate basis. For 100M revenue, 0.6M additional interest should not b a problem. 

[TheWolfOfWLU]

All great points, so thank you all. Remember, as they are allocating cash to buy back shares, rather than paying down debts, it is because insiders expect Well's return on equity to outperform the debt yield in the short to medium term. The management team is very well versed in allocating capital, as their track record indicates.

[Capharnaum]

They paid $2.07M in interest on loans in Q3 (Note 7) and they had $311M in debt as of Sept 30 2021, which makes for an average rate of 2.7%. If rates increase 1%, then that would mean $0.8M each quarter. Considering their net operations (including working capital changes) resulted in $8.1M of cash for Q3, that extra interest is easily covered by operations.