Taking a closer look at Q4 – strong performance in all businesses
WELL reported revenues ahead of estimates with outperformance in all groups. WELL reported Q4/23 revenues of $231.2MM (+13% q/q; +48% y/y), ~4.7% above RBCe ($220.8MM) and ~5.5% above consensus ($219.3MM). The revenue strength vs. RBCe and consensus was led by better-than-expected performance across all segments. CDN Patient Services revenue of $67.6MM (+31% y/y) was ~0.5% ahead of RBCe ($67.2MM) and ~2.5% ahead of consensus ($66.0MM). USA Patient Services revenue of $143.5MM (+55% y/y) was ~5.6% ahead of RBCe ($135.9MM) and ~6.3% ahead of consensus ($135.1MM). SaaS and Technology revenue of $20.2MM (+60% y/y) was ~14.5% ahead of RBCe ($17.6MM) and ~15.9% ahead of consensus. WELL reported +15% y/y organic growth in 2023 (+36% y/y reported growth), which includes clinics added to its network under the clinic absorption program for nominal consideration.
CDN Patient Services opportunity: For 2024, management expects revenues from Canadian Clinics to be more than $300MM up from $230MM in 2023. Over the medium to long term, management expects to grow the CDN Patient Services business from $300MM+ (2024E) in revenues to $1B+ in revenues. WELL aspires to take 10% of market share over time (vs. <1% today). Management noted that the 2024 plan features less capital allocation and M&A activity and more emphasis on organic growth (including the clinic absorption program). Nonetheless, management expects to complete several tuck-in acquisitions this year, which should enable it to achieve $1B in run-rate revenues by the end of FY24. The company’s current pipeline of new clinic opportunities is ~50 clinics, of which a third are under the absorption model (minimal acquisition costs) and the remaining are under its regular M&A program.
In diagnostic services, management noted several tailwinds a) WELL’s participation in the expansion of PET scanning for prostate cancer screening; b) Women over the age of 40 in Ontario to be allowed self-referral for mammograms under the Ontario Breast Screening Program (expected in fall of 2024); c) Ontario's Bill 60, which allows out-of-hospital facilities to perform publicly-funded surgeries and diagnostic procedures including MRI and CT scans (call for new applications expected in the coming months). Management also noted that acquisition multiples for specialized care and diagnostic clinics have started to moderate and as such, management anticipates expanding its diagnostic capabilities into more provinces in 2024.
In our view, the market is currently underappreciating the long-term value creation opportunity in transforming CDN primary/ Dx care, as underscored by our strong forecasted ROIC and IRR metrics for recent acquisitions. Previously, WELL has added >500bps in EBITDA margin, on average, to primary/Dx clinics post purchase, leading to strong ROIC metrics. In fact, our work suggests the recent MCI/Manitoba clinic acquisitions could generate ROIC of >30% in aggregate over time and an IRR of ~30%.
Virtual care expansion at Circle Medical. Management noted that since the beginning of 2024, Circle Medical has launched virtual care in four new states: Georgia, Michigan, North Carolina, and Ohio, and is expected to launch in an additional four states by the end of Q1/24, bringing the total number of active states to 38. Management expects revenues at Circle Medical to grow over 30% y/y in 2024 (vs. +39% y/y growth in 2023) while maintaining positive EBITDA. The company is increasing its investments in R&D at Circle Medical and expects to double the head count of technical hires in 2024 with a focus on its Montreal facility.
Cost optimization at Wisp. Management noted that Wisp has successfully renegotiated pricing with its pharmacy partners and expects more cost-effective nurse practitioner hiring on the Provider team. Wisp launched 10 new products in 2023 and expects to launch its new fertility offering shortly.