Notes from today's podcast. Bearing in mind his introductory comments and that Ryan Irvine and his crew look at over 4000 companies per year and only recommend about ten to their subscribers, this is a pretty positive report and might explain some of today's strength GLTA
Brennan answers a viewer question on Well Health Technologies (WELL:TSX) which provides omni-channel healthcare services, including primary care and allied health clinic operations (gastrointestinal, mental disorders, specialized care, diagnostic services, and telehealth services). We last reviewed the company and recommended listeners avoid the stock – Brennan let’s you know if our outlook has changed. Well Health Technologies (WELL:TSX)
Price: $3.84
Market Cap: $924 Million
Company Description:
Well Health provides omni-channel healthcare services, including primary care and allied health clinic operations (gastrointestinal, mental disorders, specialized care, diagnostic services, and telehealth services). The company also operates an electronic medical records platform; billing and revenue cycle management solutions; and cybersecurity protection and patient data privacy solutions.
Slide #2
The last time we included the stock on the podcast was back in 2021 when it traded at $7.50 per share. Since then, we have seen the stock pull-back to $2.56 in late 2022, but the stock had a strong 2023 bringing it back to the $4.00 range. Clients are somewhat familiar with WELL as the company acquired CRH Medical at $5.00 per share which was a stock that we had under coverage.
The company has operations in both the U.S. & Canada with over 530,000 quarterly visits in Canada and over 505,000 in the U.S.
Slide #3
Looking at some of the most recent updates:
- February 1, 2024 – WELL agreed to sell all of the issued and outstanding shares if its subsidiary Intrahealth Systems to HEALWELL AI for a total consideration of approximately $24.2 million. Furthermore, WELL completed the acquisition of HEALWELL’s performing clinical assets in Ontario. As a result of the transaction, WELL became a new control person of HEALWELL, holding between 22.7-32.7 million Shares (21%-27%) depending on whether WELL receives payment of the post-closing $5 million in Shares.
- Ryan is going to love this one – on December 7, 2023 – WELL announced that it was selected by the Vancouver Canucks as Official Medical Services Provider meaning WELL is now an integrated part of the Canucks medical team providing leading-edge diagnostic imaging, sports cardiology and pain management services.
- November 21, 2023 – WELL launched WELL AI Inbox Admin, an AI-powered system that creates efficient custom workflows to help optimize clinical operations and manage incoming fax documents. An initial pilot involving six WELL clinics has begun managing more than 16,000 faxes.
- October 26, 2023 – WELL’s Cubersecurity Business unit, Cycura, acquired Seekintoo, a provider of Cybersecurity services and Proack, a premier provider of offensive security assessments.
Slide #4
WELL’s revenue growth has been very strong driven by acquisitions and organic growth. The most recent financial results were for Q3 2023 ended September 30th, 2023, revenue was up to $204.5 million, an increase of 40%. This was driven by 27% increase in patient services revenue in Canada due to organic growth from expanding into Alberta. While U.S. Patient Services increased 52% driven primarily by the CarePlus Acquisition acquired in 2023.
Although the company has posted strong revenue growth, the company’s accounting EPS remains negative at a loss of ($0.03) per share, while Adjusted EBITDA was up 13% to $28.2 million.
Quickly looking at the valuations the stock trades at 17.2 times trailing adjusted earnings, 11.4 times trailing CFO, and with an EV/EBITDA of approximately 11.7 times.
Slide #5
As I just quoted the P/adj. earnings multiple, the company does provide an adjusted net income figure which was $12.8 million or $0.05 per share, which represents a decline of 11% year over year.
If we look at the adjustments that are made to net income, nothing looks too peculiar which they are adjusting out, but the company’s stock-based comp is certainly an impediment to the company reaching accounting profitability.
Slide #6
Looking at the balance sheet as of September 30, 2023, WELL had $45 million in cash and debt and leases were $404 million, providing a net debt & leases position of $359 million and a net debt-to-EBITDA multiple of 3.3 times. I believe most of their debt is floating, but they have 3-year interest rate swaps which they entered into last year which are locking in about $50 million of their debt with a rate of around 4.7%.
Slide #7
And not only has the company been taking on debt to fund their expansion, they have also issued shares quite aggressively as shown in the chart in my slideshow – with the company now up to about 250 million shares outstanding. I must remind our listeners that an acquisition growth strategy funded through issuing shares can be successful, but it is a much harder path to growing cash flow per share than simply recycling excess cash flow into acquisitions.
Slide #8
Looking at the company’s Q4 2023 update, the company announced that they expect positive EPS on both an adjusted and unadjusted basis and anticipate record quarterly revenue once again.
For 2023, WELL upgraded its guidance back in November to between $755-$765 million and is guiding toward $900 million in revenue in 2024 with sustained gains in Adjusted EBITDA and cash flow.
Slide #9
- WELL has shown great revenue growth over the past few years, with revenue of just $32.8 million in 2019, now up to over $700 million expected for FY2023 and $900 million expected in FY2024.
- The company’s astonishing growth has been primarily driven by acquisitions funded through share issuances and debt. Overall it is good to see that the company is producing cash flow which will help the company pay down its debt (which is on the high side currently) and hopefully reduce its reliance WELL’s reliance on issuing shares.
- Given the strong acquisition & organic growth the Valuation of 17x adjusted earnings, and around 11x P/CFO and EV/EBITDA, the business looks reasonable given its recent organic growth (30% Canada & U.S. Growth in Patient visits) – but it would be great to speak with management to get a better gauge on the trendline organic growth rate to help determine how reasonable those multiples really are.
- All-in-all, the company still has work to further progress into accounting earnings, reduce its debt load, and reduce its cadence of issuing shares. But if the company can begin to achieve consistent accounting and adjusted profitability and use internally generated cash flow to bolster growth, there could potentially be an “inflection point” in the business. But that is yet to be determined.