CIBC ReportEQUITY RESEARCH
November 10, 2021 Earnings Update
WELL HEALTH TECHNOLOGIES CORP.
Virtual Services Growth And Improving Margins Drive Q3 Beat
Our Conclusion
WELL reported a solid quarter with revenue 6.5% ahead of consensus
estimates and adjusted EBITDA 11.5% ahead of expectations. The strength was driven by WELL’s virtual services business, where patient enablement and telehealth offerings continue to see solid growth. WELL’s businesses saw 14% organic growth over the last year, as the mix of omni-channel patient care and virtual services delivered growth in an uncertain environment. We retain our Outperformer rating and increase our price target from $10.50 to $11.00 as we increase our virtual services revenue estimate.
Key Points
Q3 Results: Combined Primary Clinical and MyHealth revenues of $32.6 million were in line with our estimate of $33.7 million and up 238% Y/Y. CRH revenue of $48.7 million was also in line with our expectation of $48.1 million. Virtual services revenue of $18 million was ahead of our estimate of $12.8 million, and up 597% Y/Y. Of Q3 revenue, 82% was from clinical services, up from 80% in the prior quarter given the contribution from MyHealth Partners,
offset somewhat by the strong virtual services growth.
Organic Growth And Tuck-ins A Focus: After completing the major
platform acquisitions of CRH Medical and MyHealth partners in 2021,
management appears to be shifting its focus to tuck-in acquisitions and
driving organic growth within the existing businesses. WELL’s portfolio of businesses saw 14% organic growth over the last 12 months, boosted by virtual services. We expect the EBITDA margins in the quarter of ~22% to be a near-term peak, with investments in growth bringing margins closer to 20% in the near term. Management noted that it was targeting a steady state of over 30% combined adjusted EBITDA margins and organic growth, implying a 10% combined overall organic growth rate.
MyHealth Partners: Q3 included 2.5 months of contribution from the
MyHealth Partners acquisition. MyHealth revenues were $19.2 million in the quarter, with EBITDA margins of 20%. Both the revenue contribution and EBITDA margins were in line with our expectations, and MyHealth appears to be operating effectively within the WELL Health business.
Circle Medical Continues To Grow: WELL’s majority-owned U.S. business Circle Medical is seeing sustained momentum on the strength of its telehealth offering. Of Circle Medical’s revenue, 95% is generated through telehealth, and telehealth demand has increased Circle’s ARR by 380% from US$5 million to US$24 million in the year that WELL has been a majority owner; it is now expected to be available in 46 states by the end of the year. Circle Medical has been an excellent growth story for WELL and supports the strategy of targeting tuck-in acquisitions with high growth potential.