CIBCHave a $6.50 target. GLTA
EQUITY RESEARCH
July 21, 2022 Flash Research
WELL HEALTH TECHNOLOGIES CORP.
Q2/22 Earnings Preview: Benefitting From Essential Services
Our Conclusion
We maintain our positive outlook on WELL’s essential healthcare offerings in
the current environment, as its practitioner enablement and primary care
services provide a stable source of recurring and re-occurring revenue. With
Q2 results, we are interested in segmented organic growth rates, updates on
margin performance at primary EBITDA sources MyHealth and CRH,
changes to the 2022 outlook, and view on capital allocation/use of proceeds
from the May equity raise in regards to acquisitions and share repurchases.
Key Points
Q2/22 Pre-Released Results Versus CIBCe: WELL’s pre-released Q2
results of >$130 million in revenue appear to be in line with our $130 million
estimate, with omni-channel services contributing $89 million and virtual
services $44 million. Our adjusted EBITDA forecast of $24 million (18.4%
margins) is also in keeping with WELL’s expectations of $23+ million. We are
forecasting adjusted EBITDA to shareholders of $17 million and free cash
flow of $11.5 million.
Providing An Essential Service: We view WELL’s combination of
practitioner enablement tools and primary care services as a defensive
option amidst the prospects of a worsening macroeconomic environment. We
have confidence in management’s current guidance of >$525 million in
revenue and approaching $100 million in adjusted operating EBITDA, given
the essential nature of the primary care and gastroenterology services
provided by both WELL and CRH.
Organic Growth A Focus: Organic growth was a bright spot in Q1 as Y/Y
organic growth of 15% led to a 5% lift to the full-year revenue outlook. We
expect that organic growth remained strong in Q2 given the resilient and
essential nature of WELL’s healthcare businesses. Omni-channel patient
visits in Q2 were up 7% sequentially and Circle Medical continues to grow
rapidly (up 400% Y/Y in Q2). WELL also noted that in the day following the
U.S. Supreme Court overturning Roe vs. Wade, women’s reproductive health
service WISP saw a 3,000% increase in its emergency contraceptive
category, and 60% Y/Y growth in asynchronous consultations in Q2.
Renewed Focus On Clinical Acquisitions: Following the $30 million equity
raise announced with Q1 earnings, WELL noted a renewed commitment to
acquiring Canadian primary care clinics. That process has already begun
with the June acquisition of INLIV in the Calgary area and investments in
two additional clinics in July. INLIV was acquired at ~2.5x TTM EBITDA,
highlighting the low-multiple acquisition opportunity that primary care clinics
provide. To support refocused efforts on rolling up the primary care space,
WELL formed a new legal entity to house its Canadian clinical businesses.
The new unit entity will include Primary Care, Allied Care and MyHealth. The
unit will have access to MyHealth’s existing credit facility at an interest rate of
SOFR/DCOR + 1.25%-3.25%. With Q2 results we will look for commentary
on the near-term strategy and pipeline for primary care acquisitions.