WELL Health Technologies Corp T.WELL

Scotia Outperform $6.00

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OUR TAKE: Positive. WELL delivered record Q1 results and increased its F24E guidance, helped by organic growth in Q1 of 13.5% that included 3.5% contributions from clinic absorptions. We continue to see WELL as a good defensive name (~98% of revenue is recurring or highly re-occurring) with strong growth and see the firm’s increased focus on profitability and efficiency as positive (targeting shareholder FCF $55M in F24E up 30% y/y along with reduced share dilution / SBC). Our revenue estimate moves to $973.7M (prior $958.5M) on the better organic trends and the inclusion of recent absorption clinics (April 16th) with our adj. EBITDA margins relatively unchanged.

KEY POINTS

Q1 beats on better than expected U.S./Canada patient services. Revenue of $231.6M was ahead of our $223.2M and the Street’s $227.3M. Canadian Clinics revenue was up ~49% y/y, with the beat vs. our estimates largely reflecting Primary Clinics, which had revenues of $45.3M, up 83% y/y vs. our $40.8M. Primary Clinics revenues benefited from acquisitions, including MCI Ontario, the Alberta-based clinics, and the Manitoba clinic alongside 35% organic growth (includes clinic absorption impacts). MyHealth revenue was up ~17% y/y to $30.4M in line with our estimate, reflecting organic growth which benefited from one-time positive reimbursements. In the US, CRH revenues were up 7.4% y/y reflecting a seasonally weaker Q1 as well as a tough y/y comp given higher one-time revenue in Q1/23. Provider Staffing, which came from CarePlus, contributed $28.9M in revenues. Circle Medical grew 24% y/y to $28.7M (in line vs. our estimates) driven by higher patient volumes, with the unit expected to reach positive EBITDA this year. WISP saw revenues up 13% in Q1 and was adj. EBITDA positive. Rounding out the quarter, SaaS and Tech. Services revenues came in lower at $15.4M (down 20% y/y) vs. our $17.6M, driven by lower one-time cybersecurity software sales and the divestiture of Intrahealth (Feb. 1). Adj. EBITDA of $28.3M was slightly ahead of consensus at $27.7M (we were at $27.9M) for margins of 12.2%.

F24 guidance increased. Management increased revenue guidance from $950M to $970M to $960M to $980M ($10M at the midpoint), largely reflecting the 10 new clinics that were acquired from Shoppers Drug Mart in Ontario and BC on April 16th under the firm’s absorption model. New guidance points on the call included WISP revenue expected to reach ~$100M and Circle Medical ~US$100 this year. Our F24 revenue forecast has been updated to ~$974M (prior $958.5M) reflecting higher Canadian Patient services revenues, mainly from the addition of absorption clinics and higher WISP / Circle Medical revenues, partially offset by lower SaaS & Technology Services revenues (moves to ~$71M vs. ~$79M, mainly reflecting the divestiture of Intrahealth). Our F24E adj. EBITDA estimate is now $128M, in line with guidance pointing to the “upper end” of $125M to $130M. Additionally, WELL introduced Shareholder FCF guidance of $55M in F24 (up 30% y/y; our estimate is $62M).