Scotia Outperform $6.00
Strong 1H, Expecting Even Better Trends in 2H
OUR TAKE: Positive. WELL delivered record Q2 results and increased its F24E guidance, helped by organic growth of 21% that included 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 (continues to target shareholder FCF $55M in F24E up 30% y/y along with reduced share dilution / SBC). Maintain Sector Outperform.
KEY POINTS
Q2 beats on US strength. Revenue of $243.1M was ahead of our $236.4M (Street $236.6M). Canadian Primary Clinics revenue benefitted from organic growth in patient visits (+11.4% y/y ex-absorption clinics), ~3x traditional rates in Canada (i.e. 3% to 4% range) per management estimates. WELL Health Diagnostic Centres (formerly MyHealth) saw seasonal strength, with revenue +6.6% helped by organic growth from the expansion of services as well as healthcare providers. In the US, CRH and Provider Staffing (CarePlus) outperformed relative to our estimates ($93.3M vs. our $87.9M) despite seasonal softness. Circle Medical had an outstanding quarter up +52.7% y/y to $32.0M (we were at $30.7M), driven by strong patient acquisitions and the expansion of its provider network (now at 547 medical providers), generating Adj. EBITDA +$2.7M vs. <$500K in Q1. Meanwhile, WISP was up +26.9% and was also Adj. EBITDA positive ($814K). Rounding out the quarter, SaaS and Technology Services revenue was relatively in line, posting growth +27.2% (would have been even stronger ex-Intrahealth impacts, sold on Feb. 1). Management noted that this segment ex-Cybersecurity (i.e. the SaaS business only) generated revenue +$10M at 86% gross margins / 30% Adj. EBITDA margins, with organic growth +24% y/y. WELL indicated plans to spin out the SaaS and services business as a controlled public company, with the timing potentially in early 2025. WELL’s consolidated Adj. EBITDA of $30.9M was a touch above our $29.4M (street $29.5M) for a margin of 12.7%.