CIBCEQUITY RESEARCH
September 10, 2024 Flash Research
WELL HEALTH TECHNOLOGIES CORP.
Canadian Clinical Update Highlights The Opportunity
Our Conclusion
WELL’s Canadian clinical business has emerged as the most interesting
element of the WELL story, with today’s update highlighting a large
acquisition pipeline and an attractive return profile when executing on that
pipeline. In the last 10 days, WELL has acquired three new primary care
clinics and four diagnostic imaging clinics, and expects those clinics to
contribute ~$18MM in revenue at pre-synergy operating margins of 7%.
Notably, WELL aims to improve operating margins at those clinics by 1000
bps over the next 1-2 years, leading to a post-synergy multiple of ~2.3x
EBITDA. WELL specifically noted that it continues to seek liquidity from
certain U.S. assets as it sees superior returns on invested capital within the
Canadian clinical space, which WELL notes are currently generating a pre-
tax unlevered ROIC (using Adj. EBITDA) of 14%.
Key Highlights
Acquisition of BC & Alberta Clinics: WELL announced that the company
has closed the acquisition of three primary care clinics in BC, and executed
definitive agreements to acquire four diagnostic imagining clinics in Alberta.
Combined, the BC clinics and Alberta diagnostic clinics are expected to
generate revenues of $17.8MM and are currently operating at 7% EBITDA
margins ($1.25M). Inclusive of ~$2MM in earnouts, WELL paid ~$7MM (5.6x
EBITDA) for the clinics, with the upfront portion financed from cash on hand.
Management is targeting 1000 bps of margin improvement (~17% EBITDA
margins) within the next 1-2 years. If WELL realizes those synergies it will
have paid ~2.3x EBITDA, highlighting the value that can created by its clinic
transformation team.
Absorption Program Update: WELL’s absorption program looks to be
performing well as the 10 clinics absorbed from Shoppers Drug Mart in June
2024 are now all operating profitably (negative EBITDA pre-acquisition). The
MCI and Manitoba clinics acquired in 2023 were similarly unprofitable at the
time of acquisition and are now operating at mid-single-digit EBITDA
margins, slightly above the current margins of the Shoppers’ clinics. Early
stage margin improvement opportunities such as rightsizing headcount and
optimizing billing look to be repeatable across multiple opportunities. WELL’s
acquisition and absorption pipeline currently includes five signed LOIs
representing $11.8MM in revenue at 5% operating margins. The company has 50 clinics in its longer-term pipeline (pre-LOI) and has doubled its dedicated clinical transformation team from three to six since the start of last year.
Canadian Clinic Business ROIC: WELL also disclosed the company’s pre-
tax unlevered historical ROIC, which is reported at 14% for total Canadian
clinics, 11% for WELL Health Diagnostics, and 25% for Primary Care.
Management expects ROIC to continue to improve over time, driven by tuck-
in acquisitions, organic growth and transformation efforts leveraging AI tools.