Our view: WELL will report Q3 earnings on 07 November (BMO). We forecast Q3/24 revenue of $247.7MM (cons.: $248.2MM) and adj. EBITDA of $32.1MM (cons.: $32.5MM). We believe focus will be on a) the ongoing integration and turnaround of the loss-making primary care clinics in Canada; b) updates on the strategic alternatives for Wisp and Circle Medical; c) the potential spinout of the WELL Provider Solutions (WPS) business; d) the company's M&A pipeline.
Key points:
Expecting strong y/y revenue growth but slower growth in adj. EBITDA.
We forecast Q3/24 revenue of $247.7MM (+21% y/y) and adj. EBITDA of $32.1MM (+14% y/y) vs. consensus revenue and adj. EBITDA of $248.2MM and $32.5MM respectively. We expect the loss-making CDN primary care clinics, acquired in H2/23 and 2024, to negatively influence adj. EBITDA in the near-term, although we expect WELL to successfully turnaround these clinics aided by the company's clinic transformation program. WELL aims to enhance operating margins by ~1,000 bps for the recent acquisitions (here).
Focus areas relating to operational performance: We believe the focus will be on a) updates concerning the integration and profitability trends at the acquired clinics; b) the cost optimization program; c) the company's M&A pipeline. In September, WELL had noted the CDN clinic acquisition & absorption pipeline included 5 signed LOIs representing $11.8M in revenues at 5% operating margins and 50+ clinics in pre-LOI review.
Updates related to the strategic review process. At the Q2 earnings, WELL management expected updates on the strategic review for Wisp (~53% ownership) in H2/24 and for Circle Medical (~58% ownership) in early 2025. We will look for updates on the timelines and potential valuation ranges for these assets that would be considered fair by the management in the event of a sale. Additionally, management announced a potential spinout of the WELL Provider Solutions (WPS) business, in which WELL intends to maintain a strong economic and voting majority. We will seek additional details on potential timelines and float of WPS.
2024 outlook: 2024 revenue guidance is $970-990MM (prior to the September acquisitions) vs. RBCe (~$985MM) and consensus (~$982MM). 2024 adj. EBITDA guidance is at the “upper end” of the $125–130MM (+10-15% y/y) range vs. RBCe ($127.0MM) and consensus ($127.5MM). FCF to shareholders guidance is ~$55MM (+30% y/y) vs. RBCe ($54.5MM).
Revising estimates; Reiterate Outperform rating. We have included the tuck-in acquisitions announced in September (~$17.8MM in annualized revenues) and have incorporated updated FX rates. We continue to believe the market under-appreciates the LT value creation opportunity in transforming CDN primary/ Dx care by leveraging tech/AI.