CIBC Raise TargetEQUITY RESEARCH
August 12, 2022 Earnings Update
WELL HEALTH TECHNOLOGIES CORP.
Accelerating Growth Highlights The Value In Healthcare
Our Conclusion
WELL delivered another strong quarter that was headlined by 21% organic
growth, with strength across all of its business units. Improving demand in
the face of rising rates and inflationary pressure emphasizes the value of
essential healthcare services. Virtual services continue to be a standout, with
Circle Medical and WISP both generating profitable Y/Y growth by focusing
on specific healthcare niches. Q2 is a seasonally strong quarter for the
Primary Care and MyHealth businesses before a weaker Q3 in the summer
months, but a seasonally stronger second half at CRH should provide some
balance. We retain our Outperformer rating and increase our price target
from $6.50 to $7.50 as we increase our revenue estimates.
Key Points
Virtual Services Drive Accelerating Organic Growth: WELL reported 21%
organic growth in Q2, up from 15% in Q1/22. Virtual Services were the
primary driver, with organic growth of over 100% in the quarter. Circle
Medical continues to expand rapidly across the U.S, while WISP and Tia
Health also saw double-digit Y/Y growth. Cybersecurity revenue, while lumpy
by nature, was up over 100% Y/Y while the Ocean product grew 65%+.
Organic growth in the typically slower-growing primary care business was
also healthy in a seasonally strong Q2, growing at 21% as
membership-driven executive health, core primary care clinics, and allied
care clinics all performed well.
Healthcare Demand Unaffected By Macroeconomic Overhang: Results in
the quarter emphasized the value of a network of healthcare assets in an
uncertain macroeconomic environment. Strong organic growth and limited
pressure (-40 bps) on Y/Y adjusted EBITDA give management the ability to
invest in growth initiatives rather than pivoting towards cost savings and cuts.
WELL’s business is not entirely immune from inflationary cost pressures, and
we do expect some margin compression in the third quarter but generally
expect that pressure to be short lived.
Thoughts On Competition: The tech-enabled healthcare landscape has
undergone notable changes in recent months with the TELUS Health/
LifeWorks and Amazon/One Medical deals. WELL is not heavily exposed to
the deals given its focus on practitioner enablement rather than B2B
healthcare delivery. In the B2C telemedicine space, we see WELL’s hybrid
delivery model in Canada as a differentiator and expect WELL to follow a
similar approach in the U.S. with Circle Medical by opening physical clinics,
potentially piggybacking on the existing CRH physical footprint.
Capital Allocation: Management continues to focus its acquisition efforts on
primary care clinics as valuations remain depressed in the wake of the
pandemic. Given the relatively small investments required for the
acquisitions, we view the focus on primary care as an attractive use of
capital.