WELL Health Technologies Corp.
(WELL-T) C$4.14
Highlights from Investor Meetings: Driving to $1B in Revenue
Event
Last week, we hosted investor meetings with CEO Hamed Shahbazi.
Impact: NEUTRAL
U.S. expected to continue to drive organic growth...WELL's target of exiting F2023 at a revenue run-rate approaching $700mm is primarily driven by organic growth, mostly from Circle Medical and Wisp (>US$100mm in ARR combined, up 124% y/y organically and each generating positive EBITDA margins, as of September 30, 2022). Mr. Shahbazi indicated that both businesses continue to deliver very strong and profitable organic growth. WELL's F2023 exit revenue run- rate target implies total and organic revenue growth in the low double-digits while consensus implies <10% growth, both notably below the 15-20% organic growth YTD.
Despite the increased M&A interest in (large) primary care businesses, WELL is taking a more measured approach to expanding its U.S. clinic footprint. It expects to have 10-15 clinics by mid-year, with an increasing focus on multi-disciplinary practices that combines its primary and specialty care expertise from Circle, Wisp, and CRH.
...and profitability. We estimate >75% of Adjusted EBITDA is generated in its U.S. business, predominately from CRH. Adjusted EBITDA margins have moderated from the ~22% range in H2/F21 to the high teens in F2022, driven by the very high organic growth but lower margin Circle/Wisp businesses, with a continued moderation expected in the coming quarters, as Circle/Wisp further increase their relative revenue contribution. However, when Circle/Wisp's organic growth rates normalize, management expects Adjusted EBITDA margins to return to the >20% range with the Rule of 30 still being an achievable target.
M&A strategy focused on Canadian clinics. To achieve WELL's target of hitting a $1B revenue run-rate in three years (or earlier), we believe M&A activity will need to significantly increase from the 1-2 clinic acquisitions/quarter baked into its F2023 exit revenue run-rate target. WELL is focused on building on its significant lead as Canada's largest privately-held owner/operator of outpatient medical clinics, with it continuing to see attractive opportunities to consolidate the very fragmented market. WELL is targeting 20-30 clinic acquisitions/year, funded by its solid and improving FCF, focused on tuck-in deals with a high bar set for larger deals like CRH and MyHealth.