Have the lowest target on the Street. GLTA
WELL HEALTH TECHNOLOGIES CORP.
On Track For 2023, Pursuing Growth
Our Conclusion
After Q2 earnings that included a 5% adj. EBITDA beat and improved
revenue guidance, WELL remains on track to deliver solid growth in 2023.
WELL is prepared to continue reinvesting in organic and acquired growth
opportunities, with a willingness to sacrifice margins in pursuit of near-term
growth opportunities. We have updated our model to reflect updated details
on the recent CarePlus and MCI clinical acquisitions, with material EBITDA
contribution not expected from either deal until 2024. We retain our
Outperformer rating, but adjust our price target from $7.50 to $6.50 as a
result of reductions to our 2024 adjusted EBITDA forecast, and to our target
EV/EBITDA multiple on the clinical and technology business, from 11x to
10x, to better reflect the declining margins.
Key Points
Reinvesting In Growth: WELL now expects revenue to fall in the upper end
of its 2023 revenue guidance range ($740MM–$760MM), with no change to
its 10%+ Adjusted EBITDA growth expectations. WELL remains committed
to investing all EBITDA and free cash generated in excess of the 10%
EBITDA growth target into both internal and acquired growth opportunities.
We expect management to take a similar approach to reinvestment in 2024,
and have adjusted our 2024 EBITDA growth forecast to reflect ~12% growth
over our 2023 forecast. As a result, our 2024 operating adjusted EBITDA
margin forecast declines from 16.3% to 14.7%. While we see reinvesting in
growth as a reasonable strategic approach to competition in Canada, recent
acquisitions (Primary care clinics, CarePlus) have been lower-margin
businesses that will likely make it difficult for WELL to return to the 20%
operating adjusted EBITDA margins seen in 2021.
CarePlus Acquisition: Management provided additional details on the
acquisition of CarePlus and its plans for integrating the business. Net of
CarePlus’ working capital, WELL paid approximately $32 million in cash for
CarePlus, and we expect the business to contribute about $100MM in annual
revenue given the increase to guidance announced at the time of the deal.
WELL is confident that it can realize synergies at CarePlus that will
eventually result in the business running at 10% EBITDA margins. Even at
10%, the margins will be dilutive to the overall CRH business, which has
historically averaged margins north of 30%. WELL expects that CarePlus’
radar staffing business can be expanded beyond its current anesthesia
scope and utilized across the broader U.S. business.
OceanMD Contract Details: OceanMD’s $38.5 million contract with the
province of B.C. has a five-year term, implying annual revenue approaching
$8 million, with contribution likely to start in 2024. The contract itself is not a
material difference maker relative to our 2024E revenue estimate of $883
million, but it does result in a $2.4 million increase to our SaaS & Technology
revenue forecast. We expect WELL to attempt to win similar contracts with
other provinces given recent success in Nova Scotia and B.C.