INVESTOR DAY HIGHLIGHTS; A ROADMAP TO HELP UNLOCK SHAREHOLDER VALUE
THE TD COWEN INSIGHT
The focus was on helping investors better understand its many lines of businesses, key growth opportunities, plans to drive stronger margins/profitability, and strategy to unlock value from its healthcare conglomerate-type structure. There were no major announcements but there are key upcoming catalysts, including a potential Wisp strategic review announcement in Q3/F24.
Impact: NEUTRAL
WELL hosted its first Investor Day yesterday. Key themes and takeaways include:
Looking to unlock value from sum-of-the-parts. Based on a "middle of the road" valuation for pure-play equivalents and current mark-to-market on its HEALWELL AI investment (~23% of WELL's market cap), WELL believes it is trading at a >C$1B discount to its sum- of-the-parts. It is looking to help surface more value from its various businesses (e.g., via the Circle/Wisp strategic reviews), which the market may not be fully recognizing given its healthcare conglomerate-type structure.
Wisp/Circle strategic process updates. WELL stated it is seeing strong interest/enthusiasm for both businesses, including interest from high-quality potential strategic buyers. An announcement for Wisp could come as early as Q3/F24, and late 2024 or into 2025 for Circle.
Disciplined capital allocation strategy focused on the Canadian clinic market. WELL
has successfully completed 80 transactions to-date, with none requiring a write-down. Its strong post-close integration process has allowed it to reduce its average effective purchase price multiple from ~11.1x Adj. EBITDA (at the time of acquisition) to ~8.3x through revenue growth and profitability gains. With ~1% market share in Canada, WELL believes it has a very attractive opportunity to further accretively consolidate the medical clinic landscape via acquisitions/absorptions.
Targeting stronger per share metrics. 2024 is expected to be a key inflection point in per share profitability growth, as earnouts from prior acquisitions roll off and WELL continues to increase profitability, helping reduce share dilution. WELL noted that over half (~1.7%) of the ~3% expected dilution in F2024 has already been realized in Q1/F24, with it now largely shifting to cash flow-funded acquisitions.
AI-driven efficiency and support. WELL's 3 AI-powered solutions (AI Voice, AI Decision Support, AI Inbox Admin) have materially improved clinical workflows/efficiency, with WELL planning to develop/introduce further AI-powered solutions to empower providers and improve healthcare outcomes.
High-growth and profitable Wisp and Circle generating good interest. Both Wisp and Circle continue to generate solid, profitable growth. Wisp has generated a ~30% CAGR in the last three years while also maintaining positive Adj. EBITDA. Its revenue run rate as of May 2024 is at ~$70mm and it is expected to get to ~$75mm by the end of the month. CEO Monica Cepak believes the company has strong path to drive continued strong growth and market share gains, with plans for the launch of new services and capabilities, including menopause treatment (2025), introduction of a monthly membership program, and launching a consumer-facing app (likely in 2025).
Meanwhile, Circle Medical has also established itself as one of the fastest growing U.S. digital primary care providers. The company currently has a revenue run rate of ~$95mm, with a 3-year growth CAGR of >140% and has also generated positive EBITDA in recent years. CEO George Favvas indicated his goal of reaching $1B in revenue (potentially in five years), a goal we think would likely be achieved through continued strong organic growth but also M&A, something that has not been a part of the story to date.
Both businesses are key in WELL's plans to help unlock value for shareholders, with the net proceeds from the sale of one or both businesses to be used to fund share buybacks and/or debt repayments. Management indicated that Wisp's strategic review started first and could have a related announcement as early as next quarter (Q3/F24). Meanwhile, Circle's process started more recently and given more business complexities (e.g., a wider payer universe vs. Wisp, which is cash pay), its process is expected to run longer with a related announcement not expected until late F2024 or into F2025.
In its presentation, WELL provided a sensitivity table based on C2024E revenue and the purchase price multiple to highlight what the value of each business could be worth under different assumptions. Interestingly, our forecasts for Wisp and Circle are (modestly) below the low end of the C2024E revenue in their analysis, with C$90mm for Wisp (TD: C$88.6mm) and C$130mm for Circle (TD: C$124.6mm).
While Circle does not have a great publicly traded peer, we note that Wisp's closest peer, Hims & Hers, currently trades at 4.2x EV/Revenue (C2024E). Based on a C$90mm in C2024E revenue (slightly above our forecast) and a 2.0x C2024E revenue multiple, a >50% discount to Hims & Hers, WELL estimates the net proceeds of a sale of Wisp would be ~$95.4mm or >20% above the value based on our sum-of-the-parts valuation used to derive our target price.
Solid capital allocation track record. WELL's revenue growth and profitability gains have allowed it to reduce the effective purchase price multiples from 11.1x Adj. EBITDA at acquisition to 8.3x currently, on average. In particular, for its Canadian primary care clinics, excluding its 2023 cohort, the company's effective multiple stands at ~3.7x (vs. 8.6x at the time of acquisition), with the decline in the purchase price multiple driven by both revenue growth of 23% and EBITDA growth of 131% post-close. Management also highlighted that its 2023 cohort of clinics is the largest and most capital efficient to date, details of which it looks to share soon.