WELL Health Technologies Corp T.WELL

TD

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HEALTHCARE SERVICES/TECH Q3/F24 PREVIEW: A BUSY FEW MONTHS AHEAD

THE TD COWEN INSIGHT

WELL remains our Top Pick. We believe it is poised to deliver another beat (and possible raise) with continued strong organic growth and rebounding margins. Wisp/Circle strategic review updates will be a focus. We expect another solid quarter from DNTL that should help sustain its >25% rally post-Q2 release. We think LSPK's growth/leverage issues will persist while its term loan maturity looms.

WELL Health (WELL-T; BUY; C$8.00 target price) - Our C$247.1mm revenue estimate is in-line with consensus and implies another quarter of solid growth (~21% y/y), which we expect will continue to be driven by solid double-digit organic growth and augmented by its clinic roll-up strategy.

Our Adjusted EBITDA forecast of C$32.6mm is also in-line with consensus and implies a continued rebound in margins. WELL should continue to benefit from its clinic transformation efforts at the once money-losing Manitoba Clinic, MCI Ontario clinics, and Shoppers Drug Mart clinics, which were all profitable as of early September. We expect Adjusted EBITDA margins to approach 14% exiting F2024.

We also expect to hear updates on the Wisp/Circle strategic reviews, with an announcement for Wisp expected before year-end and for Circle in early 2025.

There is likely to be an update on the potential spin-out of WELL's Provider Solutions (WPS) business, which is planned for H1/F25. We understand the WPS M&A pipeline has grown due to increased inbound interest following the spin-out announcement last quarter, and includes some larger deals within its core offerings (QHR/Accuro?). It has also been making some key strategic hires.

WELL HEALTH TECHNOLOGIES

Expecting continued solid double-digit organic growth, complemented by clinic acquisitions/absorptions. We are forecasting Q3/F24 revenue of C$247.1mm, up ~21% y/y and in-line with consensus of C$248.1mm. We expect continued strong double-digit organic growth (~21% y/y in Q2; ~16% y/y without clinic absorptions), driven primarily by Circle (65% y/y organic growth in July) and Wisp (>30% y/y organic growth in July), with key clinic acquisition/absorptions (e.g., Manitoba Clinic, 10 Shoppers Drug Mart clinics, MCI Ontario clinics) over the last year also helping drive overall growth.

WELL also acquired at least three clinics in BC last month and agreed to acquire four diagnostic imaging clinics in Alberta (details here). These businesses have combined annual revenue of ~$17.8mm and ~7% operating margins.

Margins should continue rebounding. Our Adjusted EBITDA forecast of C$32.6mm is in- line with consensus and implies ~13.2% margins. Despite the rapid growth at Circle/Wisp, Adjusted EBITDA margins began to rebound last quarter (12.7% vs. 12.2% in Q1/F24), as WELL benefited in particular from the strengthening work at the once money-losing Manitoba Clinic, MCI Ontario clinics, and Shoppers Drug Mart clinics, which were all profitable as of early September. We expect Adjusted EBITDA margins to approach 14% exiting F2024.