WELL Health Technologies Corp T.WELL.DB

Re-post of Scotia-Easier read of text portion?

[SunsetGrill]

Multiple Opportunities For Upside

OUR TAKE: Positive. WELL delivered record Q3 results and increased its 2024 profit guidance, helped by organic revenue growth of 23%. While we continue to see WELL as a good defensive name (~98% of revenue is recurring or highly reoccurring) with strong growth, we also like the optionality on several potential catalysts. WELL’s M&A pipeline within Canadian Clinics is increasing (majority of current 17 signed LOIs is in Canada), and at a revenue current run rate ~$400M vs. a TAM management estimates at ~$40B, there’s a lot of run way (long-term guide is to 10x this business to $4B over 10 years). Strategic reviews for both Wisp and Circle Medical are progressing well, which could drive a strong value unlock opportunity in the coming quarters. Management hopes to provide an update on Wisp by year end / or new year, with progress on Circle Medical’s strategic review likely to be discussed in Q1/25. Meanwhile, the company continues to explore the potential of a spin-out of WELL Provider Services, its SaaS business that is approaching $70M run rate revenue (including two pending LOIs) at a “Rule-of-40” profile.

KEY POINTS

Q3 beats on US strength. Revenue of $251.7M was ahead of our $249.0M (Street $247.8M), mainly due to strength in U.S. Patient Services. Revenue for the quarter increased 23% y/y, while adj. EBITDA was up +16% to $32.7M (vs. our $32.8M, Street $32.0M). Adj. EBITDA margin was 13.0% vs. the Street at 12.9% and our 13.2%. In Canada, revenue of $78.0M (+35% y/y) compared with our $77.5M, reflecting organic growth of 22% y/y. Primary Services revenue of $47.8M (we were at $46.6M) benefited from strength in patient visits, with WELL Health Diagnostic Centres (formerly MyHealth) revenue at $30.2M (+6% y/y) vs. our $30.9M. Canadian Patient Services EBITDA was $9.7M (+8% y/y) vs. $9.0M in Q2. In the U.S., Patient Services $158.2M (+21% y/y) was 3% above our estimates, reflecting 25% organic growth. CRH and Provider Staffing (CarePlus) outperformed relative to our estimates ($94.7M vs. our $92.5M). Circle Medical had another excellent quarter (+61% y/y) with revenue of $36.7M (we were at $35.3M), driven by patient visits increases of 51% y/y, while Wisp was also ahead of expectations at $26.9M vs. our $26.0M. US-based EBITDA of $24.1M (+15% y/y) was up slightly vs. $23.2M in Q2. For SaaS & Technology Services, revenue of $15.6M (-2% y/y) was below our $17.7M, generating adj. EBITDA of $4.4M (+37% y/y) vs. $4.0M in Q2.

Thoughts on Q4. For Circle, following 46% revenue growth YTD, management is anticipating a slight cool off in growth in Q4 due to the impact of some retooling of workflow software to support regulatory compliance requirements. On the other hand, WELL is expecting another record quarter for Wisp in Q4 helped by annual holiday promotions and new GLP offerings, while profits should benefit from a pull back on marketing spend. For both Wisp and Circle, the company reiterated its guidance that each unit will deliver +5% adj. EBITDA margins for the full year 2024. For CRH, management expects to see some impacts to revenue related to hurricane events in the Q (~$500K for Helene, ~$1.0M to $1.5M for Milton), though we still expect seasonality to help the unit deliver q/q growth (also in Radar). Furthermore, WELL is expected to be able to makeup the lost revenue from CRH via strong organic growth and inorganic growth in other parts of its business.

F24 revenue outlook increased again. Management increased revenue guidance to $985M to $995M from $970M to $990M to reflect organic strength across its business, in addition to the closing of three primary care clinics in BC and four diagnostic clinics in Alberta (combined annualized revenue for all assets ~$17M). While Adj. EBITDA outlook was unchanged (calls for profits to be in the “upper half” of $125M to $130M), management indicated that this was due to the negative weather impacts within CRH. With respect to cash flow goals, WELL reaffirmed its outlook for shareholder free cash flow (FCFA2S) of ~$55M in 2024, though the company now notes that this is before considerations for the potential impact of increases in capex in Q4, and the timing of tax payments. We model FCFA2S at $55.6M.

Exhibit 1 - WELL Health Q3 Results Summary

Exhibit 2 - Revised Annual Estimates - Annual Financial Summary

Source: Company reports; Scotiabank GBM estimates.

Exhibit 3 - Comparable Company Valuation