WELL Health Technologies Corp WHTCF

Scotia (AND BUTT) SAY - ANOTHER STRONG QTR (Post c.call)

[SunsetGrill]

OUR TAKE: Positive. WELL delivered another strong quarter of record results, while announcing a meaningful win with the province of BC for its Ocean eReferral business (contract worth ~$40M over 5 years). We continue to see WELL as a good defensive name (~98% of revenue recurring or highly re-occurring) alongside strong growth (organic +15% in H1). We see compelling value at current levels with the stock trading at 12.9x C2024 EBITDA. Multiple upside opportunities exist to WELL’s updated 2023 guidance (expected to be above the midpoint of its range of $740M to $760M), including better organic growth trends and M&A. Maintain Sector Outperform.

KEY POINTS

Strong Q2 trends. Revenue was up double-digits on an organic basis (+15% y/y in H1), with strength in both the U.S. (Circle Medical ~35% y/y and WISP ~45% y/y for ~40% of US mix) and in Canada (record results in Canadian Patient Services including MyHealth + Clinics). SaaS and Technology was softer qoq at $13.3M vs. $19.4M, but this follows on the best quarter ever in Cybersecurity, which is a lumpier business. Adj. EBITDA was a record $27.8M in the seasonally lighter Q2, reflecting continued operating leverage in the model and management’s focus on disciplined growth. WELL continues to advance its physical presence in the US, bringing its total count to 27 from 23 in Q1 which will help the company in delivering more in-person visits.

2023 revenue expected to be above midpoint of range, more upside likely in our view. We see multiple opportunities for WELL to beat its outlook (First Take here) on better organic trends, in addition to more M&A. Canadian clinics should see upside through the recruitment of more doctors and as WELL absorbs more clinics. MyHealth and CRH Medical are poised to benefit from a y/y increase in more diagnostic services and anesthesia procedures, respectively. While our 2023 estimates are largely unchanged (revenue $752M vs $751M previously, Adj. EBITDA $115M vs prior $117M), we think there is upside from strong growth trends at both Circle Medical and WISP. Management anticipates a healthy finish for Circle Medical in 2H and a better profit profile at WISP as H1 investments in customer acquisition/digital marketing pay off. Although we don’t include any unannounced M&A in our model, management is focused on building and buying towards its medium-term $1B vision (within two years). Leverage is manageable with net debt / shareholder Adj. EBITDA at 2.3x vs. 2.6x in Q1/23.