Pieces coming together for WELL Health Technologies, says Beacon

The pieces are coming together to create a healthcare giant, says Beacon Securities analyst Gabriel Leung on WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysis, Financials TSX:WELL). Leung reviewed the Canadian health tech company’s latest financials in an update to clients on Thursday where he maintained his “Buy” rating and $10.25 target price, which at press time represented a projected one-year return of 53 per cent.

WELL Health is an omni-channel healthcare company with a lineup of healthcare practice management tools including Electronic Medical Records (EMR), Revenue Cycle Management (RCM) and data protection services. The company has Canada’s largest network of outpatient medical clinics with primary and specialized healthcare services and has a multi-national, multi-disciplinary telehealth platform.

The Vancouver-based company reported its third quarter 2021 numbers on Wednesday, showing quarterly revenue of $99.3 million, up a big 711 per cent year-over-year due to a number of acquisitions including CRH Medical and MyHealth Partners, and adjusted EBITDA of $22.3 million compared to a loss of $0.2 million a year earlier. In total, WELL said it delivered 582,958 patient visits over the quarter, up 139 per cent from a year earlier, and the company said it expects to end 2021 with proforma annualized revenue run-rate approaching $450 million and an adjusted EBITDA run-rate close to $100 million. (All figures in Canadian dollars except where noted otherwise.)

“We had an outstanding quarter mainly as a result of the growing success of our practitioner enablement platform and strong financial performance from our recent acquisitions.  In the third quarter we also achieved adjusted gross profit of $50.0 million which was almost ten times the adjusted gross profit as compared to the same period last year.  Our adjusted gross margin percentage increased to over 50 per cent for the first time, and we have now accomplished four consecutive quarters of positive Adjusted EBITDA, which has experienced significant growth throughout the year,” said WELL Chairman and CEO Hamed Shahbazi in a press release.

Looking at the quarter, Leung said he was forecasting Q3 revenue and EBITDA of $93.9 million and $20.4 million, respectively, compared to the resultant $99.3 million and $22.3 million. On the road ahead, Leung said WELL should get initial contribution in the fourth quarter from acquisitions WISP (where it holds a 53 per cent stake), AwareMD, Uptown Medical and Pinellas County Anesthesia Associates (PCAA).

Breaking down the patient visits for the quarter, Leung noted that 49 per cent of total visits were in-person and the remainder in telehealth (both telephone and virtual care). WELL’s MyHealth also conducted 127,630 in-person diagnostic visits while CRH completed 123,000 anesthesia cases and had revenue up 27 per cent year-over-year. For WELL’s US telehealth platform, Circle Medical, the analyst said it’s on an annualized revenue run-rate of about US$24 million as of the end of October, with 152 providers on its platform versus just 28 last year.

“Gross margins were 50.3 per cent, which was up from 48.9 per cent last quarter. We believe gross margins could move up slightly in Q4 with the inclusion of WISP, which we believe has ~65 per cent gross margins,” Leung wrote.

On the cash front, Leung noted that WELL ended the quarter with $38.7 million in cash and debt of $311.6 million, while the company still had about $280 million in undrawn credit facilities.

“We have made upward adjustments to our revenue and EBITDA estimates, although our target price remains intact at $10.25, which is based on 5.5x CY22e EV/Sales. We continue to view evidence of organic growth, integration synergies and acquisitions as key near- term catalysts for WELL. We reiterate our Buy rating,” Leung said.

Looking ahead, Leung thinks WELL will generate full 2021 revenue and EBITDA of $298.7 million and $57.4 million, respectively, and 2022 revenue and EBITDA of $468.4 million and $101.1 million, respectively.

WELL Health provided an update on its CRH Medical and MyHealth businesses as well as announcing a re-organization of its business segments in late October, grouping operations under Omni-Channel Patient Services and Virtual Services. The company said that CRH is on track to generate over US$40 million in free cashflow before leverage and tax costs in 2021 and that the business is unlocking opportunities for WELL’s other businesses. MyHealth’s progress includes its first two accretive acquisitions and the business is on track for over $20 million in free cashflow in 2022 before leverage and tax costs.

“WELL has been working hard to integrate, streamline operations and activate network effects and we are excited to report that the results are excellent, mainly because WELL has phenomenal business unit leaders and operators,” said Shahbazi in an October 28 press release. 

“Our tech enablement of healthcare practitioners plus capital allocation program is working and as a result, we are experiencing unprecedented growth. We look forward to speaking to this acceleration of organic growth across our business at our upcoming earnings event,” he said.

Disclosure: Jayson MacLean and Nick Waddell owns shares of WELL Health Technologies and WELL is an annual sponsor of Cantech Letter.