WELL Health Technologies (TSX: WELL) reported a solid second-quarter performance last week, with its patient visits and revenue growing in double digits. After reporting its second-quarter performance, the company’s management has raised its 2024 guidance. Despite its impressive performance and raising of guidance, the company’s stock price has remained flat and is down 9.5% compared to its 52-week high. Let’s assess whether WELL Health would be a buy at these levels by looking at its second-quarter performance and growth prospects.
WELL Health’s second-quarter performance
In the June-ending quarter, WELL Health reported revenue of $243.1 million, representing a 42% year-over-year growth. An organic growth of 21% and acquisitions over the last four quarters drove its revenue growth. It had around 1.4 million patient visits and 2.1 million patient interactions during the quarter, representing a year-over-year growth of 38% and 48%, respectively.
Its gross profits increased by 18% to $107.4 million. Meanwhile, its gross profit margin contracted from 53.1% to 44.2% amid the acquisition of lower gross margin businesses over the last four quarters. The company generated an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $30.9 million, representing an 11% increase from $27.8 million in the previous year’s quarter. However, the adjusted EBITDA to WELL shareholders stood at $23 million, representing a 3% year-over-year increase.
Further, WELL Health’s net income came in at $117 million, a substantial increase from $19.6 million in the previous year’s quarter. The increase was primarily due to unrealized gains of its investment in HEALWELL AI. However, removing special or one-time items, its adjusted net income stood at $12.3 million, representing a year-over-year decline of 14.6%. The free cash flows attributed to the company’s shareholders stood at $8.7 million, 7.4% lower than its prior year’s quarter. Now, let’s look at WELL Health’s growth prospects.
WELL Health’s growth prospects
The growing popularity of virtual services, digitization of patient records, and increased usage of software solutions in the healthcare sector have expanded WELL Health’s addressable market. Meanwhile, the company focuses on capital-efficient growth opportunities with effective cost management that could lead to robust growth and sustained cash flow.
It has partnered with Microsoft to enhance digital healthcare across North America. The partnership would help WELL Health scale its business, optimize costs, improve operational efficiency, and ensure data security. The company continues to invest in artificial intelligence (AI) to develop innovative tools and enhance AI and interoperability in the country’s healthcare sector. Further, in June, the company acquired 10 primary care clinics operated by Shoppers Drug Mart in British Columbia and Ontario.
Amid its healthy second-quarter performance and high growth prospects, WELL Health has raised its 2024 guidance. The management now expects its 2024 topline to come within $970-$990 million, with the midpoint representing a 26.3% increase from the previous year’s quarter. Meanwhile, the midpoint of its adjusted EBITDA guidance represents a 12.4% year-over-year growth. Considering all these factors, I believe WELL Health’s growth prospects look healthy.
Investors’ takeaway
Supported by its solid quarterly performances, WELL Health has been one of the top performers this year, delivering over 18.5% returns. Despite the stock price increase, the company’s valuation looks attractive, with its NTM (next 12 months) price-to-sales and price-to-book multiples at 1.1 and 1.2, respectively. Considering its solid operating performances, growth prospects, and attractive valuation, I believe WELL Health would be an excellent buy at these levels.
