WELL Health Technologies (TSX:WELL) reported an impressive third-quarter performance on Thursday, with its topline and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increasing by 23% and 10%, respectively. After posting its third-quarter performance, the company has raised its 2024 guidance and stated that it is on track to reduce its share dilution to the lowest this year. Its strong performance and raising of 2024 guidance have strengthened investors' confidence, raising its stock price by over 10% since reporting its third-quarter performance.
Despite the surge, it trades at a substantial discount to its 2021 highs. So, let's examine its third-quarter performance and growth prospects in detail to assess the buying opportunity in the stock.
WELL's third-quarter performance
WELL Health reported $251.7 million in revenue in the third quarter that ended on September 30, representing a 23% increase from the previous year. Organic growth contributed 23%, while acquisitions over the last four quarters drove 4% of revenue growth. However, the divestments during the period have offset some of the growth. All its three reporting segments have posted revenue growth, with the revenue of Canadian Patient Services, U.S. Patient Services, and SaaS and Technology Services growing by 35%, 21%, and 19%, respectively.
The company had 1.5 million patient visits during the quarter, representing a 41% increase from the previous year's quarter and an annualized patient visit of 5.9 million. Besides, its gross margins contracted 150 basis points compared to the previous year's quarter, primarily due to the contribution from lower-margin businesses acquired in the last four quarters.
Moreover, WELL Health generated an adjusted EBITDA of $32.7 million, representing a 16% increase from the previous year. However, the adjusted EBITDA to WELL shareholders increased by 10% to $25.1 million. Due to higher interest, depreciation, and amortization expenses, its adjusted net income rose just 1% to $13 million during the quarter. It also generated $16.2 million of adjusted free cash flows during the quarter. Now, let's look at its growth prospects.
WELL's growth prospects
The popularity of virtual healthcare services is growing amid improving telecommunication connectivity, innovative product development, and the convenience and cost-effectiveness of the service. Besides, the increased usage of software services in the healthcare sector and digitization of patient records have expanded the addressable market for WELL Health. Further, the company is investing in artificial intelligence (AI) to develop innovative products that could assist healthcare providers in delivering positive patient outcomes.
The company is also continuing its inorganic growth. It has acquired three clinics in British Columbia and is working on acquiring four diagnostic imaging clinics in Alberta. Besides, it has around 17 signed letters of intent and definitive acquisition agreements that are pending. So, along with organic growth, these acquisitions could continue to drive its financials in the coming years. The company has also adopted several cost optimization initiatives to improve its profitability. Besides, management has stated that its financial position is healthy and can fund its organic growth and acquisitions. So it won't dilute its shares further.
Meanwhile, WELL Health's management has raised its 2024 guidance. The new revenue guidance represents a 27.5% year-over-year growth, while its adjusted EBITDA could increase by 12.4%. Considering all these factors, I believe WELL Health's growth prospects look healthy.
Investors' guidance
Despite healthy buying over the last three trading days, WELL Health trades at an attractive valuation. Its NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples stand at 1.2 and 18.9, respectively. Considering its long-term growth prospects and attractive valuation, I believe WELL Health would be an excellent buy.
