WELL Health Technologies Corp

TSX:WELL

Earnings Call Transcript 2020-Q3

[Operator]

Welcome to the WELL Health Technologies Corp. Third Quarter Fiscal 2020 Financial Results Conference Call. My name is Joanna, and I will be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded.I'll now turn the call over to Pardeep Sangha, Vice President, Corporate Strategy and Investor Relations. Mr. Sangha, please, you may begin.

[Pardeep S. Sangha, VP of Corporate Strategy & Investor Relations]

Thank you, operator, and welcome, everyone, to WELL Health's 2020 Fiscal Third Quarter Financial Results Conference Call. Joining me today on the call are Hamed Shahbazi, Chairman and CEO; and Eva Fong, the company's CFO.I trust that everyone has received a copy of our financial results press release that was issued earlier today. Listeners are also encouraged to download a copy of our interim third quarter consolidated financial statements and management discussion and analysis from sedar.com.Portions of today's call on historical performance include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. These forward-looking statements include, but are not limited to statements related to WELL's projected operating performance, financial results and financial condition, WELL's projected growth and growth strategy, cash flow and use of cash, business objectives and outlook, ability to complete potential acquisitions and acquisition strategy, cost reduction and shared service benefits and other matters that may constitute forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, which many of which are outside of WELL's control that may cause the actual results, performance or achievements of WELL to differ materially from the anticipated results, performance or achievement implied by such forward-looking statements.These factors are further outlined in today's press release and in our managing discussion and analysis. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except if it's required by law.And with that, let me turn the call over to Mr. Hamed Shahbazi, Chairman and CEO.

[Hamed Shahbazi, Founder, Chairman & CEO]

Thank you, Pardeep. Good day, everyone. We hope that you're all keeping safe and healthy. We truly appreciate everyone for joining us today. On today's call, I will first provide some general commentary on the quarter, followed by our CFO, Eva Fong, who will provide a financial summary of our Q3 2020 results. I'll then come back and provide more details on the business units and our overall outlook, followed by a question-and-answer period.Q3 2020 was another outstanding quarter for WELL in which we achieved record quarterly revenue and gross profit, strengthened our balance sheet, accelerated our growth and continued to execute on our capital allocation acquisition strategy. WELL achieved another record quarter with revenue increasing 50% year-over-year and gross profit increasing 75% year-over-year. WELL's omnichannel clinical business delivered in a big way as clinical revenues were $9.667 million representing more than 17% sequential quarter-over-quarter growth. This is all organic, by the way, and 34.4% year-over-year growth, which includes organic and some inorganic. This drove WELL's top line to handily top consensus estimates at $12.245 million.Our revenues were more profitable, too, as we achieved record gross margins as well. Gross margins expanded sequentially from 40% to 41.2%, and increased 17% on a year-over-year basis. Gross profit was over $5,045,000 and adjusted EBITDA was very close to breakeven at a slight $153,000 loss. At the heart of these excellent results, the strong growth and performance from both our clinical and EMR business units, our SaaS EMR business has been rock-solid and steady and growing nicely. There's very little fanfare and change in that business as it's pretty much been untouched by COVID, except for some higher customer acquisition opportunities for the business. I'll reference that a bit later when I provide an outlook for each business unit.I'd like to focus some time and remarks on the clinical business. During Q3, WELL experienced a strong rebound of its physical and clinic visits as a result of BC's economic reopening plan following the COVID-19 lockdowns. This is important because BC had very low cases through Q3, pretty much everything was open and people moved around quite freely, and that has only changed very recently due to increased COVID cases. During the quarter, our omnichannel clinical network delivered 236,302 patient visits, which is 19% higher than the previous quarter. Remember, the previous quarter was a quarter that in BC, you couldn't move around very much, and we were subject to lockdown.The 236,302 patient visits breakdown as follows: 120,660 total TeleHealth patient visits, which included 60,875 via VirtualClinic+ and 59,785 via phone consultations and 115,642 in-person visits. Compare this with last quarter, where we had just under 200,000 total visits and 198,435 -- 57,929 which came from VC+ and 66,920 phone consults and 73,586 in-person visits. So we grew VC+, our virtual care program, did slightly fewer phone calls, which means as a whole, we maintained most of our TeleHealth visits while growing in-person visits sequentially on a quarter-over-quarter basis by a whopping 57%.If you remember our last conference, well, we kind of previewed this as we were seeing it happen in real time. We were telling you that WELL had gone from 1 engine in its patient services business to 2 engines. Into Q4, we can tell you that clinical volumes are continuing to be strong while our TeleHealth continues to be steady as well. So our belief is that this is the new norm and positions us very well in the future. And by the 2 engines, of course, I'm referring to the engine of being able to meet and provide consultations in-person as well as virtual consultation.This demonstrates that the digital enhancements that we had applied to our clinics are working. Remember, we got into this business because we believe that we were -- that folks out there were undervaluing the clinic asset class. And while transformation was needed, once that digital transformation would take place, this would prove that medical clinical assets can be improved and provided -- where much better care would be provided more efficiently, and profits and economic vitality could be improved. Overall, the share of volume attributable to in-person visits increased by about 10 percentage points to about half total visits.Let me stop there and tell you a little bit about our research as we've looked around and listen to thought leaders and research firms and think tanks about insights on where TeleHealth will settle post COVID-19. Assuming that we have a very successful vaccine administered, we're consistently hearing that 40% to 50%, percentage of visits, will permanently be delivered via TeleHealth. This is because so many types of consultations can be delivered very quickly and easily via TeleHealth.So just because we can move freely and no longer will be concerned about COVID-19, many people, including doctors and patients, don't want to go back to the way things were before and waste a lot of time and effort to see doctors in-person for quick consultations. Why wait 2 hours for a quick prescription renewal. We believe Canada will settle in this range of 40% to 50% as well on a permanent long-term basis. Please remember that pre COVID, TeleHealth penetration was a fraction of 1%. Our research shows that it was at 0.25%. So this is an entrenched and important delivery method that is here to stay.What does this all tell you? Health care cannot be delivered only through a piece of glass virtually. Doctors and patients still need to meet, and patients still need to be examined. Given these trends, we believe WELL is very well positioned to benefit from the permanent trend of delivering services via a hybrid of clicks-and-bricks. Let me also say that we don't know of another national player that has any work close to the capacity of delivering to the same degree on both physical in-person and TeleHealth service delivery as well. We look to augment these services. We are looking to augment both our in-person and TeleHealth services over the foreseeable future.I'm pleased to share that these strong quarterly results, coupled with our recently completed and announced acquisitions, have propelled WELL to approximately $68 million in annualized revenue run rate. During Q3 2020, WELL completed the acquisition of the Services Division of Cycura Inc., a company we've now named Cycura Data Protection, and announced its entry into the U.S. market with a majority stake investment in Circle Medical. Subsequent to the quarter, the company also announced and closed the acquisition of DoctorCare. Acquired a 51% majority stake in Easy Allied Health, the multidisciplinary operator of Allied Health Services, and announced and closed the acquisition of the remaining shares of Insig Corp, a telehealth leader, a National telehealth leader in Canada.WELL, has thereby substantially diversified its business into several growth-oriented business units. I'll go into additional details on each one of these business units later in our call. But first, I'd like to turn the call over to our CFO, Eva Fong, who will review the financials for the third quarter with you.

[Eva Fong, Chief Financial Officer]

Thank you, Hamed. I'm pleased to report that we had a very strong third quarter 2020. As Hamed indicated, in Q3, WELL generated record revenue of $12.2 million during the 3 months ended September 30, 2020, compared to the $8.2 million generated during the 3 months ended September 30, 2019, an increase of 50%. This increase in revenue is mainly due to the company's acquisitions over the past year and the addition of telehealth-related revenue. Digital services revenue increased 149% to a record $2.5 million in Q3 2020 as compared to revenue of $1 million in Q3 2019. WELL's digital services revenues were positively impacted by revenue related to the Indivica EMR acquisition.We define gross profit as revenue less the cost of clinical, digital and cybersecurity services. In Q3 2020, WELL generated record gross profit of $5 million for the 3 months ended September 30, 2020, which reflected a 75% year-over-year increase from Q3 in the prior year. This was mainly as a result of the increase in revenue in the period and higher gross margin percentage. Gross margin percentage increased to 41.2% in Q3 2020 compared to 35.2% in Q3 2019, which is mainly due to the addition of higher-margin digital services revenue.G&A expenses increased to $5.5 million in Q3 2020 compared to $3.2 million in Q3 2019. Increases were mainly due to higher professional and consulting fees resulting from legal expenses related to greater M&A activity; higher marketing and promotion expenses related to VirtualClinic+ telehealth program; and also an increase in wages and benefits due to an increase in headcount from the additional new acquisitions and shared services. Net loss was $3.6 million or a loss of $0.03 per share for the 3 months ended September 30, 2020, compared to a net loss of $4.8 million or a loss of $0.05 per share for the 3 months ended September 30, 2019.WELL improved its balance sheet during the quarter. We ended the quarter with cash and cash equivalents of $42.5 million as at September 30, 2020, compared to $15.6 million as at December 31, 2019. The increase in cash in Q3 2020 was mainly due to a non-brokered private placement financing with a group of investors led by Sir Li Ka-shing for gross proceeds of $23 million, in which the company issued 4.8 million common shares at a price of $4.77 per share.Also during the quarter, WELL converted all of its convertible debentures from 2 prior convertible debt financings into common shares which resulted in balance sheet with no debt and eliminating the company's interest costs.Subsequent to the quarter end, WELL further strengthened its cash position with the completion of a bought deal public offering of 11.9 million common shares at a price of $6.75 and for gross proceeds of approximately $80.5 million.The company believes that adjusted EBITDA is a meaningful financial metric as it measures cash generated from operations, which the company can use to fund working capital requirements, service future interest and principal debt repayments and fund future growth initiatives. Adjusted EBITDA is a non-GAAP measure and should not be construed as an alternative to net income or loss, determined in accordance with IFRS. For more information on how we define adjusted EBITDA, please refer to the definition set out in today's press release and in our M&A.Adjusted EBITDA loss for the 3 months ended September 30, 2020, was $153,000 compared to adjusted EBITDA loss of $512,000 for the 3 months ended September 30, 2019, which reflected a year-over-year increase of 70% from Q3 in the prior year. Adjusted EBITDA was negatively impacted in the quarter by WELL's marketing and promotion expenses related to its VirtualClinic+ telehealth program and the launch of our apps.health marketplace. As of the end of the third quarter on September 30, 2020, the company had 154,849,809 fully diluted securities issued and outstanding. More recently, as of November 11, 2020, the company had 169,849,753 fully diluted securities issued and outstanding.That is my financial update, and I turn the call back over to Hamed.

[Hamed Shahbazi, Founder, Chairman & CEO]

Thank you, Eva. WELL as an acquisitive company that follows a disciplined and accretive capital allocation strategy. Much of the key to WELL's unique business lies in how WELL sources, completes and integrates acquisitions while investing in key leaders to drive these companies with the full support of a world-class shared services team. The company's mergers and acquisition strategy is based on acquiring additional clinical and digital assets that are accretive and synergistic to one of WELL's key business units. These business units are well positioned for both organic and inorganic growth, as we've seen in today's results for Q3.Over the past several months, we've structured the company into several business units, each with its own leader. WELL is employing a decentralized operating strategy where most of the operating decisions are managed by the leaders of these business units. This allows the company to grow and scale without added bureaucracy. Notwithstanding this approach, capital allocation decisions are centralized and thoughtfully planned to ensure that the company is always making the most compelling and accretive investment decisions.I'll now provide some commentary on our different lines of business. The clinical business, I've already covered off how well this business performed during the last quarter and how resilient it was. We believe that COVID-19 has changed health care forever, and the only way to provide satisfactory care in the future is to have an omnichannel or bricks and clicks experience. With COVID cases once again increasing across the country, WELL is appropriately positioned to continue to provide quality patient care through both physical in-person and online virtual care. All WELL clinics have remained open to the public throughout the pandemic, and we're expecting that our clinics will continue to remain open throughout the winter. Furthermore, we believe our physical clinics can play a crucial role in the future delivery and administration of any coronavirus-related vaccines. We have already inquired and are looking into how to participate in this important and historic opportunity to serve our community.Next, I'll talk a bit about our TeleHealth business, which is part of our digital apps business unit. Earlier this week, we announced the acquisition of the remaining portion of Insig, which we didn't already own. We're expecting that this acquisition will drive significant opportunities in the future. WELL had previously developed a telehealth program, known as VirtualClinic+ on Insig's full stack platform and tools. WELL already owned and had acquired about 40% of Insig. And as of now, we are 100% owners of the company. We believe that Insig is a very valuable asset, and are very excited about the acquisition as we look to combine their direct-to-consumer brand with ours. So Tia Health and VirtualClinic+ platforms will be combined under the Tia Health banner and position WELL as one of the top telehealth services in the country. Furthermore, this acquisition boosts WELL's virtual care and product development expertise. The Insig team has proven to be extremely resourceful and nimble innovators, operators and market leaders in the virtual care sector in Canada.Insig is a leading Canadian virtual care platform with a unique SaaS-enabled marketplace currently supporting over 2,800 health care practitioners, which includes 1,300 healthcare professionals on WELL's own virtual clinic platform. Insig has also served about 200,000 of its own virtual care appointments in the last 90 days, which includes appointments made on virtual -- WELL's VirtualClinic+ platform. The Insig acquisition is expected to result in the addition of roughly $6.5 million in annual telehealth revenues to WELL after the elimination of intercompany revenues. Insig has, on average, grown at double-digit monthly growth rates since the start of the year and continues to grow quickly.Going forward, our plan is to continue to build on the Tia Health brand, where medical practitioners are online at all hours of the day facilitating a virtual walk-in experience for the millions of patients across Canada, who don't have a regular family doctor. The marketplace-like approach is quite powerful because it not only provides further patient comfort in selecting a practitioner, but it also encourages patients to come back to the same practitioner, creating attachments and furthering a more longitudinal care model.We have a very exciting stat to report with you. In November, the Insig team has informed us that the percentage of repeat visitors to the platform are close to 50% repeat visitors. This is very good news for us because it means we don't have to keep spending money to acquire users. Our users like the experience, and they're coming back again, improving our lifetime value. But I note that just 2 or 3 months ago, this percentage was closer to about 30%. Meanwhile, WELL's VirtualClinic+ brand will be targeted as a SaaS product offering on our OSCAR EMR network, which has over 10,000 practitioners. VirtualClinic+ is already tailored to meet the needs of doctors and fully integrated to WELL's OSCAR Pro EMR.Of course, our TeleHealth program lives in our app subsidiary. So let's talk a little bit about WELL Health digital apps. WELL Digital Health Apps, Inc. is a new subsidiary and business unit solely focused on developing, investing and in unlocking opportunities associated with digital health applications. The business unit will be focused primarily on establishing partnerships or investments with leading digital health apps that allow WELL to unlock the value of its EMR assets. In addition to the strong growth in TeleHealth, the new WELL Digital Health Apps business unit has experienced an incredible amount of interest and activity with the apps.health marketplace since launching at the end of September. We expect to have over 60 applications on the apps.health marketplace by mid-2021, and our goal within the year is to be at over 100. Over the coming quarters, WELL's plan is to roll out these digital health solutions, including TeleHealth to its EMR network of over 2,000 clinics across Canada.A quick word on WELL EMR Group. The WELL EMR Group continues to have a strong overall business with accelerating net new sign ups. A smaller number of clinics have had to terminate their services due to COVID-19, however, the number of new sign ups, as I indicated, has accelerated as a result of the growing trends towards digitization. The WELL EMR Group continues to successfully migrate EMR customers from various different platforms to WELL's cloud-based OSCAR Pro version. Our digital services revenue increased by 149% in Q3 compared to the previous year and has now achieved a $10 million annualized revenue run rate with over 80% gross margins and 25% EBITDA margins. Over the past year, the WELL EMR Group has quickly established itself as the third largest EMR vendor in Canada and gaining. Our plan is to continue to consolidate OSCAR-based EMR providers as well as we are now looking at non-OSCAR-based EMR vendors.WELL, also formed WELL Allied Health. This business unit is focused on operating, investing and unlocking opportunities associated with allied health offerings such as physiotherapy, occupational therapy, chiropractic, dietary, mental health counseling and sleep-related services. This business unit today includes WELL's 51% stake in SleepWorks Medical and recently completed 51% majority stake in Easy Allied Health. Both SleepWorks and Allied -- and Easy Allied are mobile services that offer complementary services to our clinic network. They assist in increasing the utilization of our physical clinics and fit with our belief in an integrated team-based model for improving patient care.A note about our cybersecurity division, Cycura. While its overarching strategy is to invest in the future of health care, an important theme and opportunities brought about by more digital modern health care ecosystem include the protection of data. As you can imagine, as more data comes on in health care, there will be a burgeoning market for those cybersecurity services to protect that data, the most valuable and data out there.During Q3, we completed the acquisition of the assets of the services division of Cycura. Cycura's overarching goal is to protect and keep data private, safe and secure, including highly sensitive health-related data. Cycura is intended to elevate WELL's overall cybersecurity and risk management program and provide WELL with another compelling opportunity to build shareholder value through accretive and disciplined capital allocation in the cybersecurity space. In addition to Cycura will continue to service existing customers from a broad array of industries, including health care clients focused on mental health, telemedicine, health insurance and benefits. We are currently evaluating additional cybersecurity related acquisition opportunities that will expand our data protection services and capabilities. We expect to announce further details about these initiatives in the near future.A note about WELL billing and back office. We recently announced and closed the acquisition of DoctorCare. DoctorCare uses proprietary software assistance to provide medical BaaS, or Billing as a Service, outsourcing services to over 2,000 physicians across the country. DoctorCare's leading edge billing and back office tools are designed to support doctors who don't have the benefit of a sophisticated back office team. DoctorCare currently has an annualized revenue run rate of approximately $3.5 million growing very strongly at over 20% on a year-over-year basis with EBITDA margins exceeding 30%. DoctorCare is already integrated with WELL's OSCAR Pro EMR and is featured on WELL's apps.health marketplace. We view DoctorCare as a foundational acquisition for WELL as it serves as a new business unit focused on North American billing and back office marketplace, which I would add is a multibillion-dollar marketplace on its own. DoctorCare will serve as WELL's consolidation point for additional billing-related acquisitions and growth initiatives in the future. We have already identified line of sight on immediate opportunities in this area.A quick word on Circle Medical. During the third quarter, we announced a USD 14 million majority control investment in Circle Medical. We are expecting to close this transaction imminently. Circle Medical is a national U.S. telehealth provider who has delivered virtual primary care services in roughly 35 states already this year and has plans to continue to grow and extend its services in the coming months. Circle Medical also owns and operates 2 California-based brick and mortar clinics, providing that omnichannel experience. This transaction is a key milestone for WELL as it extends our reach into the telehealth market and the clinical market in the U.S. We are enthusiastic about Circle Medical's progress since our initial investment in 2018. Furthermore, the Circle Medical team has done an incredible job expanding its services since the start of the pandemic.Circle Medical's current revenue run rate has been reported to us as being approximately $5.7 million and growing quickly, having recently experienced double-digit monthly growth rates since the start of the pandemic. WELL's cash investment in shared services support are anticipated to help the company significantly scale its growth over the coming quarters. Might I remind the listeners that when we announced this acquisition, we had indicated that the run rate was $5 million just several weeks ago. And now it has already increased to USD 5.7 million. As we've discussed, each one of our business units, we believe, can be substantial standalone businesses, much bigger than WELL is on a whole right now. If they couldn't, WELL would not focus on them. What I'm conveying here is that each business unit that we've invested in, we believe, on a stand-alone basis can be bigger than WELL is today. This is why we are investing in these businesses.This concludes my update on our individual business units. Our outlook remains very positive across all our business units and for the rest of the business as a whole. Despite the uncertainties around coronavirus, we feel the company is well positioned in the current environment. As we have a very strong balance sheet, diversified business of physical and digital assets, a highly resilient clinical and family practice business, a solid base of high-margin recurring revenue in our EMR business, an actively ramping telehealth program, a unique and growing digital health app marketplace, a cybersecurity division to ensure data security and patient privacy, a new billing and back office business and an immense pipeline of future acquisition opportunities. WELL remains on track to achieve its goals in 2020, which are to: one, achieve organic growth in its operating businesses; two, continue to follow a disciplined acquisition and capital allocation strategy; and three, increase market share and awareness of its virtual care programs.In closing, I want to thank you all for joining us on this call today and thank our shareholders and investors for their continued support. The capital markets have been very supportive of our vision and have provided us with the funding needed to pursue our goals. We'd also like to thank WELL's senior management team and all our employees and contractors for their tremendous effort, and especially during the COVID pandemic. I'm extremely proud for our whole team and would like to reference our team of doctors and frontline health care workers who continue to keep all our clinics open and provide unbelievable patient care through these unprecedented times. We are forever grateful for all the health care workers across the country who are working tirelessly and looking after our health and safety.And with that, we'd like to open the call to questions. Operator?

[Operator]

[Operator Instructions] First question comes from Kevin Krishnaratne at Eight Capital.

[Kevin Krishnaratne, Principal & Equity Analyst]

Congrats on a great quarter. Hamed, you've got so many levers in the omnichannel model. You've got -- you were talking about the back office service, apps.health, Allied Health. So I'm wondering, as you think about M&A in the physical clinic, what's your approach to target now? And how -- more -- how you can enhance value? Are you looking for clinics that are underdigitized, more on the back end, on the front end? Are you looking for clinics that are in markets that could benefit from shifting more their capacity towards higher revenue and higher-margin allied services? I guess what I'm getting at is you've got many more tools now than you had a year ago. Does that change your approach on what to buy? And when you buy them, how and where you'll prioritize investments into those clinics?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. Thanks, Kevin. Yes, I think it's an excellent question. And there's no doubt that the pandemic and everything that happened this year has more fully informed our criteria and investment decisions. I think we have a greater preference for, for example, family practice-type businesses because we really saw how those attachments were durable and valuable during the pandemic. We -- as you can imagine, every practice, even if they have EMR, may be at a higher degree of digitization in terms of how many of those records they've actually scanned and digitized. You have some practices that declare that they are using EMR, but maybe at 5% digital and some that are 80% digital. We are more interested in the ones that are at 80% digital. Sure, we can apply our levers to ones that are less digitized, but it's just more work. So we consider all of these criteria now when we make decisions. But yes, I think you're going to continue to see us apply this criteria strategically and grow our clinical footprint across the country.

[Kevin Krishnaratne, Principal & Equity Analyst]

Okay. Great. I guess the one sort of follow-up it is in regards to omnichannel, it's more on the telehealth. I was really curious with some of the research that you've been doing in how you see longer term falling into the 40%, 50% range. I'm wondering, what are you seeing out there with regards to telehealth, perhaps stimulating more patient visits? Are you seeing average visits per patient increasing? I guess what I'm thinking about here is, is it -- is telehealth potentially something that could increase total visits rather than simply just seeing a replacement of physical to virtual just given the super convenience that that can provide? And is that sort of something that you're seeing in your research with regards to penetration and adoption?

[Hamed Shahbazi, Founder, Chairman & CEO]

We haven't really seen evidence that telehealth increases the aggregate number of visits. People don't love going to the doctor. I mean they like their doctors, but they don't love doing it. They'll do it when they have to. And sure, it's possible that the availability and convenience of these services could make people want to use them more. But I think generally, people are only using these services when they absolutely need to and are respectful of them. Our -- what we've seen is just immense outpouring of commentary and feedback about how much more convenient and helpful these services are for smaller and sort of lighter, more perfunctory type visits like prescription renewals or check-ins on chronic disease conditions and things of that nature. The ability to now check in from the comfort of your home or office is, I think, something that's really here to stay and frankly, should have been here already. I think what we were seeing and why it's kind of sticking as much as it is, is that we were probably anomalously underdigitized. And again, that was kind of part of the thesis on why we created this business.

[Operator]

The next question comes from Doug Taylor at Canaccord Genuity.

[Douglas Taylor, Director]

Following in on the last line of questioning, I mean, the trend of in-person consultations versus virtual, certainly encouraging and a positive trend. One of the advantages of virtual versus in-person is scalability. And so I just -- I'd like to ask about your existing clinic network. If -- how far out can we -- could your clinical in-person visits and consultations grow without hitting some sort of capacity issue? Or does that become a challenge to scale to a certain degree at some point in the near future?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. Thanks, Doug, for that question. Yes, we are seeing most of our doctors now want to spend time working from home part of the week and work from the office part of the week. And increasingly, we're seeing even -- we're seeing that continue to ramp up. So there's doctors that were just a bit later in terms -- laggards in terms of following that trend. And what we're actually finding is there's quite a bit of availability and utilization left in the clinics. And we think that the opportunity to grow ours, the opportunity to expand the service providers is still probably allowing us to grow another, we think, probably 40% to 50%, frankly, in terms of just our existing clinical business. And of course, there's also enormous opportunities out there to acquire facilities and grow if we need to, probably at much lower rates than before. So we think we're very well positioned if we do hit any kind of physical constraints for the growth of the business.

[Douglas Taylor, Director]

That's very helpful. Second question, with the closing of the remaining portion that you did not own of Insig today. Has this changed at all how you or perhaps some of the other virtual care enablers enabling technologies, does it change how you view the coopetition that is likely to occur on your apps.health marketplace with respect to some of the third-party solutions out there?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes, not really. I think with apps.health, we're trying to create a bit of a democratization of digital health. I mean I think one of the problems in the country has been that there hasn't been enough access -- safe and secure access to EMR data by third parties. And I liken this to sort of what's happened with Google and Apple. They have very open and even-handed approach to third parties, they publish their own apps on their own ecosystem, and they encourage others to do the same. And the best product shall win. Now obviously, Apple and Google both create very rich and deep applications that really bring out the best of their platforms. And so we have the opportunity to do that as well. But we're also seeing some phenomenal third parties create some really great apps. And so we want our clinicians to have the very best experience. That's sort of our true north. And we think we've created a platform that rewards us for doing that. And so we're just going to go out there and create the very best experiences for clinicians, for third party developers. And ultimately, we think that, that trickles down to better health outcomes. And so we're not worried at all about the coopetition.

[Operator]

The next question comes from David Newman at Desjardins.

[David Francis Newman, Analyst]

I was just looking at the Insig deal. What I thought was a little bit fascinating was the relationship with Rexall and McKesson. And they're developing their own in-house tools and partnering with others like on their Be Well app and things like that. Is there discussions about deepening the relationship there, as well as maybe Jack Nathan, how can you cross-sell into these larger players. McKesson is obviously a very big player and Jack Nathan as well with Walmart. So how can you deepen the relationship there?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. Thanks, David. Yes, I agree that Insig had created some phenomenal relationships, whether it's Rexall, some of the other pharmacy partners. They also were obviously partially owned by Appletree. So Appletree is the largest clinical network in the country today and fully uses Insig tools and will be doing so for years. I do believe that this is a great opportunity now for WELL as a result of completing this deal to deepen those ties and relationships. As you can imagine, just based on the fact that WELL is a leading player in the country, we're already in discussions with most folks. But yes, absolutely, this can't hurt. And we think that this allows us to be a better partner, not only from an Insig perspective, but from a WELL perspective as well.

[David Francis Newman, Analyst]

Okay. And then on the apps exchange, obviously, you've got 26, you're going to 60 and 100. So how are you measuring the KPIs and the economics of the apps that go on there and how do you benefit from that? And obviously, the ones -- it's obviously an incubator for you to obviously acquire some of the ones that you -- that fit your overall model. So maybe how you measure those and the economics of it?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. A good point. So we do have apps revenue already rolling in. And it's -- as you can imagine, the business, we just launched a few weeks ago. So that's why we don't have a lot of KPIs this time around. But I think over time, you're going to see some key metrics that really reflect the business. And things that we're tracking right now are engagement with the different apps through the site, the number of feeds that are going through, number of apps being added by the different clinicians. So I can tell you there's really good strong activity overall, obviously, starting from a smaller base. But yes, those are the types of things that we're looking at.And ultimately, listen, this has to result in something more than people visiting profile pages. We're very serious about this business delivering on revenue, gross margin and EBITDA. But we also believe that this business gives us an unfair advantage. Why would you want to have an EMR that does not support integrated apps, especially as digital health continues its explosion and all the different vectors of care being -- going into digital? Now that could be all forms of different medical devices, that could be all forms of different remote patient care type scenarios. For chronic -- as you can imagine, there's all kinds of -- given the depth and breadth of how big health care is, there's enormous start-up activity occurring almost across each disease type, believe it or not. And so the richness of offering here can be quite extensive. So we think over time, this will become a big business for us.

[David Francis Newman, Analyst]

And if I can just squeeze in a sub-question on that. So what criteria do you use to determine whether you want to basically acquire something off of the app exchange?

[Hamed Shahbazi, Founder, Chairman & CEO]

We're going to continue to apply our own capital allocation fundamentals. That's the beauty of WELL, like, we're going to get -- we're not going to get all hot and crazy about an asset just because we think it's really cool and strategic. We're going to continue to apply sound business fundamentals. Is it a good capital allocation opportunity? Is it going to drive margin expansion? Is it going to -- is it highly accretive in terms of the post-transaction economics? I think we're committed as a company, I'll just say, on an overarching basis to ensure that every decision that we make is strategically accretive and financial accretive. The apps.health just gives us a fantastic playground to really interact with folks, look at their culture, integrate with them, have just a much greater insight to how these businesses are operating. So in that regard, also, it's going to drive significant value for us.

[Operator]

The next question comes from Colin Healey at Haywood Securities.

[Colin Healey, Research Analyst of Mining]

Congrats also on the quarter. This is kind of a follow-up on the prior. But in your M&A pipeline, are you seeing any of your targets that might be off the radar of the general public getting picked up by other consolidators? I'm just wondering if you have any insight on the general market M&A that we might not be seeing any movement in transaction volumes or valuations?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. Thanks, Colin. We are a little bit, but you know what's really unique, and it's interesting because people call us a telehealth stock. And we're really not. I mean I -- you'll never hear me say that we're a telehealth company. I've never said it before. I will never say it. We're not an EMR company. We're not a clinic company. We're a company that's investing in the future of health care. And in our view, that takes a variety of forms, and this is why the business unit structure makes so much sense. We think cybersecurity is as important to play on the future of health care as is clinic transformation because of the incredible importance of the most valuable data in the world going online. Research has shown that personal health information is 300x more valuable than card data online, pan card data, financial card data.So in some parts of our business unit focuses that are perhaps harder right now like telehealth, yes, we're seeing we're seeing assets be bid up. But we're sort of unfazed. We're so committed to our philosophy that we are not going to chase anything. And we believe we have ample opportunity to grow. I mean billing and back office is a great example. The billing and business process outsourcing business just in medical in the continent is astounding how big it is? I mean I don't have it off the top of my head, but I was reading about it recently. We can share that data with you.There -- and all of these business units and all of these themes are enhanced by digital. And that's really what we're about. What we saw is a monumental historic opportunity where the biggest sector in most services economies had not digitized yet. And we thought that was too good of an opportunity to pass up to be involved in those tailwinds and add value to those opportunities. So that's just a long way of saying a little bit, but not really. We're not worried about assets being bid up. We're going to continue to stay our course.

[Operator]

The next question comes from David Kwan at PI Financial.

[David Kwan, Technology Analyst]

I was wondering on the VirtualClinic+ side, you've obviously been pretty aggressive in terms of trying to grow that business, big greenfield opportunity. I think a part of that, obviously, was the elevated sales and marketing spend. As well, you've kind of been doing promotional pricing. I was curious if you still are doing that promotional pricing? If so, when you'd shift to kind of more commercial rates?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. Thanks, David. Yes, we definitely had some promotional pricing, but I think we're sort of phasing that out for the most part now. And we don't have plans to extend it for too much longer and are seeing -- we're continuing to see growth in our SaaS business with VC+. Listen, having Insig in-house is also going to help a lot. What people should also realize about Insig is that it's a lot more than telehealth. They have built a really capable stack of digital patient engagement technology. They have phenomenal intelligent questionnaires. They have online patient booking capabilities. They have developed self-service check-in type technologies, and they have also a product that automates a lot of what we call sort of the clinic note automation, which again, is kind of a derivative of their intelligent questionnaires, which allows patients to fill out forms prior to coming in and having that -- those forms directly integrate with the EMR. And so I think we're just at the front end of scratching the surface of properly packaging these products and services and delivering them to our EMR business. Insig by itself is probably 4 apps in the future on apps.health. And so we think that there's substantial SaaS improvements in terms of economic opportunities there for us.

[David Kwan, Technology Analyst]

That's helpful. I guess as a follow-up, just on the pricing side, I think based on what you had talked about in the past, monthly ARPUs might have been somewhere, we call it, $50 to $100, obviously, with the acquisition of Insig you'll be getting all of that as opposed to 50-50. Can you talk about, I guess, where the ARPUs could go based on some of these things that you said beyond kind of the traditional telehealth platform?

[Hamed Shahbazi, Founder, Chairman & CEO]

Sorry, I just want to make sure I understand your question. You want to know how the ARPU has changed or will change?

[David Kwan, Technology Analyst]

Well, I guess, obviously, with the acquisition, you're not going to be sharing -- doing the revenue share because you're just going to get all of it now, right? But with moving beyond kind of the promotional pricing, I think the monthly ARPUs are roughly, call it, $50 to $100 a month. With some of these other things that Insig has, where do you think the ARPUs could go?

[Hamed Shahbazi, Founder, Chairman & CEO]

Oh, I see. Yes. No, you're absolutely right. We'll capture the part that we were paying out to Insig. So right away, WELL's margins will improve. And you're also right that as we further merchandise their different modules of service, we can grow that business. So I do expect ARPU to increase immediately as a result of, obviously, capturing the part that we don't own, but we do expect it to grow as well as we better merchandise and offer those services. So we'll think about guidance for you in terms of where that could lead. But you're absolutely right in that we've been in that $50 to $100 area in terms of ARPU, and we've been giving up 50% of our margins and now are capturing 100% of them. And so we really should see improvements in that area, which will continue to lift our overall SaaS business.

[Operator]

The next question is from Justin Keywood at Stifel GMP.

[Justin Keywood, Director of Equity Research]

I had a question on the gross margins. There's been a nice trend for improvement here. I think 5 sequential quarters kind of went from the 30% level to just above 40%. Do you see this improvement as sustainable? And do you have any target gross margins perhaps in 2021 and beyond?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. Thanks for your question Justin. I think it's just -- people ask me about gross margins all the time. Where do you think they're going to be in 1 year, 3 years, 5 years? The answer is, we are very focused on trying to do deals and -- whether it be internal business development or M&A to -- that are enhancing gross margins. But we're also not going to be rejecting opportunities that are not necessarily above 40%, if there's still good opportunities. And so I would tell you that I think on the whole, this is going to be a reflection of our M&A over the next few years. I generally think capital allocation should consider effect on margin, but at the same time, at the end of the day, it's about cash flow. And so we're going to -- we want to be perfectly opportunistic in our quest to bring cash flow into the company because we think the real holy grail with WELL is when we're at a point where all these acquisitions are being funded through cash flow. And that's really where we want to get to.

[Justin Keywood, Director of Equity Research]

Okay. That's helpful. And then just a question of clarification. For the VirtualClinic+, Insig and Tia Health, are these platforms all integrated? And I'm not sure if I missed it in the opening remarks, is the VirtualClinic+ going to be under the Tia Health banner going forward?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. Yes. So we had built VirtualClinic+ on the Insig platform. So think of Insig as the platform and Tia being sort of a program, a direct-to-consumer program that sat on that platform. VC+ was also a branded program that sat on the same platform. So Tia and VC+ both have direct-to-consumer marketplace offers that we think there's a lot of synergy in combining them. But then VC+'s brand will live on as the app brand when you add that SaaS tools to your EMR. And so this will derive all kinds of benefits for us because we don't have to promote 2 brands. We don't have to create adwords for 2 brands, social media programs and promotional activities for 2 brands. And in some cases, we even have Tia and VC+ right now competing for adwords against each other, which will make a lot of sense. We'll get immediate synergies by combining those 2 programs.

[Operator]

The next question comes from Gabriel Leung at Beacon Securities.

[Gabriel Leung, Research Analyst of Technology]

Congrats on the progress. Two things. First, I guess you've made a couple of moves already into, I suppose, the enterprise market with the acquisition of Tia, but I'm curious what your thoughts are in terms of potentially capturing the private sector health care spend dollars and what the game plan is there for WELL.

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. Thanks, Gabriel. We certainly believe there's an opportunity there and we are looking at some assets that are serving those opportunities. And frankly, there's also activity with both Tia and WELL in serving some of those, and so I think that's a key area of focus with some of the new M&A opportunities that we're looking at. So no doubt that that market is alive and growing. And certainly, some market players are doing a good job unlocking it. We also think that's a very embryonic stage of development and lots of time for us to get involved in a big way.

[Gabriel Leung, Research Analyst of Technology]

Got you. And as we think about the U.S. expansion, what are some of the key assets you think you're going to have to sort of pick up over the near term? I mean, obviously, you've got Circle sort of the foray into there. But as we think about maybe tech wise, is there stuff within your existing portfolio you can transfer down there? Or is it effectively a new market opportunity in terms of the potential M&A on the tech side?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. I mean, listen, I think there's a lot of -- there are a lot of things that we're doing here in Canada that I think are applicable to the U.S. I do believe that there are assets that make sense for us to acquire as opposed to try and cross over some of our Canadian IP. We're also not going to be shy, for example, of looking at business process outsourcing or billing opportunities in the U.S. Medical billing, for example, in the U.S. is monstrous opportunity.As it relates to telehealth, everyone wants to understand what does that look like in the U.S.? I mean, of course, you've got some big players, but you also have a lot of burgeoning opportunities just in the platform space, being able to private label platforms for all kinds of different market players who would like to provide clinical service but don't want to necessarily hire doctors and manage that. And so we're talking to some folks who are in that market that we think is quite interesting.Because as you can imagine, generally, direct-to-consumer businesses don't usually work out. Where most software companies do very well because of the cost of acquisition is a B2B business opportunity growth. And so we do see some really strong B2B players that we think are acquirable at reasonable valuations, and we are looking at some of those. But we're just going to be -- you got to also understand that right now that market is hot and it's not easy to find good deals. And we're going to be disciplined.

[Operator]

Our last question comes from Nick Agostino at Laurentian Bank.

[Nick Agostino]

I guess 2 questions, Hamed. First, obviously, you guys have been introducing a few different buckets of late, the apps.health, the cybersecurity, the Allied, the billing, et cetera. Just wondering, are there any other buckets that you have maybe that you're planning to expand into that may be announced over the next couple of months or quarters? And is there any plans along that side to maybe get more involved or engaged on the pharmaceutical side to bring in pharmacists?

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. Thanks, Nick. I mean I think you're touching on some really important themes. The pharmaceutical e-prescription delivery business is something that we are really interested in and focused on and can be very strategic to us, especially given our assets, especially given the opportunity with apps.health and merchandising those types of apps and connecting them to the EMRs and making it easy for clinicians to deliver for patients. This well, obviously, is an extension of our telehealth asset. So I think that's very interesting.On the -- we also see some really interesting clinical opportunities that are in specialty clinics that have superior period economics, very underserved markets. I'll just kind of talk about the gender-specific health market, we think, is really interesting, men's and women's health, fertility. These are all areas that we are kind of digging into a little bit more. But yes. I think we're -- we're looking for opportunities where we also think we can enhance some of these companies with our own technology, but where we are coming into these businesses already at driving superior cash flows and margins.

[Nick Agostino]

Okay. Great. I appreciate that. And I guess maybe the one other question. You said earlier, obviously, the idea of being prudent when it comes to acquisitions. And you did allude to, I guess, virtual care or telehealth assets getting more expensive in the marketplace. When we look at the acquisitions you've made on the digital side, over time, it looks like you've paid somewhere around 3.5x revenue on the EMR side, but your more recent acquisitions we're upwards of 6x, if my numbers are correct. And I'm wondering, is that -- is the fact you're moving higher, was that because the market is pushing you higher? And if so, what kind of -- where do you see your ceiling? Or was that because those assets represent some sort of strategic nature, be it geographic or be it a new marketplace? And I'll leave it there.

[Hamed Shahbazi, Founder, Chairman & CEO]

Yes. I mean, listen, I think we saw -- I think you're referring to Insig because Circle was a better multiple than 6x. And Insig, actually, if you look at our initial investment and you look at it on a whole, it's better than 6x. And so we looked at our initial investment, we said, "Hey, we made a great investment. The business has done really well. Yes, we could be in a position where we could just benefit from that investment and have -- receive cash when and if the company decided to sell itself." But we just thought we don't really need that cash. That cash is not really driving us forward. We looked at it more on a holistic basis and felt that that was the right way to look at this as an investment opportunity. So I would say we, for the portion that we did not own, we went up a little bit higher. But in general, given the growth profile of the asset, given the importance to WELL in terms of how integrated we were together and the importance to the future operation of the business, I think we made a good decision there. And if you look at it on a whole, I believe it's appropriate to say that it was less than 6x.

[Operator]

Thank you. There are no further questions. I will now turn the call back over to Hamed Shahbazi for closing comments.

[Hamed Shahbazi, Founder, Chairman & CEO]

I just want -- in closing, I just want to thank everyone, once again, for joining our call, and thanks to the analysts for their questions. I just want to stress to everyone to keep safe out there. Wear mask, maintain your social distancing. And if you need to use a doctor, you can try virtualclinics.ca or tiahealth.com. Thanks again. Thanks for your support. We'll talk to you again soon.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.