WELL Health Technologies Corp

TSX:WELL

Earnings Call Analysis

WELL Health Achieves Record Growth in 2023

WELL Health Technologies celebrated a landmark 2023 with a 36% surge in revenue, reaching $776.1 million, fueled by both acquisitions and 15% organic growth. The momentum is expected to continue, with 2024 revenue projected to be between $950 million to $970 million, indicating a potential 25% growth. Adjusted EBITDA guidance is set at $125 million to $130 million, a significant leap from the previous year's 8% growth, representing up to 15% year-over-year improvement. Contributing to profitability, WELL has undertaken a comprehensive cost optimization program across its Canadian and American operations, anticipating millions in annual savings, including a 39% increase in 4-wall EBITDA to $45.2 million from its Canadian operations. Positive cash flows are slated to reduce debt, lowering interest expenses, with strategic reviews underway for potential sales of key U.S. digital patient service businesses, which is seen as a step towards significant deleveraging and enhancing shareholder value.

Solid Growth Amidst Free Cash Flow Decline

The company experienced a respectable year with approximately 15% organic growth. It recorded a 23% increase in adjusted gross profit, reaching $372.3 million in 2023 from $303.3 million the previous year, and an 8% rise in adjusted EBITDA to $113.4 million. Net income, however, saw an 11% decline, sitting at $16.6 million, or $0.00 per share, primarily due to higher tax and interest payments.

Sturdy Fourth Quarter Performance

The fourth quarter of 2023 was particularly strong, with a record quarterly revenue of $231.2 million, a substantial hike of 48% compared to the same period in the prior year. This surge was attributed to strategic acquisitions and further organic growth within the company. Adjusted EBITDA also rose by 13% to $30.8 million, demonstrating the company's ability to increase profitability alongside revenue.

Outlook for Diagnostic Services

Looking ahead to 2024, the company anticipates its diagnostic centers will continue to break revenue and EBITDA records. Growth is expected to be driven by an expansion of services and an increase in health care providers. New measures like PET scanning for prostate cancer screening and government policies enabling greater access to mammograms in Ontario are potential catalysts for the uptick in patient services and, consequently, revenue.

Anticipated Seasonal Impacts

Despite a promising annual outlook for 2024, the company is bracing for expected seasonal weaknesses in the first quarter, historically its weakest period. Revenue declines in certain business segments are predicted, and adjusted EBITDA for Q1 is not anticipated to match that of Q4 2023. Nevertheless, this dip is viewed as a temporary phase with recovery forecasted to kick off in the second quarter.

Earnings Call Transcript 2023-Q4

[Operator]

Welcome to the WELL Health Technologies Fourth Quarter and Full Year 2023 Conference Call. My name is [ Ludy ], and I'll be your conference operator today. [Operator Instructions] Please note this conference is being recorded. I'll now turn the call over to Mr. Tyler Baba, Manager, Investor Relations. Mr. Baba, you may begin.

[Tyler Baba, executive]

Thank you, operator, and welcome, everyone, to WELL Health Fiscal Fourth Quarter and Annual Financial Results Conference Call for the 3 and 12 months ended December 31, 2023. Joining me on the call today are Hamed Shahbazi, Chairman and CEO; and Eva Fong, the company's CFO. I trust that everyone has received a copy of our press release that was issued earlier today.

Portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws, including future-oriented financial information and financial outlook information. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, many of which are outside of wealth control and that may cause the actual results, performance or achievements of WELL to differ materially from the anticipated results performance or achievements implied by such forward-looking statements.

These factors are further outlined in today's press release and can be found in our management 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 do not 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 statements are based, except if it is required by law.

We may also use terms such as adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted shareholder EBITDA, adjusted net income and adjusted free cash flow on this conference call, all of which are non-GAAP and non-IFRS measures. For more information on how we define these terms, please refer to the definition set out in today's press release and in our MD&A.

The company believes that adjusted EBITDA is a meaningful metric as it measures cash generated from operations, which the company can use to follow working capital requirements, service future interest and principal debt repayments and fund future growth initiatives. Adjusted EBITDA should not be construed as an alternative to net income and loss determined in accordance with IFRS.

And with that, let me turn the call over to Mr. Hamed Shahbazi, Chairman and CEO.

[Hamed Shahbazi, executive]

Thank you, Tyler, and good day, everyone. We hope that you're all keeping safe and healthy, and we appreciate everyone for joining us today. We're extremely pleased to be with you today and discuss our annual 2023 results, which was a record-breaking year in which we achieved record revenue, record adjusted EBITDA, record patient visits and positive net income. We achieved 36% overall revenue growth in 2023 with over 15% organic growth in the business, which includes clinics added to the network for nominal consideration as part of our clinic absorption program.

We remain committed to the company's continued focus on tech enabling health care providers and supporting them in simplifying their work lives, modernizing and digitizing their clinical practices and delivering the best health care possible. And this is evident in our increasing patient visits. During the year 2023, WELL delivered over 4.2 million patient visits to our physical and virtual clinics and a total of over 1.77 million patient interactions. WELL now serves more than 34,000 health care practitioners with our SaaS and technology services in Canada alone, which is equal to approximately more than one out of every three health care providers in the country.

We're extremely passionate about supporting our providers and every day we focus on supporting them better. This attitude and focus is what allows the company to continue to witness healthy growth across all business segments, including both online and in person care channels. We expect our strong performance to continue into 2024. We do not foresee any material influences or challenges that would impair our ability to deliver solid results in 2024 in any of our businesses as we are poised to maintain and even accelerate our growth without meaningful capital allocation while delivering on enhanced profitability, and I'm pleased to provide our 2024 annual guidance as follows: we are increasing our annual revenue guidance to be in the range of $950 million to $970 million, representing annual revenue growth of up to 25%.

In the past, I've mentioned our goal of achieving $1 billion in revenue with the revenue guidance of $950 million to $970 million that I provided today, we're easily within reach of that $1 billion milestone.

Keep in mind that this annual guidance does not include any unannounced acquisitions. Even though we're now favoring organic growth over acquisitions, we do continue to have a pipeline of mostly smaller tuck-in acquisition potentials and we expect a number of them will be completed this year, which should put us in a position to report that we crossed the $1 billion in revenue figure on a run rate basis by the end of 2024. For our annual adjusted EBITDA guidance, we expect to be in the range of $125 million to $130 million, representing annual growth of up to 15%. Comparatively, we achieved 8% growth in adjusted EBITDA in 2023 and 73% growth in 2022.

As you can see, our expected EBITDA growth is accelerating as our expected EBITDA growth is significantly higher than it was in 2023, and we expect this to happen with less capital allocation activity. Our improvements in EBITDA in 2024 are driven by several factors, but I'll quickly point out four of them. One, WELL has implemented a comprehensive cost optimization program to enhance its operational efficiency and profitability.

This program has been implemented in both Canada and the United States and includes a streamlined approach to staff restructuring, increased utilization of technology and where possible, AI for process improvements and optimization, consolidation of suppliers, higher integration of our business units, and other cost optimization initiatives, which are expected to result in millions in annual cost savings. Two, continued performance from our Canadian operations which experienced a 39% year-over increase in 4-wall EBITDA to $45.2 million.

We will talk a bit more about this later as our Canadian business has significant momentum. Three, last year's acquisitions of MCI and the large Manitoba clinic had a dampening effect on our EBITDA last year. However, our clinic transformation team and shared services teams are already hard at work in their efforts to optimize and digitize these clinics. And as such, we expect them to have improved margins and profitability in 2024. And four, in addition, the acquisition of CarePlus by WELL USA last year, which added incremental revenue and EBITDA to our core anesthesia business as well as our provider staffing services, which had a strong organic growth profile associated with it.

We expect strong cash flow generation in 2024 and given that we plan to focus more on organic growth, which includes our clinic absorption program and acquisition volume, we plan to use our positive cash flow to reduce debt levels this year, thereby also reducing our interest expense run rate. 2024 is also a significant milestone year for us as we have important timelines related to both our U.S. digital patient services businesses. Circle Medical and Wisp.

Both of these businesses have call option and IPO registration option time line that expire in the near future unless extended and result -- and as a result of that, we've begun to partner with minority shareholders and management to consider strategic alternatives for both businesses, which could include a sale for one or both assets. Given how we believe this could be a key positive catalyst for WELL in terms of significantly delevering and returning value to shareholders.

With that, I would now like to turn the call over to our CFO, Eva Fong, who will review the financials for fiscal 2023 and fourth quarter of 2023. I will then come back and provide further commentary on our business units. Eva?

[Eva Fong, executive]

Thank you, Hamed. I'm pleased to report that we had very strong results for the 3 and 12 months ended December 31, 2023. Our overall annual financial results were as follows. Total revenue for the year ended December 31, 2023, was $776.1 million, compared to total revenue of $569.1 million for the prior year, an increase of 36%, driven by acquisitions and organic growth during the past year.

WELL organic growth for the year was approximately 15%. Adjusted gross profit was $372.3 million in 2023, an increase of 23% as compared to adjusted gross profit of $303.3 million in 2022. Adjusted EBITDA was $113.4 million in 2023, an increase of 8% as compared to adjusted EBITDA of $104.6 million in 2022. Adjusted EBITDA to WELL shareholders was $88.4 million in 2023, an increase of 15% as compared to adjusted EBITDA to WELL shareholders of $76.6 million in 2022. Adjusted net income was $52.4 million or $0.22 per share in 2023, a decrease of 2% as compared to adjusted net income of $53.7 million or $0.24 per share in 2022.

Adjusted free cash flow was $42.4 million for 2023, a decrease of 13% as compared to adjusted free cash flow of $48.9 million for 2022. The decrease was mainly due to higher tax and interest payments, offsetting the increase in shareholder EBITDA. Net income was $16.6 million or $0.00 per share in 2023, a decrease of 11% as compared to net income of $18.7 million or $0.00 per share in 2022. We calculated earnings per share based on earnings attributable to WELL. Our fourth quarter financial results were as follows: well achieved record quarterly revenue of $231.2 million in Q4 2023, an increase of 48% as compared to revenue of $156.5 million generated during Q4 2022.

This growth was driven by acquisitions and organic growth. WELL achieved record adjusted gross profit of $101 million in Q4 2023, an increase of 26% as compared to adjusted gross profit of $80.2 million in Q4 2022. Growth in the company's adjusted gross profit is attributable to higher revenue in the period. WELL achieved record adjusted EBITDA of $30.8 million in Q4 2023, an increase of 13% as compared to adjusted EBITDA of $27.2 million in Q4 2022. Adjusted EBITDA attributable to WELL shareholders was $22.6 million in Q4 2023, an increase of 7% as compared to adjusted EBITDA attributable to WELL shareholders of $21.1 million in Q4 2022.

Adjusted net income was $11.2 million or $0.05 per share in Q4 2023 as compared to adjusted net income of $12.5 million or $0.05 per share in Q4 2022. Adjusted free cash flow was $12.7 million in Q4 2023, an increase of 23% as compared to adjusted free cash flow of $10.3 million in Q4 2022. This was mainly due to higher EBITDA generation. Net income was $33.8 million or $0.12 per share in Q4 2023, an increase of 53% as compared to net income of $22.1 million or $0.09 per share in Q4 2022.

We calculated earnings per share based on earnings attributable to WELL. In the fourth quarter, WELL generated 9% of its revenues from truly recurring and subscriptions revenues and 88% of its revenues from its highly reoccurring patient services revenues. This means that approximately 97% of its revenues are highly predictable. WELL ended 2023 with a solid balance sheet. As at December 31, 2023, WELL had cash and cash equivalents of $43 million.

On January 26, 2024, the company refinanced its syndicated credit facility with JPMorgan Chase Bank for $300 million, consisting of a primary $175 million credit facility with an additional $125 million accordion for future growth. The credit facility includes two new syndicate members, Bank of Montreal and Export Development Corporation, which is wholly owned by the government of Canada and the term has been extended to January 26, 2027.

WELL continues to be in the standing and fully compliant with all covenants related with its two credit lines JPMorgan in the U.S. and Royal Bank in Canada. The company's total bank debt increased to $297 million at the end of Q4 2023 due to cash required for the CarePlus acquisition. This compares to total bank debt of $293 million at the end of the prior quarter Q3 2023. WELL's shareholder leverage ratio also increased slightly as a result of the higher bank debt levels to 2.7x as at the end of Q4 2023 compared to 2.6x in the prior quarter Q3 2023.

Please note that we define leverage ratio as total bank debt less cash on hand, divided by shareholder adjusted EBITDA after certain pro forma adjustments. We exclude convertible debentures from this calculation because convertible debentures are not included in our bank covenants. In terms of our share capitalization, as of March 20, 2024, WELL had 264,130,019 fully diluted securities issued and outstanding.

That is my financial update, and I turn the call back over to Hamed.

[Hamed Shahbazi, executive]

Thank you, Eva. I'll now provide some specific outlook on the business units. First, our Canadian clinics business, which is now overseen by Dr. Michael Frankel, our Chief Medical Officer. This division includes our primary care business and our WELL Diagnostic Centers previously referred to as MyHealth.

Overall, Canadian clinics achieved total revenue of $230 million in 2023, an increase of 27% from 2022. Fourth quarter was another record quarter for Canadian clinics with revenue increasing 31% as compared to Q4 2022, driven by healthy organic growth in our primary care clinics as well as the acquisition of NCI Ontario clinics and our first clinic in Manitoba. For 2024, we're expecting revenues from our Canadian clinics to be over $300 million, along with strong EBITDA margins as we expand margins for the newer clinics in our network.

We believe the Canadian market continues to be an enormous generational untapped opportunity. This is very much a land grab opportunity for the company given its strong digital business that supports over 1/3 of all physicians in the country, it's growing brand recognition and the structural advantages we enjoy as a large physician group in the outpatient market. And the largest owner operator of outpatient clinics across the five most populous provinces of Canada, namely Alberta, BC, Manitoba, Ontario and Quebec, providing multiple services, including primary care, diagnostic, Allied Health, Specialty Care and longevity medical services.

With 167 clinics and 98 facilities in Canada, we are the largest player, and yet we have only have approximately just under 1% market share of all physician spending in Canada, which is a large multibillion-dollar opportunity. We believe we can grow our Canadian patient services business from $300 million in 2024 to exceed $1 billion as a stand-alone revenue business in the not-too-distant future.

And generally speaking, we don't see why we wouldn't be able to achieve up to 10% of market share over time. Our Canadian clinics business is also generating significant profitability. In 2023, Canadian clinics 4-wall EBITDA grew by 37.8% year-over-year to approximately $33 million in adjusted EBITDA, which is roughly 2/3 of the total 4-wall operating EBITDA profit in our Canadian business, which includes our SaaS and services business as well.

This increase in profitability in our Canadian clinics business is proven that our business model is working. For example, in our primary care segment where our outlook for 2024 is very strong. We are at times acquiring clinics that have low EBITDA margins, and in some cases, such as MCI, Ontario clinics and the Manitoba Clinic, these clinics had negative EBITDA margins and will take a couple of quarters to see improved EBITDA margins.

Once a new clinic is added to our network under the leadership of Jeremy Mickolwin, our clinic transformation team extensively uses our own digital practitioner enablement platform and shared services program to modernize and digitize these clinics, which results in improved cost efficiency and operating support for physicians, along with a significant improvement in EBITDA margins. We genuinely believe our clinic transformation team and capabilities are a unique superpower of the company and are helping physicians improve their business clinic by clinic.

We believe the issue of lack of digitization is existential for our primary care clinic industry in Canada. If a clinic doesn't digitize and relieve low leverage work to software and workflow, it simply cannot survive given the growing cost of labor.

WELL's current pipeline of new clinic opportunities is roughly 50 clinics, of which approximately 1/3 would be actionable under our absorption model where we have minimal acquisition costs and the balance would be under our regular M&A program.

In this pipeline, we're still seeing lower multiples and significant opportunities to acquire quality clinics at low prices particularly in primary care. The clinic absorption model is a very unique opportunity for WELL because of our national footprint, increasing brand recognition and the strong support and value proposition that we provide our health care providers, doctors are seeking us out to join the WELL network and take over the operation of their clinics.

Doctors are facing such significant technology challenges, administrative overhead issues that they're increasingly don't want to run their own clinics and are seeking out well to become their operating partners. Under this absorption model, we simply take over the lease of the clinic and the doctors join our network. There is no capital cost in most cases. And for this reason, we see absorbed clinics as merely an extension of our own recruitment efforts.

Here, instead of recruiting physicians, we're including entire clinics with a full roster of patient and provider relationships. We believe that our organic growth and recruitment of absorption opportunities will continue to significantly grow in 2024. And now a few words about WELL Health Diagnostic Centers, which is essentially a rebrand of MyHealth centers. WELL Health Diagnostic achieved record revenue of $111.3 million in 2023, which was entirely driven by organic growth.

Revenue in the fourth quarter was a slight decline compared to Q3, which is reflective of our normal seasonality. Q4 revenue was also slightly lower than Q4 of last year as the previous year's cycle, there -- was irregular due to COVID restrictions being lifted in 2022, which drove increased revenue towards the end of the calendar year. Notwithstanding the lower revenue, unique -- overall unique patients grew by 5% year-over-year for Q4 2023 versus Q4 2022.

For 2024, we are expecting our diagnostic centers to achieve another year of record revenue and EBITDA. Organic growth is driven by expansion of services and an increase in the number of health care providers, which allows us to serve more patients. Our operating team led by Dina Sergi, have done a fantastic job optimizing costs, while the business continues to grow and gain momentum. I'm pleased to share a couple of new services also provided by the WELL Health diagnostic centers.

One, first, as of Q4 2023, we are participating in the expansion of PET scanning for prostate cancer screening. Previously, such studies were only performed in hospitals, but due to the increased demand and the Cancer Care Ontario guidance, this is now offered in selected integrated community health service centers, such as ours. Secondly, the government of Ontario will allow women to self-refer for mammograms beginning at age 40 under the Ontario Breast Screening Program commencing in the fall of 2024. Although this becomes available this year, we're already seeing a notable increase in mammograms of 11% from Q3 2023 with intensification and awareness.

We're also keeping a close eye on Ontario's Bill 60, Your Health Act, which allows out-of-hospital facilities to perform publicly funded surgeries and diagnostic procedures, including MRI and CT scans. We understand that there may be a call for new applications in the coming months, and we intend to support the diagnostic needs of the province of Ontario. We are now seeing acquisition multiples finally start to moderate and become more reasonable on the specialized care and diagnostic opportunities.

Given this, we're looking forward to expanding our diagnostic centers to more provinces in 2024. I will now discuss outlook for our WELL Health USA business, our WELL Health USA patient and provider services revenue was $144 million in Q4 2023, an increase of 55% as compared to $92 million in Q4 2022. Revenue growth over the past year was due to growth in all three of WELL Health USA lines of business: Circle Medical, WISP and CRH. First, on CRH and RADAR, which we are now referring to as provider staffing. CRH closed out another successful year in 2023, while anesthesia continues to be a mainstay for CRH, the midyear acquisition of CarePlus Management also added the complementary recruiting and staffing business, which operates under the name of RADAR health care providers.

The full integration and related synergies of these businesses are now complete, and we believe this acquisition will prove to be successful for years to come. Q4 is typically CRH's strongest quarter and this year's results were as expected. Overall, Q4 2023 revenue was up 79% versus Q4 of last year, while fiscal revenue was up 50%. Specifically, the CRH anesthesia revenue grew by 24% year-over-year in Q4 and 25% for the year, while the CRH O'Regan business was flat.

The rest of what is now known as WELL Health USA's growth was driven by the addition of provider staffing. As a reminder, provider staffing is a premier and trusted staffing and locum tenants business specializing in anesthesia. Provider staffing provides recruitment and placement services, along with temporary staffing to its national network of provider groups, hospitals and ASCs across over 30 states. Provider staffing was an important addition to the WELL USA family as its portfolio of services targeting the GI marketplace now includes three prongs. One, hemorrhoid banding with the company's O'Regan Medical Device, which is the U.S.'s leading band ligator device, two, anesthesia services for routine colonoscopies and of course, three, provider staffing solutions. We look forward to adding more services to this GI-focused service bundle. And now on to our U.S. digital patient services businesses.

First, Circle Medical. Circle Medical continues to successfully execute on its direct-to-consumer patient acquisition strategy, which resulted in a record quarter. Growth accelerated to Q4 to $29.9 million, representing 32% growth compared to the same quarter of the previous year, all organically driven. Patient volume grew from 422,000 to $563,000. Circle ended 2023 with year-over-year revenue growth of 39%. Circle's fourth quarter results also benefited from a onetime billing true-up at the end of the year from services provided in prior quarters.

The company is increasing its investment in R&D where it expects to double the head count this year with technical hires in its Montreal facility being a priority. Key focuses for 2024 will be mainly related to platform upgrades including the company's aggressive AI road map, which is quite exciting as Circle Medical is launching its own AI scribe and AI-powered physician copilot capabilities to support its own provider network workforce of over 300 providers.

Circle has also entered into a partnership with the Mila Quebec AI Institute, giving it access to collaborate with the institute 1,200 AI researchers while retaining IP. Circle has also resumed state expansion for the first time in 2 years. Since the beginning of 2024, Circles launched virtual care in four new states, Georgia, Michigan, North Carolina and Ohio and is expecting to launch an additional four states by the end of Q1, bringing the total number of active states, 38.

Looking ahead to 2024, Circle Medical is on track to match its previous year's revenue growth rate of over 30% year-over-year while maintaining EBITDA positive. And now a few words about WISP. I am pleased to report that WISP reported record revenue in Q4 with improved profitability, which also successfully completed its plan to launch 10 new products in 2023. From a cost optimization perspective, WISP has successfully renegotiated pricing with the pharmacy partners and is committed to more cost-effective nurse practitioner hiring on the provider team. We expect WISP to report record revenue again in Q1 with continued profitable growth as the business ramps up marketing spend and continues to lead into new product development with plans to launch its new fertility offering shortly.

Finally, our SaaS and Technology Services businesses. SaaS and Technology Services revenues from our Platform Solutions group were $20.2 million in Q4 2023, a year-over-year increase of 60% and as compared to $12.6 million in Q4 2022, an increase of 27% as compared to $15.9 million in the prior quarter Q3 2023. The increase in revenue was due to a bounce back in our cybersecurity and data protection business in the fourth quarter as well as organic growth in our remaining SaaS and services platform business.

Last year, well bolstered its cybersecurity portfolio with tuck-in acquisitions of Seek Into and ProAct security, bringing on board seasoned cybersecurity professionals in the process and strengthening our ability to serve over 190 corporate and government customers across North America. These acquisitions are performing well, and we expect cybersecurity to have an improved overall year in 2024 as compared to 2023. In 2023, we announced that OceanMD signed a $38.5 million contract with British Columbia's Public Health Service Authority to provide an array of digital services such as eReferral, e-consult and e-orders to help further tech enable providers with best-in-class digital interoperability tools. Thus far, our implementation in BC has been proceeding as planned, and I'm pleased to announce that Go Live is expected in the first half of 2024, at which time, we will also start to receive high-margin license revenue from this relationship.

OceanMD is already the dominant eReferral solution in the province of Ontario. In Q2 2023, we announced and OceanMD went live across Nova Scotia. And with the recent win in BC, we feel OceanMD has the potential to become the eReferral standard across the country. OceanMD is a key component of WELL platform and is emerging as a leader in patient engagement in e-referral solutions. Ocean's eReferral software allows primary care providers to send their request to specialists through the Ocean eReferral network instead of faxing, e-mailing or mailing, which makes surgical consult referrals easier and reduces wait times for patients.

We're pleased to report that Ocean delivered more than 876,000 eReferral in 2023. And a couple of weeks ago, we announced that -- thus far in the year, we're at 1.2 million eReferral in the last 12 months, demonstrating already significant growth and acceleration over the past year. This is a real achievement, and we're very proud of the Ocean team for making this positive impact in the Canadian health care ecosystem. In 2023, we launched WELL AI voice which has been a big hit with health care providers because of its ability to cut down on administrative time and increase patient engagement, giving physicians time back in their day. The adoption metrics of WELL AI voice are a testament to the value created for physicians.

WELL AI voice has seamlessly integrated into 131,000 patient consultations in 2023 reclaiming time for clinicians that was previously lost to administrative tasks, while enriching patient care quality. WELL AI voice has been successfully rolled out to over 25 well-known clinics. Our continued expansion of WELL AI voice within our own clinic network demonstrates our dedication to leveraging our AI capabilities to also benefit WELL physicians as well as our broader clinic network.

Overall, our technology platform services group continues to perform with the rollout of AI-based tools and achieving record sales in Q4. Lastly, our Platform Solutions group, which is under the leadership, now under the leadership of our COO, Amir Javidan, formed a dedicated public sector group to support large-scale health systems and care delivery networks that underpin the public sector. The objective of this group is to combine and deliver product offerings that are specifically suited for public sector's unique scale and requirements. If you'd like to learn more about this, please visit our new dedicated public sector website at WELL Health solutions. That's wellhealth.solutions as the URL.

And now I'd like to provide some commentary on our partnership with HEALWELL AI. As you may remember, on October 1, we completed the transaction with MCI One Health, whereby WELL acquired the clinical assets from MCI and the remaining business of MCI was recapitalized and launched as HEALWELL AI, a company focused on AI and data science for preventative care. While it's currently the largest shareholder of HEALWELL with an option that would give WELL the control position in HEALWELL as defined on an IFRS financial reporting basis. WELL currently holds 22.7 million shares of HEALWELL, thereby representing 20.8% of the issued and outstanding voting securities of HEALWELL. WELL's call option gives WELL the right to acquire up to an additional approximately 30 million Class A subordinate voting shares and the same number of Class B multiple voting shares of the company.

If WELL exercises its option, WELL will have well over 40% ownership on an as-converted basis. We're extremely happy with the progress that HEALWELL team has made in such a short period of time. Since its launch, HEALWELL has raised approximately $29.5 million in convertible debt and equity funding, completed two acquisitions of Pentavere and intra-health made one minority investment in doctorly.

More recently, you may have seen the announcement that I've taken on the Chairman role at HEALWELL. I took on this role because the Boards of both WELL and HEALWELL felt that there is strong alignment between WELL and HEALWELL. I believe my appointment is also strategically very important for shareholders of both HEALWELL and WELL given the shared objective between the companies to create the most advanced and easy-to-use AI-inspired tools that can equip care providers with various copilots that can help them improve diagnosis of rare and chronic diseases, improve efficiency of their practice and improve patient health outcomes.

WELL has also entered into a strategic alliance agreement with HEALWELL that enabled us to launch WELL AI Decision Support to our network of clinics and doctors. Given that some patients who have chronic or complex care needs may have hundreds or even thousands of pages of clinical notes, it's unrealistic for physicians to be expected to have a dynamic understanding of all patients' charts and detailed requirements. As such, we expect that over time, Decision Support will support physicians in numerous ways.

More recently, HEALWELL announced that it has signed a services agreement with both WELL Health USA and our U.S.-based subsidiary, Circle Medical, which expands its footprint in the United States and will enable U.S. health care providers with a suite of AI-powered preventative care solutions. HEALWELL Pentavere Division has partnered with WELL Health USA's CRH Medical to access anonymous U.S. health care data to gain insights in supporting patients who are dealing with inflammatory bowel disease and other GI conditions.

Through the agreement, Pentavere's Darwin AI platform will analyze over 200,000 U.S. patients in a secure and compliant manner across 21 states to understand the real-world dynamics between biological prescribing and treatment outcomes. Meanwhile, HEALWELL's Care Health will integrate its proprietary AI platform with Circle Medical's Electronic Medical Record System, expanding its footprint to over 30 U.S. states. Here's AI WELL screen for and flag for individual patients with whom the health care practitioner might consider for future investigation for potential earlier diagnosis of rare disease. We believe HEALWELL can be one of the most consequential AI health care companies in the country and also with global appeal, given its partnership with WELL and given the technology it has already acquired and developed.

HEALWELL's ability to unlock insights from data that inform the creation of AI-powered physician co-pilots will be very key moving forward in an industry that badly needs to support its care providers better. Before we take questions, I'd like to provide some additional color on our Q1 2024 expectations. Despite our bullish annual look for 2024, we're expecting some normal seasonal weakness in the first quarter. Q1 has typically been the weakest quarter for CRH and its anesthesia business due to payer mix shifts and the renewal of patient deductibles coinciding with year-end.

We're also expecting Circle Medical revenues to decrease from Q4 and 2023 to 2024 as there were some onetime items in Circle Medical's Q4 results that won't be repeated in Q1. In addition, our cybersecurity revenues can be lumpy and our strong results in the SaaS and technology business aren't likely to be repeated in Q1. In terms of our adjusted EBITDA, due to the seasonal and onetime revenue factors in Q4 2023, we expect our Q1 adjusted EBITDA will not reach the same level as Q4 2023. Furthermore, the positive results from our cost optimization and staff restructuring efforts will begin to materialize until the second quarter due to these factors, we expect a sequential decline in our adjusted EBITDA from Q4 2023 to Q1 2024. Nonetheless, we're expecting continued revenue and EBITDA growth in Q2 and into the back half of 2024.

In summary, we are very pleased with our financial performance in 2023 and look forward to delivering strong results again in 2024. Our outlook remains very positive. Hence, I'm confident in our upgraded annual guidance. We have many tailwinds driving growth in the business, and we have a committed and disciplined team to ensure we can deliver on our objectives.

Finally, I want to thank you all for joining us on this call 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. I would also like to thank WELL's senior management team and all our employees and contractors for their tremendous effort, and for creating a strong and inclusive culture that has helped us be recently independently certified as a Great Place to Work by the Great Place to Work Institute of Canada. This is a fully independent process. And as such, certification is a reflection of the company's strong commitment to creating a positive and progressive workplace culture. As per usual, I would also like to thank our team, health care providers and frontline workers who provide unbelievable patient care every single day. They remind us why we are here and we are here to support them.

And with that, we'd be very pleased to take some questions. Operator?

[Operator]

[Operator Instructions] Your first question comes from the line of Christian Sgro from Eight Capital.

[Christian Sgro, analyst]

The first one I'll ask is on the margin profile, which we just touched on. And within the clinical absorption program, so in Canada, what's an average timeline to get operations and margins to the segment average? And maybe you use MCI clinics in the Manitoba Clinic as an example of how that's progressing and you normally see everything optimized within these acquired clinics?

[Hamed Shahbazi, executive]

Thanks for your question, Christian. Really, we have a couple of different phases, typically. We typically -- when we identify an absorption clinic or if we acquire a clinic that has lower EBITDA margins, typically, we believe that within the first 100 days, we can make our sort of first order of improvements and so we see an improvement right away, just given what we know about where these clinics should be operating even without a lot of tech digitization then really our clinic transformation efforts start to get deployed, and that can take several months.

So I would say really a couple of quarters before we start to see the second order of improvements and then really, we start to then refine and integrate other forms of care and drive additional synergies, which gets into sort of the year 2 area. The thing to really think about is when we buy clinics or when we absorb clicks, we really look at one key factor, and that is the wages as a percentage of total revenue. WELL optimized and digitized clinic operates less than 10% of total revenue attributable to wages.

And we regularly encounter clinics that have over 20% and this is what we like to see. This is where we know we can make a difference. And we -- for example, our BC clinics, most of them are 8% now. So they are operating extremely well. And it does typically take 1 to 2 years to get right down to that 8%, but we will make several points of percentage points of progress within the first few months alone. Hopefully, that provides some perspective.

[Christian Sgro, analyst]

That's all helpful, Hamed. I'll ask a second question on margins as well. And first, congrats on the guidance for you on the revenue side and providing some point of guidance both for 2024 and the Q1. So is it fair to say that margins will increase quarter-by-quarter through the year. Is that the way we should think of the cadence of improvement to that goal? Or is there any other seasonality that you flag or how to think about?

[Hamed Shahbazi, executive]

Well, as you know, seasonality has existed with our business for a long time. It's just the way that the payer and deductible dynamics work in our largest division in terms of EBITDA generation in that CRH. So this is fairly predictable seasonality. As far as the rest of the business, we just implemented a cost optimization program. So we'll certainly start to see that impact Q2, but we've been very strong in terms of meeting our guidance. And we have a lot of confidence in the $125 million to $130 million. Note that, that essentially results in about 15% increase in absolute EBITDA generation from 8% last year. So that's pretty meaningful, and that demonstrates acceleration in EBITDA generation which I think is really an important goal for the company.

[Operator]

Your next question comes from the line of Doug Taylor from Canaccord Genuity.

[Doug Taylor, analyst]

Yes. Thank you. Good morning or good afternoon. I also will echo Christian's congratulations on the top line growth momentum and follow up with another question on margins. I think you've articulated what the margin profile should look like this year. The overall midpoint of your margin guidance for the year would suggest a level percentage-wise equal to Q4 and so I guess my question is, as we look out to when you've got the current clinic portfolio fully optimized what you see as the margin potential, EBITDA margin potential for the business as a whole or when we should expect to see the benefits from the scale that you're building within your various operations?

[Hamed Shahbazi, executive]

Yes. No, thanks for that question, Doug. I mean, generally speaking, I think we've been able to demonstrate that in the primary care side of things, we can drive these margins well into double digits. So 10% to 15%, and some of the best performers can go up above 20%. And our specialized care program, they're durably over 20%. So really, then margins over time are going to be more reflective of the different cohorts and how mature they are in the network. And so if we were to stop adding new clinics, obviously, that margin profile overall on a blended basis would grow pretty significantly over time.

But it's our expectation that we will continue to add new clinics and that -- there'll be a mix of immature and mature cohorts which will kind of land us in the kind of blended margins that we have today. And I think that will continue for a while and we're really trying to elevate and scale up our clinic transformation business because we think that's really the key. As I mentioned in my script, that's the superpower of the company.

That's something that you don't really see anyone else in the country have. And so as we scale that up, we'll be able to take on more clinics and we'll be able to basically digitize and modernize faster which means that we'll be able to also open the spigot and take in more clinics. And just given the opportunity that we have to acquire very cheap assets and digitally transform them. I mean, we're creating a cornerstone asset here for the Canadian ecosystem that is really unparalleled. So we're very, very excited about that. We understand that there may be a hope of optimizing margins in the near term. And certainly, some of our operations do that. But for us, it's really important to continue to bring some of those more mature cohorts and continue to evolve the journey overall.

[Doug Taylor, analyst]

A second question for me. You've mentioned the prospect of potentially achieving 10% market share within the Canadian market over time, which is, as you say, cornerstone and unprecedented. Is there any regulatory? Why do you think -- I mean given that we haven't seen that kind of concentration within primary care in Canada before, do you see any hurdles to that kind of objective?

[Hamed Shahbazi, executive]

We really don't. And we're frankly being cheered on by public health because we've been very careful to not be disruptive to public health interest and requirements. So this is why even though we're very innovative, we don't really call ourselves disruptive to the market because we're really supporting the single payer system. We obviously have our private care systems and clinics as well. But I think what's really important here is doctors need to support.

And I think increasingly, public health and public sector is realizing that physicians don't want to run clinics. They do want to partner and have an operating partner that provides professional management like WELL. So no, we don't know of any such issues. And of course, 10% is a long way from where we are today. That would imply more than a $3 billion Canadian clinic business by itself which, again, we think is very possible just not only in terms of the market dynamics, but because of the need. We are -- we're a G7 country with a $330 billion health care ecosystem growing every year at a pretty good clip.

And we never really focused on creating networks, pan-Canadian national networks in the country. So I do think it's possible. I think WELL is the company that's way out in front and can do it. And we are very much partnered with public health. As you can also see, they're engaging with us in terms of our digital platform. So we're not seeing any friction there, and we're really strategically focused on being a friend to public sector.

[Operator]

Your next question comes from the line of William Wood from B.Riley.

[William Wood, analyst]

We're just curious a couple of questions on the guidance. That was raised obviously from $900 million to $950 million to $970 million. Just curious on how much of this increase is organic? And is there a particular segment you see outperforming prior estimates? Or is it across the board? And maybe how should we look at organic versus nonorganic growth across the three segments?

[Hamed Shahbazi, executive]

Yes. So this is primarily organic. We actually haven't really even factored inorganic growth as part of this. So I think you're going to see fairly normal growth in our U.S. Patient Services division, Circle and WISP. So that, as I mentioned in my script, and as far as CRH is concerned, the anesthesia business has sort of lower single-digit growth, but our new provider staffing business has good strong organic growth.

So I think we're going to see good growth there. And then, of course, our Canadian clinics business from going from $230 million to well over $300 million this year. That's pretty substantial. So as I mentioned in my script, there's sort of continued tailwinds in performance in terms of extrapolating what happened in 2023. We expect -- all what we really expect to be happening is the Canadian business gaining momentum, probably a bit more than before.

It's pretty clear that there's just no one like WELL in Canada. And I think it's safe to say that we are pretty dominant in this market and the market really needs us. We know there's a health care crisis. We know that providers are struggling and they're seeking technology support from us and operating support from us. So I really do think that we have something special in terms of being able to support those providers, and it's really important to us to do that.

[William Wood, analyst]

Excellent. And then for your M&A activity, you mentioned that the -- you expect that along with the capital allocation might be coming down a little bit in 2024. But what are you looking for as far as the amount of M&A targeting in fiscal year '24? And then will -- how are you maybe how would that be divided? Will it mostly be acquiring new clinics or acquiring new services?

[Hamed Shahbazi, executive]

Yes. Great question. Yes, we definitely -- given the step-up in organic growth, we just don't need to buy our growth as much as before. And so gearing up and really tooling up for that organic growth is really key for us. Our M&A, and as I mentioned, we will continue to do some M&A and we will fund that ourselves through cash flow. I think a lot of that will be in Canadian clinics. And I think some of that you'll see as we've done before in kind of normal course with WELL USA and CRH, so those are probably the two areas. I don't see us going out and buying a lot of digital assets right now.

Those assets tend to be more expensive and we don't really need to buy them anymore. We have an incredible technology team and platform team that's developing fundamental technology and partnering with great companies externally as well. So as evidenced by all the innovation that you're seeing at the company. So there was a time when we needed to build out those capabilities, we don't really anymore.

[William Wood, analyst]

Okay. That's helpful. And then lastly, on sort of the Circle and/or WISP, you'd mentioned that there might -- could include a sale of one or both assets. Are you thinking -- is there a potential to retain some of the ownerships of much closer to a partnership? Or are you thinking more or like a full spin out? Or are you thinking actually much more of a sale for these assets?

[Hamed Shahbazi, executive]

I mean we're looking at all of those options. We just -- obviously, when you write these agreements, you include as many options as you can because you don't know what the environment is going to be like years downstream. And so I think we did a great job when we wrote these agreements because we have a lot of options. We have the right to take them public. We have the right to call the balance of the shares. We could bring in private equity to take on the minority components that we don't own or we could engineer a full sale.

And I think all of those options are on the table. I think I was just pointing out that to the extent that one or both of them does result in a full sale, we would be intentional about returning some of that value to shareholders through reduction in debt and possibly through a pretty aggressive buyback. And so that's a developing story that I think will see some real action this year. So stay tuned on that. That's why I wanted to include that at the front end of my script.

[Operator]

Your next question comes from the line of David Kwan from TD Securities.

[David Kwan, analyst]

Appreciate the color on the clinics, Hamed, in terms of the margins and where you think they could go. I know when you guys had rolled out WELL AI voice initially, I think initial tests you talked about I think some doctors having somewhere around 30% or maybe north of 30% time savings. Do you have an updated number in terms of the cost savings or the time savings that these doctors are finding? And how do you see the margin -- potential margin impact as you deploy more of these technology AI-based solutions in your clinics, where could margins end up going to?

[Hamed Shahbazi, executive]

Yes, it's a great question, Dave. I mean, I'll just give you some color. What we're finding is that for each consult, particularly in primary care, physicians are getting about 3.5 minutes back. So consider the fact that a physician that sort of meets and slightly exceeds that median income for a physician needs to see about 40 patients a day. So that's more than 2 hours returned per day.

Now physicians can use that time to see more patients that extra time that they've received back, they can improve their quality of life. They can feel better about their business. So it doesn't always necessarily come back into margins unless physicians want to take on more of a load. But we are definitely seeing that it is helping our physicians. We're seeing that it is alleviating their workloads and improving their administrative burden, and we do believe that it is resulting in improved patient visits.

It's probably too early for us to be able to say, "Hey, this is the main reason." Because we -- there's a lot that we do to support physicians and it is a very different experience for them when they own their own and operate their own clinic versus being in the well clinic. And I think with time, we'll be able to better draw conclusions to margins.

But the ability to be able to -- with clarity and specificity say that we return hours a day to a physician is really remarkable. I mean I don't know if there's been anything for a very long time that has been as influential and helpful in terms of returning time back to them.

[David Kwan, analyst]

No, that's helpful. Thanks, Hamed. And then just on the U.S. business, the cyberattack on Change Healthcare, curious to get a sense of if you saw any impact on your business? I assume at the very least that there was on the collections front, but I want to get your take on that.

[Hamed Shahbazi, executive]

Yes. Absolutely. It's a historic attack on the largest health care company in the world, which is United Healthcare and change. And Change, of course, is a very large health care payments clearinghouse. So it's affected a significant number, I'd say, a good majority of health care companies in the U.S. And for us, the only slowdown that -- and the impact that we would feel, and this is more temporary, it's just the rate at which we receive cash from the clearing house.

Now changes in United have also in the process of standing up a kind of a cash framework solution to help support folks who need to be able to receive that cash until their systems are back up and running. So this is all pretty manageable, and I think Change is doing a pretty good job recovering and supporting people in the industry. But for sure, those first few days and weeks were quite challenging in the industry. But I think we're sort of moving in the right direction, and we don't expect any material impact from this to effect WELL.

[Operator]

Excuse me, ladies and gentlemen, this ends our Q&A portion for today's call. I would like to turn it back to Mr. Hamed Shahbazi for closing comments.

[Hamed Shahbazi, executive]

I'd like to thank everyone today for joining and for the great questions from the analysts. We look forward to meeting with you after Q1, and we appreciate all your support.

[Operator]

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.