November 08, 2021 - 10:13am EST by
2021 2022
Price: 2.21 EPS 0 0
Shares Out. (in M): 165 P/E 0 0
Market Cap (in $M): 363 P/FCF 0 0
Net Debt (in $M): 80 EBIT 0 0
TEV (in $M): 0 TEV/EBIT 0 0

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I’m going to put the caveats up front.  This may not be a great company and I am not operating with complete information.  But I believe this is one of the better priced asymmetric options I’ve seen in a while, and there is a catalyst coming up tomorrow.


Uphealth is a former SPAC which closed its deal in June.  Since that time it has been one of the worst, if not the worst, performing de-spacs, collapsing from $10 to $2.


Uphealth operates in the broadly defined “e-health” space.  At the core of the Uphealth offering is Thrasys Syntranet, an integrated care solution which facilitates the coordination of complex care across multiple healthcare providers.  One driver for the adoption of such products are mandates and other pressures to implement value-based care solutions for patients with chronic conditions.  To date the flagship customer win for Thrasys is LA Cares – the largest publicly operated health plan in the US with 2.4MM lives.  Thrasys is a key part of the implementation for CalAIM which is one of the first flagship whole-person and value-based care programs to emerge at scale (http://www.partnershiphp.org/Community/Pages/CalAIM.aspx).  At the end of Q2, the platform covered 6.8MM lives and 132 organizations.  In their latest earnings call (the first as a public company), Uphealth stated that they expect to double lives on the platform annually for at least the next three years.


Beyond Thrasys, Uphealth has a collection of domestic and international businesses in the e-health related space.  Cloudbreak is a provider of telehealth tools in the US which integrates support for over 250 languages and can pair clinical care teams with qualified interpreters in a HIPAA compliant manner.  Twenty percent of people admitted to hospitals in the US do not speak English and suffer statistically worse patient outcomes as a result.  Cloudbreak is currently deployed in 2000 healthcare venues which is the largest installed provider base of any telehealth platform.  Glocal is an international telehealth operation aimed at improving care in developing nations which includes digital kiosks for remote diagnosis and drug dispensing.  A year-ago these digital clinics covered 4.5MM lives and that number is expected to reach 20MM by the end of 2021.  Medquest is a full service compounding pharmacy and TTC/BHS are behavioral health platforms. 


This group of businesses was formed through a series of acquisitions.  The optimistic view is that there are synergies inherent in these businesses and Uphealth is working to integrate them into a comprehensive whole-person care solution set with Syntranet forming an operating system on which additional services like telehealth translation slot in.  A pessimistic view is that this is a cats-and-dogs rollup of disparate businesses.  Uphealth has certainly not done a great job so far of communicating their big picture vision.  Either way, the potential value here has been entirely obscured by the catastrophic execution of their de-spac.


The SPAC transaction here was a clown car from the start.  This was probably overpriced out of the gate at 10, came public during an ebb in enthusiasm for SPACs, and the Chairman of Gig Capital, Avi Katz, does not exactly inspire confidence in many as a great financial mind.  They were never able to get a meaningful PIPE in place and duct taped together a funding solution to get this closed.  The 30MM PIPE was paired with a 160MM convertible note and some goofy financing tricks like a forward purchase agreement with Kepos. The stock was not amused and crashed right out of the gate, falling to $5 by August.  I’m sure actual convert note hedging and those front running the convert hedging trade helped the stock along in this descent.  Then came the coup de grace.  The company needed to raise capital to patch up all of Gig Capital’s wonky financing schemes.  The stock went into a spiral as soon as the company telegraphed that a big offering was coming, and ultimately priced at $1.75 in early October of this year.


Going into the SPAC closing, UPH provided projections for 194MM of revenue and 24MM of EBITDA in 2021, growing to 346MM revenue and 69MM EBITDA in 2022.  Interestingly, this company is supposed to be EBITDA profitable this year which does separate it from many other SPACulations.  Let’s say they come out on Tuesday’s call and make a credible case that there is visibility into supporting 346MM of 2022 revenue.  With 165MM shares and around 80MM of net debt the current EV is approximately 410MM which means this is trading at 1.2x next year’s revenue for a company which is growing that revenue 78% y-y, shows 40%+ gross margins, and has positive EBITDA.  If you closed your eyes to the noise around the company’s formation, a company at those metrics could easily trade at 4x revenues which would be a stock price near $8 or 400% above the current price.  


UPH will report its third quarter tomorrow on November 10.  Call option volatility is not optically cheap but I think this does not capture the dynamics here.  It is impossible to know who remains underwater in UPH, but given a few surges of retail driven buying volume over the last month, anyone who really wanted to get out already had ample liquidity to do so.  As of last week, you could purchase call options expiring on Nov 19 for .05-.10.  If the company can provide the most barebone assurance that their model is on track then this has the potential to quickly recover to the $5 range it held going into the October offering.  And I probably don’t need to point out that this is a market which doesn’t tend to undershoot once something is in motion.  


Further upside potential certainly exists.  Can they make a credible case to investors that these businesses actually fit together with a coherent strategy and synergies?  Can they give investors confidence that this is a competent management team and that the screwball antics of GigCapital are a thing of the past?  On both of these points I have a hypothesis that there is more of a fit to the parts than they have articulated to date and that the management team had an unfortunate learning curve on capital markets and public company communications but is nowhere near as bad as the stock price implies.  Will we get positive a view into revenue growth expectations over the next 3-5 years? If so, then this could certainly recover and trade well north of 4x revenues.  This is market does not have a long memory for past misdeeds.  Teledoc is past the peak of its bloom and still trades at 8-9x 2022 revenues.  


At the current price of the common, an awful lot of bad is priced into the stock.  I am always hesitant to say that all the bad is priced into anything since I’ve been doing this long enough to know that there can always be another shoe to drop in situations like this. But there isn’t a whole lot hated in this market right now for those who like to buy when there is blood in the streets.  I’ll say one thing for UPH right now.  Its stock sure not loved.  The options market also gives you a way to gain exposure to a recovery trade without much capital at risk.  A bounce back to the September pre-secondary offer level of $5 would be a payoff of 25x1 on a 0.10 call.  Gun to my head there is a 65% chance this company comes out next week and things are on track to plan.  There is a 35% chance the clown car ride continues.  These are clearly not scientific probabilities but reflect my subjective mosaic after reviewing public information.  I’d love to have had time and bandwidth to conduct primary research and channel check their offerings, but we are where we are going into a potential catalyst tomorrow.  When a payoff is sufficiently asymmetric then operating without full table pounding conviction is still the right course of action.  


Good hunting.



I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Earnings tomorrow Nov 10

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